Every year Practising Tax looks forward to our collaboration with Sage Handisoft to bring you their annual Tax and Productivity seminars.  This year the seminars were delivered electronically, which was a great success.

As always, Practising Tax was asked a number of questions by attendees.  This year, for the first time, we have collated answers to those questions for you to read and refer to at your leisure. 

We hope you find this useful and feel free to contact us if you have any further questions.

eSEMINAR QUESTIONS

For quick navigation just click the appropriate question below:

Q1: If a contract to acquire a new silo (fodder storage asset) was entered into in December 2014 but the asset was not delivered and installed until June 2015 can the taxpayer claim a deduction over three years under Subdivision 40-F?


Q2: Does the small business income tax offset apply to minors?


Q3: Following removal of the spouse offset, is there still a notional spouse rebate for the zone allowance?


Q4: Will the $5,000 cap on FBT meal entertainment be reportable on the PAYG Payment Summary?


Q5: Is my employer required to include my cents per kilometre car reimbursement on my payment summary?


Q6: How many work related kilometres will I be able to claim using the proposed new rate of 66c/Km?


Q7: If I acquired my car in May 2014 and have chosen to claim my work related use using the 12% of original value method, can I continue to use this method until I dispose of the car, or must I change methods from 1 July 2015?


Q8: If I am a small business entity and acquire an asset for less than $20,000, do I have to claim the full amount as a tax deduction?


Q9: If the value of my general small business pool falls below $20,000 can I deduct the full amount?


Q10: If I buy a set of assets, or a number of identical assets, that each cost less than $20,000 but together add up to more than that amount can I deduct the cost of each asset upfront?


Q11: What if I buy an asset for $30,000 but the taxable purpose proportion (business use) of the asset is only 60%?


Q12: If an asset is added to the taxpayer’s general small business pool, does the date of acquisition of the asset affect the amount of deduction for the year?


Q13: Are there any special rules for motor vehicles when it comes to the immediate $20,000 write-off?


Q14: If I buy a ute body today for $18,000 and add on a tray in a few weeks time for $7,000, can I claim a full deduction for the total cost of my ute?


Q15: What if the deductions I claim using the $20,000 immediate write-off result in a tax loss?


Q16: If I bought an asset prior to 12 May 2015 but did not have it installed ready for use until, say, June 2015, can I claim an immediate write off if the asset cost less than $20,000?


Q17: If I buy and pay for an asset costing less than $20,000 before 30 June 2016 am I entitled to deduct it in the 2015-16 income year if I don’t actually take possession of the asset until the following year?


Q18: Do I need to use small business pooling in order to access the immediate deduction for acquisitions costing less than $20,000?


Q19: Is it the GST-inclusive or GST-exclusive price that is relevant for working out whether the $20,000 immediate write-off is available?


Q20: If a primary producer that is a small business entity acquires a new silo (fodder storage asset) after 12 May 2015 for $15,000, can it be written off immediately on the basis that it cost less than $20,000?


Q21: If a contract to acquire a new silo (fodder storage asset) was entered into in December 2014 but the asset was not delivered and installed until June 2015 can the taxpayer claim a deduction over three years under Subdivision 40-F?

 


Q1: If a contract is signed to have a new fodder storage asset built (e.g. a silo) and a deposit of $20,000 is paid in June 2015 with the balance of $55,000 being paid after construction but before 30 June 2016, how much can I claim as a deduction under Subdivision 40-F in my 30 June 2015 tax return?

A deduction is available under section 40-525(3) for capital expenditure on fodder storage assets incurred primarily and principally for use in a primary production business that the taxpayer conducts in Australia.  The deduction is available in the year the expenditure is incurred. 

The signing of a legally binding contract would generally result in the expenditure being incurred.  As such, the full cost of the silo has been incurred in June 2015.  The taxpayer can claim one third of the total expenditure in each of 30 June 2015, 16 and 17 i.e. a $25,000 deduction in each year respectively.

