Australian Tax Answers by Hugo Schouten Accountant and Tax Agent.


I am an Accountant and Tax Agent from Adelaide, South Australia, and answer questions sent in by Internet.


17 June 2009.

Tax Returns By Internet


Australian Tax Wizard

DISCLAIMER: This information is for interest only and is not accounting, legal, taxation or any other advice. No person should rely on its contents and must obtain independent professional advice before taking any action.

These are the questions on this page

1. AUSTRALIAN INCOME TAX RATES FOR TAX YEARS 2007/08 and 2008/09.

2. REDUNDANCY PAYOUT

3. SMALL BUSINESS AT HOME

4. DEDUCTION FOR COMPUTER

5. DEDUCTION FOR FURNITURE IN RENTAL HOUSE

6. STARTING A BUSINESS

QUESTION 1:

I am a Canadian considering a position with an international infotech firm operating in Australia. What are the personal income tax rates.

ANSWER 1: AUSTRALIAN INCOME TAX RATES FOR 2008/09 (income earned 1 Jul 08 to 30 Jun 09).

Income tax is calculated on Gross Income Less allowable deductions to arrive at Taxable income.

Deductions are generally limited to those which are necessary to earn the income.

The Australian Financial year is from 1 July until 30 June the following year.

The tax is worked out according to your total Taxable income for the whole year.

Select only the income band where your annual Taxable income falls in the table to calculate the annual tax. Choose ONE LINE ONLY.

RESIDENTS TAX RATES

(NON RESIDENTS SEE BELOW)

RESIDENTS: FINANCIAL YEAR 2007/08.

Annual Taxable Income............... Tax

$0 - $6000 .................. Nil

$6001 - $30000 ........... Nil plus 15c for each $ over $6000

$30001 - $75000.......... $3600 plus 30c for each $ over $30000

$75001 - $150000.......... $17100 plus 40c for each $ over $75000

$150001 and over ......... $47100 plus 45c for each $ over $150000.

RESIDENTS: FINANCIAL YEAR 2008/09.

Annual Taxable Income............... Tax

$0 - $6000 .................. Nil

$6001 - $34000 ........... Nil plus 15c for each $ over $6000

$34001 - $80000.......... $9860 plus 30c for each $ over $34000

$80001 - $180000.......... $23660 plus 40c for each $ over $80000

$180001 and over ......... $63660 plus 45c for each $ over $180000.

Residents pay tax on Australian and overseas income.

In addition, above about $13000 there is a Medicare levy of 1.5 cents of taxable income.

Also single taxpayers with taxable income over $50,000 and families with taxable income over $100,000 are required to pay the Medicare surcharge of 1% of taxable income if they do not have approved private Hospital Insurance.

There are no tax deductions for a spouse and children any more.

All Family Tax Benefite are administered by the Family Assistance Office and Centrelink through the Social Security System. Families with children may be entitled to annual family allowance up to $9,000 pa (paid fortnightly)

A Capital Gains Tax applies on the sale of an Australian asset over $10,000 or antiques, jewellery over $200.


NON-RESIDENTS: FINANCIAL YEAR 2007/08.

Annual Taxable Income............... Tax

$0 - $25000 ................. 29c for each $ over $0

$30001 - $75000........... $8700 plus 30c for each $ over $25000

$75001 - $150000.......... $22200 plus 40c for each $ over $75000

$150001 and over........ $52200 plus 45c for each $ over $150000.

NON-RESIDENTS: FINANCIAL YEAR 2008/09.

Annual Taxable Income............... Tax

$0 - $34000 ................. 29c for each $ over $0

$34001 - $80000........... $9860 plus 30c for each $ over $34000

$80001 - $180000.......... $23660 plus 40c for each $ over $80000

$180001 and over........ $63660 plus 45c for each $ over $180000.

Non-residents do not pay the Medicare levy.

Non-residents pay tax only on Australian income.


Whether you are a resident or not depends on the facts.

If you are from overseas and work in one job here in excess of about 5 months you may be classed a Resident and taxed on worldwide income at resident rates(above). However if you are on a Temporary working visa, are a tourist or an itinerant worker from overseas and work in several jobs you will remain a non-resident and pay non-resident rates.

QUESTION 2: REDUNDANCY PAYOUT

I have been made redundant and have been paid out for my annual leave and long service leave. Are these payments taxable?

