FAQ

Individuals:

Why you need to declare Second Job?
From this financial year, if you have claimed the tax free threshold from more… than one job or payer, you are saying that you don’t have to pay tax up to $18,200 for both jobs, in reality this is wrong.
Example:
1.You earn $18,000 from the first job you claim tax free threshold so your employer will not deduct any tax because your total income is less than 18,200 tax free threshold.
2.You have second job as well and you earn $17,000, you declare first job from this employer as well your employer will not deduct any tax from this job thinking that you will only have $17,000 for the year and your income is less than $18,200.

So what is really happening is that both your employers do not know you have a second job. But, you have earned $35,000 income in total where your tax free threshold is only $18,200. When total income crosses your tax free threshold of $18,200 you will be paying 19 % ( $18201 to $37,000 ) , 32.5% (37,001 up to 80,000 ) and your tax rate will increase as your income goes up. In above scenario, when you declare both job as a first job you are not deducting enough tax .

The choice you have is to speak to one of your employers and adjust your tax declaration so that you increase your tax being deducted by saying you don’t want to claim the tax free threshold, or you can submit your tax return knowing you will get a tax bill at the end of each financial year. This is not recommended, however if you decide to end up with a tax bill rather than telling either of your employers, you need to put away some money each month to pay your tax bill.

The rule of thumb is : you must always make sure that you are not claiming the tax-free threshold from more than one payer at a time otherwise you may end up with a tax debt at the end of the income year.
Generally, it is best to claim the threshold (choose first job) from the payer who pays you the most.

How do you declare first Job and second Job?
It is simple; when you fill “Tax file number declaration form” go to question 8 where is says “Do you want to claim the tax- free threshold from this payer? “ Tick YES for the first Job and tick NO for second or third jobs.

What is salary packaging?
Salary packaging is an arrangement where you agree to sacrifice part of your salary in return for your employer providing benefits of a similar value.

When you salary package, you pay for some expenses with your pre-tax salary. In another word, salary packaging allows you to pay for expenses with money from your salary before tax is taken out. This means you …pay less tax and have more money to spend on the things you want using pre-tax money, as a result you are reducing your taxable income at the same time.

Depending on the industry and sector you work in, when you salary package, you could be eligible to pay for a range of expenses – such as vehicle running costs, additional superannuation contributions, and some work-related costs – with your pre-tax salary. If you work in a health or charitable organization, you could also salary package items such as your mortgage or rent payments.

Many of our clients are working in non- profitable health care sector, we have been encouraging them to ask for salary packaging benefits from their employers.
How much can you package?
You may be eligible to Salary Package up to $16,050 of your salary depending on:
• The charitable status of your organisation
• Your organisations’ Salary Packaging Policies
If you work for more than one organisation that qualifies for Salary Packaging benefits, then you may be able to package up to $16,050? at each workplace each year!

Simple Example: Let’s say your gross salary is $40,000, we compare tax benefits with and without salary packaging:
Before Salary Packaging After Salary Packaging
Original Salary 40,000 40,000

Less- before tax mortgage payment (Salary packaging of 16050) 16,050

Cash Salary 40,000 23,950

Tax on Salary 4,547 1,092

Total Saving in tax with 16050 salary packaging: 3,454

(Please note: These calculations do not consider the effect of Salary Packaging on Medicare Levy Surcharges etc)

Salary packaging seems simple but can be complex and confusing. There are number of rules to be followed. Examples: not convertible to cash, if super payments are made, it must be with one of the complying super funds, cost involvement and lots of terms and conditions….

Salary packaging for Mortgage and steps?

Salary packaging for your Mortgage is possible but it depends upon your employer, company and sector you are in. Packaging on your home loan is most effective way of trimming down your tax.
You have 3 steps:
1.Talk to your employer to make sure they are qualified for salary packaging and Mortgage is on their list.
2. Talk to mortgage lender (that would be Your Bank or Mortgage broker) to make sure that your loan has necessary features for your salary packaging
3. Finally alter your repayments. Your repayments have to come directly from your pay.

