Quantity Surveyor Reports – It may be worthwhile obtaining a quantity surveyor report so you can claim a deduction for the construction costs and decline in value of any depreciable assets. The estimated cost is $440 incl. GST for a standard residential property when no site inspection is required or $715 incl. GST for standard residential property when a site inspection is required. These costs are also tax deductible.
Prepayments - For outgoings such as strata/rates, insurance, interest (refer prepaid interest section)
Land Tax Registration – If you own property other than your principal place of residence and the combined value of the land is greater than the land tax threshold, you will need to register for land tax. For NSW, the land tax threshold for 2016 is $482,000.
Personal Service Income
Taxation laws include measures that are designed to limit the deductions available to certain contractors, whether operating as a sole-trader or through a company, trust or partnership; these are known as the Personal Services Income (PSI) measures. A taxpayer who meets certain specified tests will be treated as carrying on a personal services business and will be able to claim a wider range of deductions. If you are operating a personal service business you need to be aware of the Australian Taxation Office's strict approach to income retention and income splitting.
For a business to be commercial under the "non-commercial losses tests", the business needs to meet certain prescribed tests. If the tests are not met, any losses arising from the activities have to be carried forward and offset in a later year against future income from the same type of source.
If your adjusted taxable income is greater than $250,000 and you satisfy any or all of the non-commercial business loss rules, you are still not entitled to offset these losses against your other assessable income. These losses will be deferred for use in future years.
There are special rules for Primary Production businesses.
Tax Free Threshold
The tax-free threshold for the 2016 financial year is $18,200. You can earn up to $20,542 before any income tax is payable, when taking into account the Low Income Tax Offset.
Temporary Budget Deficit Levy
Individuals earning over $180,000 are subject to the additional 2% Temporary Budget Deficit Levy. This additional tax will be in place for the 2016 and 2017 financial years. Accordingly, the top marginal rate of tax is effectively 49%.
Employees and self-employed individuals earning less than $35,454 in the 2016 financial year may be eligible for the government co-contribution payment of $500 if a personal (after tax) contribution of at least $1,000 is made into superannuation. If you earn more than $35,454 but less than $50,454 you could still be eligible for a pro rata amount.
The concessional contributions cap for the 2016 financial year is $35,000 for those aged 49 years or over on 30 June 2015 and $30,000 for all other individuals These limits are proposed to reduce to $25,000 for all individuals from 1 July 2017. Please ensure existing superannuation arrangements are reviewed (particularly salary sacrifice arrangements) to avoid potential penalty taxes.
From 1 July 2013 onwards, if you exceed the concessional contributions cap, any excess concessional contributions will be included in your assessable income and taxed at your marginal tax rate (and subject to interest charge), rather than 31.5%. In addition, you will receive a 15% tax offset to account for the contributions tax that has already been paid by your super fund.
If you wish to claim a tax deduction for personal super contributions, you can only do so if your income from employment (includes reportable fringe benefits and reportable super) is less than 10% of your total assessable income for the year.
Prepaid Interest Expenses
If you are an individual and have to pay interest expense which is not incurred in carrying on a business, you can prepay your interest expense in the 2016 year and get the full deduction in the 2016 year.
Note the interest cannot be prepaid for more than 12 months and the prepayment period must end in the next financial year.
To claim a tax deduction for donations of $2 or more, the donation must be made to a "deductible gift recipient" and a donation receipt obtained.
Note raffle tickets and gifts purchased are not tax deductible.
Medical Expenses Tax Offset
For the 2016 until the 2019 financial year, claims for this offset will be restricted to expenses relating to disability aids, attendant care or aged care which exceed the threshold.
Medicare Levy Surcharge (MLS) & Private Health Insurance Rebate (PHIR)
The thresholds for the imposition of the MLS if you are not covered by private hospital insurance are as follows for the 2016 financial year:
- Singles (no dependants) - $90,000
- Families - $180,000 (plus $1,500 for each dependant child after the first)
Please note that there is a tiered system for calculating the MLS and the rate of MLS will be 1%, 1.25% or 1.5% depending on your income for surcharge purposes.
In addition, the PHIR is also means tested under a tiered system and rate of rebate will be between 0% and 37.094% depending on your income. If you claim the private health insurance rebate as a premium reduction, you are required to nominate your rate when renewing your policy. If you quoted the wrong rate, you will have an amount payable or refundable on your 2016 tax return assessment based on your taxable income for the 2016 financial year.
Special substantiation rules apply to expenses in relation to overseas and domestic travel. The effect of the substantiation rules is that travel expenses are not deductible unless the following two conditions are satisfied:
- Written Evidence - Business travel expense, involving staying away from home for at least one night must be substantiated by documentary evidence such as a receipt, invoice or similar document from the supplier.
- Travel Diary – You must keep a travel diary (or similar document) for travel involving being away from your usual place of residence for a continuous period of six or more nights.
To ensure the salary sacrifice strategy is effective for your circumstances, the benefits received must be taxed at a lower rate than your salary under the Fringe benefits Tax (FBT) rules. You must also ensure that the salary packaging arrangements are entered into before the services are performed or before the salary review time.
Due to the varying calculations for different benefits under the FBT rules, we are happy to discuss whether a salary sacrifice arrangement is beneficial for you.
Work Related Car Expenses
For the 2016 financial year and on there is now only two methods which can be used to claim a deduction. These are:
- A single flat rate of 66 cents per km method for up to 5,000 business kms per year;
- Logbook method ( logbook must be kept over 12 continuous weeks and updated every five years)