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Q2: Does the small business income tax offset apply to minors?

Tax Laws Amendment (Small Business Measures No. 3) Bill 2015

Entitlement to the small business income tax offset for the 2015-2016 and later income years is available to an individual who is a small business entity or whose assessable income includes a share of the net income of a small business entity that is not a company.   The latter covers an individual who is a partner in a partnership or a beneficiary of a trust, and their assessable income includes net small business income from that entity.

However, there are special rules for minors.  The small business tax offset applies only to the income of a minor that is genuinely related to the minor’s own business activities carried on as a sole trader or as a partner in a partnership.  Any trust distributions that are included in the assessable income of a minor will not be eligible for the tax offset in any circumstances. 

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Q3: Following removal of the spouse offset, is there still a notional spouse rebate for the zone allowance?

Tax and Superannuation Laws Amendment (2015 Measures No. 1) Bill 2015

No.  Legislation removing access to the dependent spouse offset from 1 July 2014 also has the effect of removing the notional spouse rebate for the zone allowance.

https://www.ato.gov.au/Individuals/Tax-return/2015/Supplementary-tax-return/Tax-offset-questions-T3-T9/T4-Zone-or-overseas-forces/

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Q4: Will the $5,000 cap on FBT meal entertainment be reportable on the PAYG Payment Summary?

Exposure draft – Tax and Superannuation Laws Amendment (2015 Measures No.#) Bill 2015: Limiting fringe benefits tax concessions on salary packaged entertainment benefits.

Yes.

If legislated, the 2015-16 Federal Budget announcement relating to FBT and meal entertainment will apply from 1 April 2016.  From this date, a grossed-up cap of $5,000 will apply to the total amount of salary packaged meal entertainment (and entertainment facility leasing expense benefits) that employees of certain employers (public benevolent institutions, health promotion charities, public and not-for profit-hospitals and public ambulance services) can be provided that are exempt from or subject to FBT at concessional rates.  All salary packaged entertainment benefits will also become reportable fringe benefits.

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Q5: Is my employer required to include my cents per kilometre car reimbursement on my payment summary?

Yes.  The ATO considers a cents per kilometre ‘reimbursement’ to in fact be an allowance (See TR 92-15).  Consequently, the PAYG rules need to be considered.  The ATO’s PAYG withholding variation generally enables an employer to reimburse an employee up to 5,000 business kilometres at the prescribed rate and not have to withhold from such payments.  The amount, however, does need to be shown separately on the employee’s payment summary as an allowance, and withheld from if greater than the prescribed rate (for example, where an employment agreement provides for a higher rate)..

 

http://law.ato.gov.au/atolaw/view.htm?docid=%22PYV%2FVaria038%2F00001%22

https://www.ato.gov.au/Business/PAYG-withholding/In-detail/Allowances,-leave-payments-and-repayments/Withholding-from-allowances/

 

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Q6: How many work related kilometres will I be able to claim using the proposed new rate of 66c/Km?

Section 28-25 of the ITAA 1997 (which deals with the ‘cents per kilometre’ method) provides a deduction for up to 5,000 business kilometres travelled by the car.  

https://www.ato.gov.au/Individuals/Tax-Return/2015/Tax-return/Deduction-questions-D1-D10/D1-Work-related-car-expenses/

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Q7: If I acquired my car in May 2014 and have chosen to claim my work related use using the 12% of original value method, can I continue to use this method until I dispose of the car, or must I change methods from 1 July 2015?

Exposure Draft - Modernising the calculation of work related car expense deductions

It was announced in the 2015-16 Federal Budget that the ‘12% of original value” method’ of calculating deductions for car expenses would be removed from 1 July 2015.  If legislated, from 1 July 2015, a deduction for car expenses must be calculated using either the cents per kilometre or log book methods, regardless of what method was used prior to that time.

http://www.treasury.gov.au/ConsultationsandReviews/Consultations/2015/Modernising-the-calculation-of-work-related-car-expense-deductions

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Q8: If I am a small business entity and acquire an asset for less than $20,000, do I have to claim the full amount as a tax deduction?

