Personal Services Income can be a confusing topic, particularly if you’re a sole trader. However, it’s vital to understand what it is so you know what tax deductions you can claim. Personal Services Income (PSI) is a concept introduced by the Australian Taxation Office (ATO) to govern how income from personal services is reported and taxed. PSI is particularly relevant for independent contractors, freelancers, and consultants who provide their professional or technical expertise. The ATO’s guidelines around PSI help ensure that individuals who earn a significant portion of their income from their personal efforts or skills pay the appropriate amount of tax. So what is personal services income? In this blog we’ll explain the PSI rules, outline how it is calculated and explore its impact on tax deductions.

What is Personal Services Income (PSI)?

Personal Services Income refers to income that is primarily generated from your personal skills or efforts as an individual. According to the ATO, income is classified as PSI if more than 50% of the amount you received for a contract was for your labour, skills or expertise. The concept is usually applicable to knowledge-based services such as:

However, it doesn’t apply if your income is generated from the use or sale of a product, the use of an income-producing asset or other business structures involving more than just personal effort.

Examples of PSI and Non-PSI Income

Jayne is a marketing consultant operating as a sole trader. She has two clients who she has recently completed work for.

Client 1: Jayne delivered a Marketing Strategy training session for her client. She charged the client $1,500 for the session which included materials that cost $150. That means that $1,350  or 90% of the work was for her personal skills and knowledge and should be classified as PSI.

Client 2: Jayne provided email marketing software for a client for which she charged $5,000. The cost of the software licence was $4,000 and the remainder was for her skills and expertise in setting up the software for the client. Since only 20% of the cost was for her expertise, this is not classified as PSI.

While your taxable income can be a mix of PSI and non PSI you should establish whether you are a personal service business (PSB) in the year that you received the PSI income as this affects the deductions you can claim.

PSI Rules

The PSI rules are in place to determine how income is reported and what deductions are permissible. The purpose of these rules is to prevent individuals from diverting their income through companies, partnerships or trusts to exploit lower tax rates. Essentially, if the PSI rules apply, the income is treated as personal income and taxed at individual tax rates.

To determine if the PSI rules apply to you, the ATO applies a series of tests:

  • The Results Test: You must be paid for producing a specific result, use your own equipment, and be liable for rectifying any defects in your work.
  • The 80% Rule: No more than 80% of your PSI can come from one client, unless the unusual circumstances exemption applies.
  • The Unrelated Clients Test: You must provide services to two or more unrelated clients who are not associated with each other.
  • The Employment Test: Your business must employ others who do at least 20% of the principal work.

If you fail these tests, you need to treat your income as PSI and comply with the relevant tax implications.

Why Were The Personal Service Income Rules Introduced?

The Personal Services Income (PSI) rules were introduced by the Australian Taxation Office (ATO) to address tax avoidance issues associated with the income earned primarily from the personal skills or efforts of an individual. Essentially the rules ensure that contractors pay similar amounts of tax as those who are employed, preventing them from gaining tax advantages by diverting their income through companies, trusts, or partnerships. The PSI rules now prevent the misuse of business structures for the purpose of tax minimisation.

Before the PSI rules, individuals could reduce their tax liability by channeling their income through such entities. These entities would then potentially claim deductions that would not normally be available to an individual, or split income among various members to reduce the overall tax rate. This approach could substantially lower the tax obligations compared to what an individual might pay if taxed at personal income rates.

Calculating PSI and Tax Implications

Calculating your PSI involves identifying all income received from personal efforts and applying the relevant PSI rules to determine your taxable income. If the PSI rules apply, you will need to attribute all income and deductions to yourself, regardless of whether your business structure involves other entities.

The PSI determination directly influences how you claim deductions. Generally, deductions are allowed for expenses incurred in generating PSI, including:

  • Salaries and wages for individuals directly engaged in producing PSI.
  • Operating expenses related to performing the services.
  • Equipment used directly in performing the services.

However, certain deductions, typically available to businesses, may not be claimable if they do not directly relate to the earning of PSI. These may include rent, occupancy expenses, or salaries paid to associates who do not contribute directly to contract fulfilment.

Key Takeaways

For professionals and freelancers, understanding PSI is crucial to ensuring compliance with ATO guidelines and optimising tax obligations. Here are the main points to remember:

  • Determine if your income qualifies as PSI based on the nature of your work and how it is earned.
  • Understand the PSI rules and apply them to ascertain if your income is treated as PSI.
  • Be mindful of how PSI is calculated and ensure accurate reporting.
  • Know what deductions are permissible under the PSI rules to avoid potential audits or penalties.

By understanding and adhering to the PSI rules, individuals can better navigate their tax obligations and plan their financial affairs accordingly. For further guidance, consulting a tax professional or visiting the ATO’s website can provide additional clarity and personalised advice.

This overview should serve as a starting point for anyone dealing with PSI and aiming for a compliant and optimised tax handling of their personal services income in Australia.

If you require assistance with understanding your tax obligations and ensuring you claim the correct tax deductions, our team of expert business tax accountants can help.

To help you plan, we have included the important upcoming superannuation and tax deadlines and dates as a reminder.

