How long do I need to keep tax records?

Keep records for 5 years from the date you filed your original return or 5 years from the date you have claimed a deduction for decline in value (depreciation). Keep records for 5 years from the date you reported a capital gain and keep records for 5 years from the date you used and offset a capital loss.

What info do I need to keep?

You must keep all your business records for five years, including tax invoices, receipts, salary and wages records, tax returns and activity statements, and super contributions for your employees.

Do I need to keep it “paper copy”?

You must keep an electronic or paper copy of all records. As a general rule, the ATO requires you to keep records for 5 years from the date you lodge your tax return.

If I keep it electronically what precautions do I need to take?

The ATO recommends that you keep your computer system secure and accurate.  It is vital to have good back up procedures for computer files and programs with external off site storage.  This ensures records can be recovered if something unexpected happens.  You must also show that you have control over access to your computer through passwords, incoming and outgoing information and processing of information.

You should insure:

• Records can not be manipulated or altered
• If you change your system you still need to be able to access the original data (BEWARE when you use cloud accounting you lose access when you cease paying the subscription so ensure you have adequate backups.

I scan my documents into Xero, is that okay?

For the current year yes but consider how you will produce those documents in 5 years’ time, in particular if you have ceased your subscription with Xero. We recommend keeping a backup copy of documents on an external hard-drive.

I have them all saved to my computer, is that okay?

Yes but what happens if your computer fails? We recommend backing up the info to a secure cloud account or an external hard drive.

What do I do if I have lost receipts or documents?

If you’ve lost the original receipt, then as long as you have some record of payment from say, a credit card, you should be OK. … Even with a larger expense, like a computer purchase, if you can show a corresponding payment on a bank statement or credit card bill, you should be in the clear.

However you should make every effort to try to obtain a duplicate copy of the receipt.  As long as you can show you have made the effort to obtain a duplicate the ATO will look more favourably on you.

What is a fringe benefits tax?

The fringe benefits tax is a tax applied within the Australian tax system by the Australian Taxation Office. The tax is levied on most non-cash benefits that an employer provides “in respect of employment.”  The rate of FBT is 47%.

FBT is separate to income tax and is calculated on the taxable value of the fringe benefit. The employer must self-assess their FBT liability for the FBT year (1 April to 31 March) and lodge an FBT return.Employers can generally claim an income tax deduction for the cost of providing fringe benefits and for the FBT they pay. Employers can also generally claim GST credits for items provided as fringe benefits.

What is a fringe Benefit?

Examples of fringe benefits:

• allowing an employee to use a work car for private purposes
• giving an employee a discounted loan
• paying an employee’s gym membership
• providing entertainment by way of free tickets to concerts
• reimbursing an expense incurred by an employee, such as school fees
• giving benefits under a salary sacrifice arrangement with an employee

The following are not fringe benefits:

• salary and wages
• shares purchased under approved employee share acquisition schemes
• employer contributions to complying super funds
• employment termination payments (including for example, the gift or sale at a discount of a company car to an employee on termination)
• payment of amounts deemed to be dividends under Division 7A
• benefits provided to volunteers and contractors
• exempt benefits such as certain benefits provided by religious institutions to their religious practitioners.

Some benefits are exempt from fringe benefits tax (FBT) or receive concessional treatment (for example, living-away-from-home allowances). Specific exemptions and concessions apply to some not-for-profit organisations.

How do I avoid it or reduce it?

One way to avoid a car fringe benefit is to pay your staff an amount of money instead of giving them a car. This has the impact that the car allowance is simply taxable income to the employee and the employee then enjoys an income tax deduction for the money they spend on the car. And the payment of a car allowance is not liable to fringe benefits tax.  Contact your accountant to discuss your business and ensure you avoid FBT through proactive tax planning.

Set up steps and costs

A sole trader is a simple business structure to set up as there aren’t many legal or tax obligations. It’s important to understand that when you operate as a sole trade you are:

• The sole owner of the business
• personally responsible for business liabilities.
• Separate business bank accounts are recommended, but not compulsory for sole traders. You may be liable for bank fees, depending on the type of account you choose to open.

A company is a more complex business structure to set up as there are quite involved legal and taxation obligations. A company is a separate legal entity. This means it has the same rights as a natural person and can incur debt, sue and be sued.

Responsibilities

As a sole trader, you’ll generally make all the decisions about starting and running your business, although you can employ people to help you.

The directors are in charge of the management of the company’s business; they make the strategic and operational decisions of the company and are responsible for ensuring that the company meets its statutory obligations.

How each is taxed

The company must lodged a company tax return each year.  Depending on whether the company meets the criteria or not, it may be taxed at 30% of 27.5%.

As a sole trader, you pay the same tax as individual taxpayers, at the marginal individual income tax rates. The tax-free threshold is $18,200 for individuals. The rates can change from time-to-time, so it’s important to know what the rate is for the income year you’re reporting on.

Ongoing costs and compliances

Trading as a sole trader means that it’s just you, no other person or legal entity, that’s carrying on the business. Trading as a sole trader is the simplest of all the structures and is free to establish and has limited ongoing compliance (i.e. accounting/tax) costs associated with it.

A company is regulated by ASIC, as a separate entity there is legal and ASIC costs to set up as well as annual ASIC fees and higher accounting compliance costs.

Benefits of a company

Advantages of a company include that:

• liability for shareholders is limited.
• it’s easy to transfer ownership by selling shares to another party.
• shareholders (often family members) can be employed by the company.
• the company can trade anywhere in Australia.

taxation rates can be more favourable.

What is a business activity statement?

If you are a business registered for GST you need to lodge a business activity statement (BAS).