It depends – basically on whether you have chosen to use the capital allowance rules for small business entities (i.e. small business pooling) for the relevant year.

If you are a small business entity that has chosen to use small business pooling for the relevant years you must claim the expense outright.  However, if you have chosen not to use those rules for that year (perhaps you have never used them, or you have decided to stop using them) the decline in value of the asset must be calculated using the either the prime cost or diminishing value method.

 

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Q9: If the value of my general small business pool falls below $20,000 can I deduct the full amount?

There is both a simple and complicated answer to this question. 

The simple answer is ‘yes’, if the closing balance of the pool is less than $20,000 for any of the 2014-15, 2015-16 or 2016-17 income year then your deduction for the year is that amount.  The closing balance then becomes zero.

The tricky part is that the closing pool balance is to be calculated in a special way for the purposes of working out whether it is less than $20,000 – basically it is the pool balance prior to subtracting the decline in value of the pool for that year:

 

General closing pool balance calculation (s 328-200)

Low pool value closing balance calculation (s 328-210)

Start with

Opening pool balance

Opening pool balance

Add:

Taxable purpose proportion of assets first used during the year

Taxable purpose proportion of assets first used during the year

Add:

Taxable purpose proportion of any cost addition amounts

Taxable purpose proportion of any cost addition amounts

Subtract:

Taxable purpose proportion of termination value of disposals

Taxable purpose proportion of termination value of disposals

Subtract:

Opening pool balance x 30%

NA

Subtract:

Acquisitions x 15%

NA

Subtract:

Cost addition to prior year acquisitions x 15%

NA

Result

Closing pool balance (for general purposes)

Closing pool balance (for low pool value purposes)

 

A deduction for the closing balance amount is available only if the result of the third column is less than $20,000.

 

 

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Q10: If I buy a set of assets, or a number of identical assets, that each cost less than $20,000 but together add up to more than that amount can I deduct the cost of each asset upfront?

The immediate write-off rule is available for each depreciating asset that costs less than $20,000.  There are no rules about sets or identical assets.  For example, if you buy 20 chairs for $1,200 each, a deduction for the full $24,000 is allowable as the cost of each chair is less than $20,000.

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Q11: What if I buy an asset for $30,000 but the taxable purpose proportion (business use) of the asset is only 60%?

An immediate deduction is available under s 328-180 if the asset’s cost at the end of the income year is less than $20,000.  While the taxable purpose proportion of the asset is less than $20,000 in this scenario ($30,000 by 60% being $18,000) the actual cost of the asset is not less than $20,000.  It follows that $18,000 is to be added to the taxpayer’s general small business pool.

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Q12: If an asset is added to the taxpayer’s general small business pool, does the date of acquisition of the asset affect the amount of deduction for the year?

No, the actual date of acquisition of the asset is not relevant, as long as the asset is first used or installed ready for use for a taxable purpose at some time during the year.  All such assets effectively give rise to a 15 percent deduction in that year, and 30 percent thereafter, regardless of how early or late in the year they were acquired.  It follows that the simple act of first using or installing ready for use, an asset in June rather than July has the effect of making the resulting 15 percent deduction available a whole year earlier.

 

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Q13: Are there any special rules for motor vehicles when it comes to the immediate $20,000 write-off?

No.  A motor vehicle is not treated any differently to any other depreciating asset for small business entity pooling purposes.  That is, if the vehicle cost less than $20,000 write off the taxable purpose proportion, but if it cost $20,000 or more, add it to the pool.

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Q14: If I buy a ute body today for $18,000 and add on a tray in a few weeks time for $7,000, can I claim a full deduction for the total cost of my ute?

Interestingly, the answer to this question depends on whether the tray is fitted before the end of the income year in which the ute is first used or installed ready for use, or whether it is fitted in the following year. 

