DP LOEWY & CO

Log book method for car expenses

Claiming car expenses via the log book is one of the ways to maximize your personal tax deductions or to minimize any FBT liabilities by utilizing the log book method. However, there are a number of issues on what trips are deductible. The higher the amount of deductible trips entitles you to a higher log book percentage for work related travel. The ATO is also increasing its audit activity in this area so it is important that you are aware of what trips may be claimable.

Expenses of commuting between home and place of work are generally not deductible, even where a travel allowance is received, incidental tasks are performed en route, the travel is outside normal working hours or the travel involves a second or subsequent trip.

The costs of travel between two places of employment as part of the same job are deductible. So are the costs of travel between one place of business and another for the purposes of the one business? It may also be possible to claim for travel directly between unrelated workplaces, that is travel between a place where you are engaged in income-producing activities or business activities and a second place if:

(a) The purpose of travel to the second workplace is to engage in income-producing activities or business activities; and

(b) You did engage in such activities

Where the home is used as part of your work it may be possible to claim a deduction where you are required to travel from home to complete work related tasks. For example, a doctor who conducted a home surgery would be allowed a deduction for travel from home to a hospital to carry out medical duties

A deduction may be allowed in certain circumstances such as where the taxpayer is required to carry bulky equipment to work. In one case a dentist who had to transport sensitive, valuable and potentially embarrassing items between one surgery and another was entitled to deductions for car expenses even though most of the journeys involved travel from his home. The ATO had previously stated that a deduction should not be allowed simply on the ground that the items that are required to be transported are valuable.

The fact that a taxpayer works on a casual basis for a different employer each day and is often called at short notice may not be enough to support a claim. It is also important to be aware that no deduction for home / work travel was allowed to a radiographer who, despite being on call, did not commence the income-producing duties until arrival at the hospital.

The total journey from your home to a client's premises and then on to the office will be accepted as deductible business travel where:

• You have a regular place of employment and travel to it habitually;

• In the performance of your duties as an employee, travel is undertaken to an alternative destination that is not itself a regular place of employment; and

• The journey is undertaken to a location at which the employee performs substantial employment duties.

These principles apply equally to cases where you make a business call in the afternoon and travel from there to home, rather than returning to the office.

Estate planning

You may be wondering the tax implications upon death and how to minimize any tax liabilities for your family, the information below will help you on making informed decisions and give you some ideas about your estate planning to discuss with the Partner that looks after you.

When an asset is passed to a beneficiary or a death estate, no Capital Gains Tax (CGT) arises. If any CGT asset owned just before dying devolves to a legal personal representative (LPR) or passes from the LPR to a beneficiary in the deceased’s estate, the LPR or beneficiary is taken to have acquired the asset on the day the person died, any capital gain or capital loss the LPR makes is also disregarded.

The ATO will not depart from the long-standing administrative practice of treating the trustee of a testamentary trust in the same way that a “legal personal representative” is treated. Therefore, any capital gain or loss that arises when an asset owned by a deceased person passes to the ultimate beneficiary of a trust created under the deceased’s Will is disregarded.

If the asset was purchased by the deceased before 20 September 1985 the cost base of the asset inherited is the market value at time of death. For assets acquired after that date the cost base is its original cost. Any capital gain is calculated by the amount received on sale less the cost base. Also, if there are capital losses they cannot be utilized by the beneficiary or the LPR.

In relation to the main residence of a deceased person, it may be possible to avoid CGT by having a person entitled to live in the property under the Will, continue to live in the property so that it becomes their main residence and any CGT may be avoided. However, if nobody can live in the property, then the property may be sold within 2 years of the deceased person’s death. The property may also be rented out for those 2 years and there will be no CGT upon sale. The 2 year rule also applies to an LPR.

It is specifically provided that a CGT asset does not pass to a beneficiary in a deceased estate if the beneficiary becomes the owner of the asset because the deceased's legal personal representative transfers it under a power of sale. Therefore, the LPR may be liable for CGT when the asset is sold to the beneficiary. The capital gain will be calculated based upon the market value of the asset sold less its cost base.
 

Four-year limit on claiming input tax credits

There are proposed amendments that will limit your abilities to claim GST credits if they had not been claimed within four years. The four year period starts from the date to which the credits would be attributable under the basic attribution rules in the GST Act for input tax credits.
 

Christmas parties and FBT

There are different rules for Christmas parties and below is a summary of the FBT implications for Christmas parties.

The costs (such as food and drink) associated with Christmas parties are exempt from FBT if they are provided on a working day on your business premises and consumed by current employees.

The provision of a Christmas party to an employee may be a minor benefit and exempt if the cost of the party is less than $300 per employee and certain conditions are met. The benefit provided to an associate of the employee may also be a minor benefit and exempt if the cost of the party for each associate of an employee is less than $300.

The provision of a gift to an employee at Christmas time may be a minor benefit that is an exempt benefit where the value of the gift is less than $300. Where a Christmas gift is provided to an employee at a Christmas party that is also provided by the employer, the benefits are associated benefits, but each benefit needs to be considered separately to determine if they are less than $300 in value. If both the Christmas party and the gift are less than $300 in value and the other conditions of a minor benefit are met, they will both be exempt benefits.

The tax deductibility issues are summarized below:

The cost of providing a Christmas party is income tax deductible only to the extent that it is subject to FBT. Therefore, any costs that are exempt from FBT (that is, under the $300 rule) cannot be claimed as an income tax deduction.The costs of entertaining clients are not subject to FBT and are not income tax deductible.
 

End of the tax break

Please be aware that the tax break ends on 31 December 2009. The business tax break is an extra tax deduction available on the plant and equipment you need for your business. The tax break covers new, tangible, depreciating assets. It also covers improvements or additions you make to existing assets. The minimum amount you need to spend also depends on the annual turnover of your business.

If your business (and any businesses you are connected with) turns over less than $2 million a year, you may be able to claim the additional 50% tax deduction. You will also need to spend a minimum of $1,000 on an eligible asset.

If your business turns over $2 million or more a year, then you may be able to claim the 10% additional tax deduction. You will also need to spend a minimum of $10,000 on an eligible asset.

We hope you have enjoyed this article and found it informative and useful. Please contact us if you would like further explanation on any topics discussed in this article. The Partners and Staff at DP Loewy & Co Pty Ltd would like to wish you a happy and prosperous 2010.
 

Disclaimer - The material contained in this newsletter does not constitute advice. DPL is not responsible for any action taken in reliance on any information contained in this newsletter. Anyone reading the newsletter should not act upon material contained in this newsletter without appropriate consultation.