31 March 2024Large tax payers (Turnover > $2Million) 2023 Tax Return lodgement and payment due date

For Companies or Superfunds that had a turnover of more than $2Million in their prior year’s tax return, your 2023 Tax Return is due for lodgement and payment 31st March 2024. If you feel that you will have any difficulty in making your 2023 tax return payment, please contact MGI to discuss your payment options.

15 May 2024 –2023 Tax Return lodgement and payment due date

For the majority of tax payers, the 2023 Income Tax Return is due for lodgement and payment by 15th May 2024.

If you are an MGI client and have not yet provided us with your 2023 tax work information, please don’t hesitate to contact us to discuss what information we require to complete your annual tax work, alternatively please don’t hesitate to send through your information directly to your MGI contact and we will let you know what further information we may require. MGI will be touching base with our clients to request your annual tax work. This due date is still a few months away, however if your 2023 tax work has not yet been started, please reach out to us to get your work scheduled for completion within the next few months.

If we have already completed your 2023 annual tax work, can you please ensure that you have returned the signed documentation back to our office for filing so that we can lodge your returns by this due date. If you unfortunately have to make a payment to the Tax Office, that payment due date is also 15 May 2024. If you feel that you will have any difficulty in making this payment by this due date, please don’t hesitate to touch base with us to discuss your payment options.

31 March 2024 – 2024 FBT year-end date

The FBT year runs 1 April – 31st March, if you are an FBT client we will be touching base with you in late March 2024 to discuss your FBT requirements and to start on requesting information with respect to the completion of your annual FBT returns. Don’t forget to record your vehicle speedo readings as at 31 March 2024, which is a requirement from the ATO for business clients to keep records of.

The 2024 FBT Return payment and lodgement due date is 25 June 2024, however to ensure we have ample time to complete our client’s returns before this due date we will be touching base as early as possible so please keep an eye out for correspondence from our office with respect to your FBT lodgement requirements.

April – June 2024 – End of Year & Tax Planning

We will be touching base with our Tax Planning clients in early April to get started on our annual tax planning process. Tax Planning is very important as it can help make you aware of you upcoming tax liabilities and also gives you an opportunity to implement strategies that can help you reduce your tax implications. The earlier we are able to complete your tax planning the better, as this gives you ample time to review your options and implement any strategies before 30 June. As such, we do ask our Tax Planning clients to have their year-to-date information (1 July 2023 – 30 April) up to date in their accounting software so that we can complete our tax planning calculations when the time comes.

30 June 2024 – Deadline for Employee Superannuation Payments

Employee Superannuation is tax deductable when it is paid and only if paid on time. Superannuation must be paid at least quarterly by the following due dates:

  • 1 July – 30 September DUE 28th October
  • 1 October – 31 December DUE 28th January
  • 1 January – 31 March DUE 28th April
  • 1 April – 30 June DUE 28th July

If you are wanting to maximise your Superannuation deduction for the 2024 Financial Year, you will need to make any June 2024 quarter payments before 30 June 2024.

The above tax deadlines are only general reminders, but if you have any queries or concerns, please don’t hesitate to reach out to the team at MGI.

Are you having a staff Christmas Party? With the festive season just around the corner, the ATO has reminded employers to consider the fringe benefits tax (FBT) implications of the party or other event. So what are the FBT implications of the office Christmas party?

This will depend on a number of factors:

  • The amount you spend on each employee
  • When and where the event is held
  • The value and type of gifts you provide; and
  • Who attends – is it just employees, or are partners, clients or suppliers also invited?

It is important to keep all records relating to the entertainment-related fringe benefits you provide, including how you worked out the taxable value of benefits.

You need to be sure you really understand how FBT works, otherwise you could end up with a heft FBT liability.

Christmas parties constitute “entertainment benefits” and to the extent that the expenditure relates to employees or their associates attending the function, the expenses may be subject to fringe benefits tax (FBT) unless an exemption (eg, the “minor benefits” exemption) applies.

A minor benefit is one that is provided to an employee or their associate (eg, spouse) on an “infrequent” basis, which is not a reward for services, and at a cost less than $300 (inclusive of GST) “per benefit”.

Entertainment expenses are not tax-deductible unless they are subject to FBT. This means that expenses incurred in providing a Christmas party are not generally deductible where the minor benefit FBT exemption applies.

Non-entertainment benefits provided to employees at the Christmas party, such as a hamper, are considered separately when applying for the $300 minor benefits exemption. Although the total cost per person is more than $300, each benefit should be considered separately under the minor benefits exemption.

Tax Implications of Employee Gifts

If the business gives employees non-entertainment type gifts that cost less than $300 (inclusive of GST) per employee, then the cost is fully tax-deductible, with no FBT payable and GST credits can be claimed. The gifts at Christmas parties are usually exempt from FBT because they are not provided on a regular basis, and the gift is not provided to the employees wholly or principally as a reward for their services rendered.