Your BAS will help you report and pay your:

• goods and services tax (GST)
• pay as you go (PAYG) instalments
• PAYG withholding tax

When do I need to register for GST?

As a business owner, it’s your responsibility to register for GST if your turnover exceeds the $75,000 threshold or is likely to exceed it. The ATO advises that if you’ve just started a new business and expect it to earn $75,000 or more in its first year of operation, you should register for GST.

What is provisional tax?

Provisional Tax is not a separate tax but a way of paying your income tax as the income is received through the year. You pay instalments of income tax during the year, based on what you expect your tax bill to be. The amount of provisional tax you pay is then deducted from your tax bill at the end of the year.

How often do I need to prepare and lodge a BAS?

It depends on if you have signed up to report monthly, quarterly or annually. The due date is 28 days after each of these report dates.

When do I have to pay the GST?

It depends on if you have signed up to report monthly, quarterly or annually. The due date is 28 days after each of these report dates.

I can’t pay it, what do I do?

If the taxpayer cannot pay all the GST dues (tax/interest/penalty) in a lump sum or within the stipulated date, then they can make an application to the Commissioner requesting to pay in instalments. (Payment Plans).

Salary sacrifice is an arrangement with your employer providing benefits from your pre-tax income which results in adjustments to your future take home salary. This arrangement can provide effective tax solutions depending on factors varying with each individual.

It is becoming more popular for extra super contributions to be salary sacrificed especially as this is Fringe Benefit Tax exempt. Other non-exempt FBT items salary packaged are benefits provided in respect to your employment which are usually rights, privileges and services available as per examples provided.

You need to be aware of some things to look out for such as the new income tests applied when assessing your eligibility for tax offsets, surcharges levied and child maintenance income assessment. Any reportable fringe benefits as well as reportable super contributions sacrificed are now all taken into account. You will also need to consider the advantages that you will receive from salary packaging based on factors such as your income tax bracket and your personal financial goals and the taxation effects on your arrangement especially with super contribution payments.

Motor vehicles are one of the most common salary sacrificed items. These are usually under a novated lease agreement where you receive the benefits by payment of the lease and operating costs from your pre-tax income. The example provided illustrates the tax advantages which are usually the case for most individuals. By making employee contributions from after-tax dollars, this further enhances the tax benefits for the tax payer.

Running costs of the vehicle are usually integrated into your salary package arrangements and equity build up is acquired during the lease term as you are utilizing your pre-tax income.  However, each individual arrangement will vary. Seek advice from your accountant or financial adviser prior to salary packaging.  *note recent changes to the FBT rates may make salary sacrifice less appealing. Seek financial advice first.

What type of benefits can be salary sacrificed?

• Novated leasing of a motor vehicle
• Superannuation
• Meal entertainment
• Education expenses
• Home mortgage repayments
• Utility payments
• Work related travel
• Private travel
• Membership fees
• Remote location

	Salary only	Salary sacrifice with after-tax contributions
David’s Annual Salary	$87,200	$87,200
Lease + Operating costs (salary packaged pre-tax)	$ –	– $7600
Fringe Benefits Tax	$0	$0
Administration Fee (eg. RemServ)	$0	-$285
David’s taxable income	$87,200	$79,315
Less PAYG Tax (inc, Medicare Levy) for 2011 FY	$20,399	$17,491
Net cash salary	$66,801	$61,824
Less post tax contribution	$0	$4,400
Take home wages	$66,801	$57,424
Less vehicle operating costs	-$12,000	$0
David’s net salary	$54,801	$57,424
Estimated annual benefit	$0	$2,623
Est. fortnightly benefit	$0	$101

‘Consider the age you want to retire, consider how much you want to live off each year and if you are still working consider how much you can still put into your super’

You have always said retirement is a long way away and now you have realised it is not quite that far away. By speaking to your financial adviser, they can assess your current situation, answer your questions and tailor a retirement plan to suit you. Everybody has different requirements so it is very important you seek advice early. With retirement on the horizon you may be asking yourself a number of questions:

How much can I spend in retirement? On average most Australians require 65% of their pre-retirement income to maintain their current lifestyle once retired.  How long will my super last? Look at your existing superannuation savings and work out how long that is likely to last (worked out based on what you want to spend in retirement and your life expectancy).

What can I do to improve my retirement lifestyle? Consider the age you want to retire, consider how much you want to live off each year and if you are still working, consider how much more you can put into your super. What mix of assets can help make my money last longer?  You need to consider how you structure your assets. As a general rule, Centrelink treat assets held inside and outside of super differently. You may want to assess and further investigate the effects of changing the amounts of assets you hold outside super as your assets may impact the amount of Centrelink benefits you receive and amount of tax you have to pay. What is your attitude to risk? You need to consider this when choosing how your funds are invested. Obviously, it depends on how comfortable you are with taking risks, but as a general rule more aggressive mixes come with the potential for greater returns – but the risk of lower returns is higher.

Protecting your income now

In the lead up to your retirement, your most important asset could be your income. What would happen to your ability to build your retirement wealth if you lost your means of income? Income protection insurance can help you protect your income, your lifestyle and your plans for retirement.  There are two ways that you can have an income protection policy – either inside your super or outside your super.

Insurance inside super can be a simple, tax-effective way to protect yourself and your family if you are able to pay for the premiums either with pre-tax dollars by salary sacrificing to your superfund. You can also make personal deductible contributions or through your employer contributions. These methods all make insurance through your super a cost-effective and convenient way to make sure you are fully covered.

There are a few points to think about if you choose insurance inside your super. Income protection, total and permanent disablement and death cover are available within most retail and corporate funds. Similar to having insurance outside super, you may also be able to apply to increase or add cover to reflect your current situation however, you may need to provide additional information on your health and financial situation.