The immediate write-off rules look at the total cost of the asset as at year end, inclusive of improvements and accessories fitted prior to year end.   In other words, the taxable purpose proportion of the ute (including the cost of the tray) will be deductible in the 2014-15 year if the purchase price of the ute plus the cost of the tray fitted prior to 1 July 2015 is less than $20,000.  As this is not the case here, the taxable purpose proportion of the ute and the tray must be added to the pool.

However, if the tray is fitted in the 2015-16 income year (being the year following the year in which the ute was first used or installed ready for use) an immediate write-off will be available for the taxable purpose proportion of the ute (in the 2014-15 income year) and for the taxable purpose proportion of the tray (in the 2015-16 income year). 

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Q15: What if the deductions I claim using the $20,000 immediate write-off result in a tax loss?

The $20,000 immediate write-off applies to the calculation of a tax loss like any other allowable deduction.  

This may be an incentive for small business entities to elect not to use small business pooling for a given year (thereby also choosing not to have access to the $20,000 immediate write-off for that year) That is because, due to our marginal tax rates, decline in value deductions calculated using the prime cost or diminishing value methods may result in a greater tax saving over time than a one-off deduction that is used against the lower tax brackets and the tax-free threshold. 

 

 

 

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Q16: If I bought an asset prior to 12 May 2015 but did not have it installed ready for use until, say, June 2015, can I claim an immediate write off if the asset cost less than $20,000?

No.  The asset must have been acquired at or after 2015 Budget time (7.30pm AEST 12 May 2015).

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Q17: If I buy and pay for an asset costing less than $20,000 before 30 June 2016 am I entitled to deduct it in the 2015-16 income year if I don’t actually take possession of the asset until the following year?

No.

The rule in section 328-180 allows a deduction for the year in which the asset is first used or installed ready for use.  Paying for an asset prior to 30 June 2016 is not enough to gain access to the write-off in that year.  The deduction will be allowed in the following year.

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Q18: Do I need to use small business pooling in order to access the immediate deduction for acquisitions costing less than $20,000?

Yes.

The immediate deduction for assets costing less than $20,000 is a component of the capital allowance rules for small business entities.  If you wish to use this immediate write-off for assets costing less than $20,000 you must add all other assets to a pool.    You cannot choose to claim the immediate write off for assets costing less than $20,000 but use prime cost or diminishing value methods for other assets.

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Q19: Is it the GST-inclusive or GST-exclusive price that is relevant for working out whether the $20,000 immediate write-off is available?

The GST-inclusive cost, reduced by the amount of input tax credit to which the taxpayer is entitled, is the relevant number for determining whether the $20,000 immediate write-off is available.  It follows that, provided the taxpayer is registered for GST and is entitled to a full input tax credit, the GST-exclusive cost of the asset should be looked at.  If the taxpayer is not entitled to an input tax credit (perhaps because they are under the GST threshold and not registered) eligibility for the immediate write-off will be based on the GST-inclusive price.

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Q20: If a primary producer that is a small business entity acquires a new silo (fodder storage asset) after 12 May 2015 for $15,000, can it be written off immediately on the basis that it cost less than $20,000?

Expenditure incurred on or after 7.30pm AEST 12 May 2015 by primary producers on fodder storage assets can be written off over three years.  Further, if the primary producer is a small business entity and the asset cost less than $20,000, the expenditure can be written off immediately.  The taxpayer must choose which one of these options to go with.  This choice must be made on an asset by asset basis.

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Q21: If a contract to acquire a new silo (fodder storage asset) was entered into in December 2014 but the asset was not delivered and installed until June 2015 can the taxpayer claim a deduction over three years under Subdivision 40-F?

No. 

Eligibility for a deduction over three years under section 40-548 for a fodder storage asset is based on whether the expenditure was incurred on or after Budget time (7.30pm AEST 12 May 2015 ).  In this case, as the contract was signed in December 2014 the expenditure was incurred at that time and is therefore not eligible for the three year write off of fodder storage assets.

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