ANSWER 2:

Yes, these amounts will be shown on your Group certificate at Item A or Item B. The whole of Item A is assessable but there is a maximum rate of 30%, while only 5% of Item B is written on the Tax return. Item D is the tax free component of a bona fide redundancy payment and is non-taxable. You may also have Eligible Termination Payment Statements or Group Certificates. These amounts have 7 different components and professional advice is recommended.

QUESTION 3:

I want to start a small business at home as well as my full-time job. Do I have to do a different tax return for each of them? If my home business does not make a profit can I claim the loss against my work income?

ANSWER 3:

You only ever do ONE tax return per year. However, the tax details of your home business must be kept totally separate from your job.

If you are in business you will need an ABN and may need to register for GST.

You should have a separate bank cheque account for the business and a good bookkeeping system to record all income and expenses for the business.

You must have a receipt book for the income and bank all of it in the bank account. Then pay all the expenses by cheque from the account (except some small petty cash items). You must keep all receipts for the expenses.

You then put the details of the business on the last page of the Tax Pack Supplement. The normal job salary goes at item 1 as usual.

If the business makes a loss, then you must look at the Non-Commercial Business Loss laws. In most cases the loss is not deductible from your salary income. There are 4 tests to look at to claim the loss. If it is not deductible, then the loss is carried forward to another year.

For more information about being in business for tax, email me.

QUESTION 4:

What sort of deduction would I be able to claim on things like the new computer system I'm about to buy . I am a freelance journalist but it is only going to be a small portion of my income in all probability.

ANSWER 4:

The first rule about tax is Documentation. The 2nd rule about tax is more Documentation. The 3rd rule about tax is to be realistic.

Whether you can claim tax deduction for computer depends on whether you are in business or not (ie is it work or a hobby).

This is where you need documentation. Do you have a contract with the newspaper. Do you have any documents at all about the deal.

Are you in the BUSINESS of being a journalist albeit part-time.

Only you can answer these questions. Can you get other similar writing jobs for other magazines.

If you conclude on a positive note that Yes you are in business, you need documentation to substantiate your claim. Purchase contracts, receipts etc. Also usage diaries as below.

You can claim depreciation on computer and printer together, modem, desk etc.

For each item you must keep a one-month diary showing time used for business (ie writing, researching), and time spent privately (ie playing PC games, children doing essays, searching Internet).

You can then depreciate the items at 37.5% diminishing value method. Then from that amount claim the business proportion calculated above. eg business may be 70%. Based on $4000 computer 37.5% depr is $1500 and 70% of that is $1050.

Phone calls for business purposes. Need to keep a diary to log calls for business as opposed to private.

Paper and consumables are deductible straight out.

For more information about being in business for tax see the MLM page or email me.

QUESTION 5:

What is the tax treatment of additional items of furniture bought for a rental home? Before it is relet it may be furnished by adding a lot of new items. Are these latter costs immediately deductible from income by way of depreciation, or are they regarded as capital expenditure on improvements to be taken into account when calculating capital gains tax on the eventual sale of the property?

ANSWER 5:

Furniture for a rental property is a capital expense. it is depreciated under standard depreciation rules and deducted each year eg 20% reducing value method etc except individual items under $300 which are depreciated at 100% on purchase.

The depreciation is deducted until the remaining amount is zero.

The cost of furniture is not deducted from the sale price for CGT.

QUESTION 6:

I'm currently holding a job as employee. I am looking at starting a business for importing and/or exporting goods. For the past year or so I've had meetings in Japan, Australia and Canada with potential business partners. There have also been a fair amount of correspondence during that time. I recently visited Canada for business. Will I be able to claim a deduction on the airfare etc? This business has not yet generated any income.

Also, what can you tell me about PAYG tax?

ANSWER 6:

It is clear that preliminary work before a business has started is not deductible for Tax purposes. Just when a business starts is a matter of fact. Overseas trips preliminary to receiving orders are not deductible. A business commences when you start acting like a business: eg have a business bank account, open the doors of a shop, have a business name, receive an order. Even when the business has started in Australia, overseas trips are not deductible if you are opening new markets as opposed to talking to existing agents. If you have received your first orders from customers for your goods and you are travelling overseas to procure the goods, then it's deductible.

PAYG tax is payable if your non-salary profit from business or interest from investments is over $2000 in a year. It is payable quarterly or annually (in about March) of the tax year which finishes in June. The Tax Dept will send you a BAS or IAS each quarter or anually.


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