Your guide for claiming business expenses

You can claim tax deductions for expenses you incur while running your business if they’re directly related to earning business income (also known as assessable income).

Take Rubi for example. Rubi is a sole trader who works as an IT consultant. As part of her work, she travels to deliver seminars and workshops.

Rubi follows the 3 golden rules for claiming a tax deduction when she travels for business purposes.

  1. The expense must be for her business, not for private use.
  2. If the expense is for a mix of business and private use, she can only claim the portion that is used for her business.
  3. She must have the records to prove it.

Rubi uses the myDeductions tool to store receipts of all her airfares, accommodation, public transport costs, ride-sharing fares, car hire fees and other costs such as fuel, tolls and car parking. She also records her meal costs if she’s away overnight.

Rubi also keeps a travel diary to note which expenses were for business purposes and which expenses were private, such as sight-seeing. The cost of her recent tour of the Tower of London is not included in her deductions. There are some expenses Rubi can’t claim, such as entertainment, traffic fines, and expenses related to earning non-assessable income.

As an employer, Rubi meets her superannuation and employer obligations by reporting her employees’ salaries or wages and paying any tax withheld amounts on time. This allows her to deduct the salaries, wages and super contributions she’s paid during the year.

By the time Rubi is ready to lodge her tax return, her tax agent has everything they need to verify her deductions.

Be like Rubi and perfect your record keeping to correctly claim your business expenses and make tax time easier.

To check your record keeping skills, you can use this record keeping evaluation tool.

Remember, we can help you with your tax and super.

Source: ato.gov.au August 2023
Reproduced with the permission of the Australian Tax Office. This article was originally published on https://www.ato.gov.au/Business/Small-business-newsroom/General/Your-guide-for-claiming-business-expenses/.
Important:
This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. 
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Market movements & review video – November 2023

Stay up to date with what’s happened in markets and the Australian economy over the past month.

October was a volatile month on the global stock markets and in Australia. The local sharemarket finished October down 3.8 per cent, representing a third straight month of losses.

Investor sentiment reflected heightened anxiety regarding inflationary pressures and uncertainty over rate rises, mixed economic data and concerns about the Israel-Hamas conflict.

Investors are continuing to keep a close eye on oil price movements over fears of an escalation of conflict in the Middle East.

Click the video below to view our update.

Please get in touch if you’d like assistance with your personal financial situation.

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How a super recontribution strategy could improve your tax position

Withdrawing part of your superannuation fund balance then paying it back into the account, known as a recontribution strategy, may sound a little strange but it could deliver a number of benefits including reducing tax and helping to manage super balances between you and your spouse.

Your super is made up of tax-free and taxable components. The tax-free part generally consists of contributions on which you have already paid tax, such as your non-concessional contributions.

When this component is withdrawn or paid to an eligible beneficiary, there is no tax payable.

The taxable component generally consists of your concessional contributions, such as any salary sacrifice contributions or the Super Guarantee contributions your employers have made on your behalf.

You may need to pay tax on your taxable contributions depending on your age when you withdraw it, or if you leave it to a beneficiary who the tax laws consider is a non-tax dependant.

How recontribution strategies work

The main reason for implementing a recontribution strategy is to reduce the taxable component of your super and increase the tax-free component.

To do this, you withdraw a lump sum from your super account and pay any required tax on the withdrawal.

You then recontribute the money back into your account as a non-concessional contribution. If you withdraw this money from your account at a later date, you don’t pay any tax on it as your contribution was made from after-tax money.

The recontribution doesn’t necessarily have to be into your own super account. It can be contributed into your spouse’s super account, provided they meet the contribution rules.

To use a recontribution strategy you must be eligible to both withdraw a lump sum and recontribute the money into your account. In most cases this means you must be aged 59 to 74 and retired or have met a condition of release under the super rules.

Any recontribution into your account is still subject to the current contribution rules, your Total Super Balance and the annual contribution caps.

Benefits for your non-tax dependants

Recontributing your money into your super account may have valuable benefits when your super death benefit is paid to your beneficiaries.

A recontribution strategy is particularly important if the beneficiaries you have nominated to receive your death benefit are considered non-dependants for tax purposes. (The definition of a dependant is different for super and tax purposes.)

Recontribution strategies can be very helpful for estate planning, particularly if you intend to leave part of your super death benefit to someone who the tax law considers a non-tax dependant, such as an adult child.

Otherwise, when the taxable component is paid to them, they will pay a significant amount of the death benefit in tax. (Your spouse or any dependants aged under 18 are not required to pay tax on the payment.)

Some non-tax dependants face a tax rate of 32 per cent (including the Medicare levy) on a super death benefit, so a strategy to reduce the amount liable for this tax rate can be worthwhile.

By implementing a recontribution strategy to reduce the taxable component of your super benefit, you may be able to decrease – or even eliminate – the tax your non-tax dependant beneficiaries are required to pay.

Watch the contribution and withdrawal rules

Our retirement system has lots of complex tax and super rules governing how much you can put into super and when and how much you can withdraw.

Before you start a recontribution strategy, you need to check you will meet the eligibility rules both to withdraw the money and contribute it back into your super account.

If you would like more information about how a recontribution strategy could help your non-dependants save tax, give our office a call today.

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