 

Interest Income:
Why do you have to include interest from Bank in your tax return? How do you declare if you have joint account?

Clients often come to me and say I don’t have much interest; I only get a few cents or dollar a month, so why do I really have to include in my tax return? The answer to this this question is: You must declare all interest on your tax return from all sources no matter how small the amount is, this is the Law. The source of interest could be: Your investment account, term deposit and other savings accounts.

Your everyday bank account may only earn few cents interest per month, and that’s likely to add up to only few dollars each year. However, even if it’s only few dollars, all must be declared as earned income.

How do I know exact amount of the interest ?
If you use Internet banking, you should be able to download a list of all transactions and interest earned for easy calculation. Most of the banks show interest income for whole financial year on 1st July each year on your bank statement.

How about joint account?
Interest from a joint account must be split 50/50. You cannot allocate more interest income to low income earners tax return to minimize tax, if you do so it can lead to a Tax audit.

How does Tax office know you have interest income?
All the financial institutions (banks) are required to report your interest income to Australian Tax office at the end of the financial year. Normally, your interest income gets uploaded to your pre-filing report.

What happens if you missed to declare your interest income in your tax return ?
If you forgot to include your interest income in your tax return, you can correct your mistake and do the amendment lodgement or wait a letter from tax office. Tax office may send you a letter through their data matching process. You may not receive a letter immediately however …don’t be surprized if you get letter from 4-5 years back for your undeclared interest!. If the amount is materially high you must choose first option.

What should you do if tax office sends you a letter for missing interest ?
Normally, tax office will send you a letter giving you 28 days to correct information. Including interest income schedule, the letter will include 3 things:
1. Interest Amount advised by your financial institutions
2. Interest Amount you declared in your tax return
3. Difference
If you believe the interest amount is incorrect you should contact your bank and talk to them. The bank should notify to ATO in writing if the reported interest is incorrect. However, if the amount is correct and you omitted to include in your tax return then you DO NOT need to do anything. ATO will wait till 28 days, if they don’t hear anything from you then they will assume that the amount reported by financial institution is correct. After that ATO will amend your return and send you a new tax assessment requesting payment of the additional tax on your interest income, a general interest charge and they may or may not charge penalties, they may wave penalty if this is first time..

Why should you provide your Tax File Number to Banks?
It is not compulsory but you better provide your TFN to the bank when you open your account. The reason to provide your TFN to banks is because they report your income to the ATO. If you haven’t declared it, the ATO does income matching and puts it in for you. Also, if you don’t give the bank your TFN and you earn interest over a certain amount, they take tax out at the TOP rate, and the only way to get it back is to claim it in your return.

 

Sole Trader:

What is ABN? How do you know if you are working as an employee or contractor?

The Australian Business Number (ABN) is an eleven digits unique number issued by the Australian Business Register. ABN allows easy identification and interaction between business and government agencies. If you are running a business ABN will make your life lot easier. Following are some of the many benefits having  ABN:

  • Tax benefits – businesses with an ABN can avoid other businesses potentially withholding 48.5% from payments made.
  • Makes easier for GST, PAYG Fuel Tax Credits and other business tax registrations. For example: you can only claim GST Credit if you have ABN and registered for GST.
  • You need ABN number to claim back or declare GST.
  • ABN makes easier to deal with other businesses for ordering and invoicing.
  • Shows you are a registered Australian business, thereby building trust with other businesses you deal with.
  • Shows you have serious intent with your business, as there are eligibility requirements to secure an ABN.
  • Normally, you will not be able to make business deal with other business if you do not have an Australian Business Number.

In summary, if you are running a business you have lots of benefits having an ABN.

However, your employer is asking for ABN simply to pay your wages instead of paying you as employee. Is this right thing to do?  You have to determine whether you are working as an employee or contractor…..

There is no black and white answer to determine whether you are employee or a contractor however, you are likely to be an employee if:

You do same work every day, work is controlled by employer, work hours are determined by employer, you are not responsible for financial risk, you are entitle for superannuation, minimum wages, you don’t have your own insurance and so on….

