Car expenses on the ATO's radar

With almost 4 million Australians making work-related car expense claims, the Australian Tax Office has the practice in it's headlights.

Not only are they on the lookout for people wrongly claiming, but they are also armed with enhanced technology to check these claims.

As a result, you need to make sure that if you claim your car expenses, or if your employees use a company car for private use, that you are sticking to the rules, not double dipping and not misrepresenting actual usage.

ATO driven to act

In 2016-17, the ATO says more than 3.75 million people made a work-related car expense claim totaling some $8.8 billion. Indeed, 40 per cent of all claims are for car-related expenses so it's not surprising that they have decided to crack down.

The ATO acknowledges that the rules around deductions for vehicles can be complex and mistakes easy to make. Whether by accident or design, it believes many employees are making errors.

The key problem areas are:

  • Private trips
  • Trips that never occurred
  • Car expenses paid for by employees and reimbursed

The ATO says there are three golden rules when employees claim car related expenses:

  • You must have spent the money yourself
  • Your claim must be directly related to earning your income
  • You need a record to prove it.

The ATO cites a case where someone claimed $3,800 saying he needed to transport bulky tools to and from work as there was no secure storage area at his workplace. When the tax office consulted his employer they discovered that not only was he provided with a company car at all times but that he was given all his tools so has no need to transport them. As a result, the claim was disallowed and the employee had to pay a penalty.i

Penalties can be up to 200 per cent of the tax avoided although generally they are 25 per cent to 75 per cent of the shortfall between the correct liability and the amount the taxpayer paid. If it is seen as a genuine oversight, then penalties are usually avoided.

Novated leases can also present issues. If you have a novated lease, then it is your employer who owns the car and incurs the running costs of the car, not you. So, if you try and claim you would be viewed as double dipping.

Logbooks must also be accurate. If you create a logbook and the ATO discovers it was filled out, say, a year after the event, then they can deem the claim invalid unless you can prove that you actually undertook that mileage.

FBT and employers

For employers, Fringe Benefits Tax is an issue. The tax is payable when a company owns or leases a car and makes it available for employees' private travel such as travel between home and work.

Some vehicles are exempt from FBT. For instance, a single cab ute (two seats) qualifies for full exemption while a dual cab (four/five seats) is only exempt for work-related use.

There are two ways to calculate a deduction for car expenses: you can use either the cents per kilometre method or the ATO logbook. The choice will depend on how much you travel. If you travel less than 5000km a year then cents per kilometre is preferable; if more, then consider using the logbook.

If you use the former, then you can claim 68c for each kilometre. While you do not need a logbook to substantiate the cents per kilometre method, you do need to have actually driven that distance. As the tax office says: the cents per kilometre method is there to simplify record keeping not to provide a free ride.

With the logbook you monitor your usage over a 12-week period and then determine the percentage of business use. You can claim running costs, insurance, repairs, depreciation and registration of the vehicle for that percentage.

If you want to make sure you stay on the right side of the ATO, call is to discuss the tax treatment of your vehicle.

Tax and your website: What can you claim?

Most small businesses and independent contractors have a website these days. If you are planning to launch a new website or refreshing an existing one, it's important to understand the tax implications. As with all things tax, it's not always easy.

The complexity of the technology and associated services that go with running a website can make it tough to determine what you can claim upfront as a tax deduction and what you need to depreciate over time.

Read more…

'Black Economy' rules target tax avoidance

Small businesses are likely to find themselves kept busy with the progressive transition to the Single Touch Payroll system and new rules designed to beat Australia's 'black economy'. Here's a round up of the latest tax news:

New rules cast a wide net

Even businesses not seeking to avoid tax could find themselves affected by a new Bill designed to curtail Australia's 'black economy'.

The Treasury Laws Amendment (Black Economy Taskforce Measures No. 2) Bill 2018 was introduced into the House of Representatives in late September. If passed, the Bill will deny a tax deduction for employee/contractor payments if a business is not seen as complying with its obligation to withhold PAYG tax.

Although the Bill provides safeguards for errors, businesses will need to carefully review their internal systems to ensure they are capturing all payments likely to require PAYG withholding. Unusual payments - such as bonuses or commission payments - that are not properly identified as being subject to withholding, could have their tax deduction denied.

The new Bill also requires businesses providing road freight, information technology or security, investigation or surveillance services to report annually to the ATO under the Taxable Payment Reporting System (TPRS). The TPRS was first introduced to the building and construction industry and requires a business to report any payments made to contractors, as the Government believes contractors servicing these industries are at high risk of not disclosing income.

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The FBT Grinch that Stole Christmas

With Christmas carols and decorations popping up in every shopping centre, you know the festive season is just around the corner. That means it's time to celebrate another year of hard work with your colleagues by taking time out to have a little fun.

For most organisations, however, the lavish parties and restaurant meals of holiday seasons past are now but a fond memory due to the modern-day Grinch of Christmas - the fringe benefits tax (FBT). FBT applies wherever an employer provides a benefit to an employee other than their regular salary or wage, with employers required to pay FBT at a rate of 49% on the grossed-up taxable value of these benefits. Unfortunately, the tax mean deems Christmas parties to be an 'entertainment benefit' because food and drink are provided in a social situation and the aim is for employees to enjoy themselves.

Read more…

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