You are likely to be contractor if:

You decide how to work and what skill you need, whether to employ someone to do work, carry risk of making profit or loss, pay your own super, tax and GST, you have your own insurance, you control your work schedule and so on..

You have to be careful here, whether they are asking your ABN to avoid employee entitlements, tax or insurance risks!!

Superannuation:

What is the rate of Super Guarantee payment from 1 July 2013 ?

Super Guarantee payment increases from 9% to 9.25% from 1 July 2013
Employers in Australia will have new superannuation obligations. From 1 July 2013, they will need to:

  • Increase the minimum rate for super guarantee payments on behalf of employees from 9% to 9.25%
  • Start making super guarantee payments for employees aged 70 years or older, as the existing upper age limit will be removed.

Please make sure your employer is paying 9.25% instead of Current rate 9% starting from 1 July 2013.

Superannuation Consolidation: what does it mean?, why we consolidate ?, How do we consolidate?

If you have had more than one Job and you are not clear about the benefits of having only one Superannuation account then it is most… likely that you have more than one superannuation companies managing your Super, which means you are paying multiple fees.

Consolidating all your superannuation into a single account can make a big difference.

Some of the benefits consolidating your super are:
-Save multiple fees and associated costs
-Easy to keep a track of your super
-Easy to manage investment decision
-Easy to compare the performance of your super fund
-Reduce paper works
So, do you need more than one superannuation account?, the answer is : NO. How do you choose the superannuation fund that you want to consolidate your entire super to?

Some of the points you need to consider are:
-Convenience – easy and user-friendly access to manage your super. Example: easy and user-friendly web site and login access and customer service.
-Easy to make additional contribution and Salary Sacrifice (if needed)
-Access to other services such as financial advice through your super
-Access to Personal insurance
-And most importantly performance of your super. Evaluate/compare the performance of your purposed super. You ask a question to yourself: Am I confident about my super’s performance and its ability to look after my hard earned saving until I retire?

You can choose your super fund based on the above check lists, it is very hard to judge which one is the best, it depends upon your own experience and mouth of words or you can research about the best performing super . You can contact us to know our view and experience.

How do you consolidate your super?

Once you decide, the super fund you want to consolidate, it is not that hard to consolidate:
Steps:
1.Find out how many super account you have and get ready: your Super fund name, membership number and amount sitting there (amount is not compulsory). How do you find ?, check your statements usually they send to you every six month or ask your employer which super they have been paying, or you should see super fund name in your payslip , ring super fund, identify yourself and get the details.
2.Contact super fund where you want your super to be and explain that you would like to consolidate your super to their fund.
3.They will send you separate application form ‘Request to transfer a superannuation form’ for each super.
4.Complete the forms and send to your purposed super fund’s address with certified copy of your ID (Driver licence, or copy of your passport) . This must be one set for each application.
5 That’s all, wait for few week and you should receive confirmation letter from the super fund confirming that your super has been consolidated.
6.If you change the job give your employer a new super fund’s details, by law you have right to make a choice where you want your super to be.

Please note: It is important that you ensure you have adequate insurance arrangements in place before losing the benefit of any insurance cover you may have in the fund you are transferring out of.

 

Businesses:

Small business Owners – Motor Vehicle deduction / new assets write off:

From 1 July 2012, Small businesses buying a motor vehicle can claim up to $5000 as an immediate deduction. The remainder value is pooled in the general small business pool (depreciated at 15% in the first year and then 30%).

If you instead use a lease to finance the purchase you can claim a tax deduction for the lease costs you pay each year. Unfortunately under this method you will not be able to claim the upfront $5000 deduction.

This reform is closely related to another previously announced measure that allows small businesses to immediately write-off any new business asset worth less than $6,500 from the 2012-13 income year onwards. That is small business instant asset write-off threshold has increased from $1000 to $6500.

How do you classify small business? If your aggregated turnover is less than 2 million you are classified as small business.

 

 

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