Unlike non-entertainment gifts, gifts classified as entertainment, including recreation, are non-deductible and GST credits cannot be claimed. A tax deduction and GST credits can only be claimed on entertainment or recreation gifts where Fringe Benefit Tax applies. This means that while the minor and infrequent exemption could still apply for entertainment and recreation gifts costing less than $300 (GST inclusive), tax deductions and GST credits can only be claimed where FBT applies to entertainment and recreation gifts.

The costs (such as food and drink) of a Christmas party are exempt from FBT if they are provided on a working day on your business premises and consumed by current employees. If spouses or other guests of employees are entitled to attend, there could be an FBT liability unless the cost is covered by the minor benefits exemption.

This is general information above, but for specific FBT implications and tax advice, please talk to the team at MGI.

The Government has released draft superannuation legislation for the proposed new tax on members with more than $3m in super – known as “Division 296 tax”.

The Federal Government hasn’t moved from its original direction and so the unpopular elements remain:

  • The mechanism for calculating the “earnings” that will be taxed is based on movement in a member’s total superannuation balance. By default, that will include unrealised capital gains.
  • No refunds in years when earnings are negative.
  • No indexation of the $3m threshold

With regard to earnings

Earnings is essentially movement in a member’s total superannuation balance adjusted for net contributions and withdrawals.

Earnings will be specifically adjusted to reflect the fact that increases in a member’s balance arising from inheriting super pensions, receiving transfers from a partner or ex partner’s superannuation (under a contribution split or family law split) and insurance payouts are not earnings and shouldn’t be subject to the tax. Interestingly, even some amounts allocated from reserves will be excluded from earnings.

The Government will not chase deceased members for Division 296 taxes that would otherwise be incurred in the year of death. A member who dies before the end of the year will be deemed to have a $nil tax regardless of what’s happened to their super during the year. If their balance has been left in super but transferred to a spouse (for example, a reversionary pension or a death benefit pension) it will be counted in the inheriting spouse’s $3m. So, this is only relevant for people whose super is still waiting to be dealt with at the end of the year.

How much of the earnings will be taxed?

The Bill reduces the tax concessions for individuals with a total superannuation balance (TSB) above $3 million by imposing an additional 15 per cent tax on certain earnings under Division 296 of the Income Tax Assessment Act 1997.”

When and how it’s paid

The tax will be levied on individuals but can be paid from a super fund using the usual release authority mechanism.

What can we expect next?

Treasury has invited responses to the draft legislation, but there’s a very short turnaround required (18 October 2023), suggesting major changes are not expected.

MGI SQ will provide further updates in due course on the legislation. In the meantime if you have any queries please don’t hesitate to contact us.

Ownership of cryptocurrency has been on the increase in Australia for a number of years now. But many people are confused about what impact this has from a tax perspective. The tax implications of digital currencies can be complex so we’re going to take a look at crypto tax in Australia if you’re an investor, not a trader. If you’ve considered investing in it, we’ll also explore under what circumstances Capital Gains Tax (CGT) is payable along with other potential tax consequences of owning cryptocurrency. Do you have to pay tax on cryptocurrency in Australia? Let’s take a look…

What Is Cryptocurrency?

Cryptocurrency is a type of digital or virtual currency that uses cryptography for security. It operates on a technology called blockchain, which is a decentralised and distributed ledger that records all transactions across a network of computers. Unlike traditional currencies issued by governments (such as the Australian Dollar), cryptocurrencies are typically not controlled by any central authority, like a central bank. Bitcoin, Ethereum, and Ripple are some well-known examples of cryptocurrencies.

In Australia, cryptocurrency regulation has evolved over the years, and it’s important to note that regulations can change, so it’s essential to stay updated with the latest developments.

How Is Crypto Taxed In Australia?

The Australian Taxation Office (ATO) treats cryptocurrency as property for tax purposes. This means that individuals and businesses are required to pay capital gains tax on cryptocurrency transactions, depending on the profits they make.

When you sell a cryptocurrency asset you need to work out whether you made a capital gain (i.e. you made a profit) or a capital loss (i.e. you lost money) to determine how much capital gains tax (CGT) you’re required to pay. You need to report your gains and losses in your Income Tax Return and pay income tax on net gains.

Crypto disposal is considered a ‘CGT Event’ by the ATO however ‘disposal’ doesn’t simply mean sale of your cryptocurrency. It also includes:

  • gifting a crypto asset
  • trading, exchanging or swapping one crypto asset for another
  • converting a crypto asset to Australian or foreign currency
  • buying goods or services with a crypto asset.

Cryptocurrency transactions are also subject to goods and services tax (GST) in some cases.

If you receive cryptocurrency as payment for goods or services, it’s considered part of your taxable income and should be declared on your tax return at its Australian dollar value at the time you receive it.

Crypto-to-crypto trades are also taxable events. It’s important to understand that when you trade one cryptocurrency for another, it is considered a disposal for tax purposes, and any capital gain or loss needs to be reported.

Mining cryptocurrency is also considered a taxable activity, and the mined coins are subject to taxation.

However, the ATO views cryptocurrency used for personal use (e.g. buying a product), sometimes referred to as Personal Use Assets differently than cryptocurrency kept as an investment. These distinctions can greatly affect tax obligations. We cover this in more detail below.

Can The ATO Track Crypto Trades or Exchanges?

The ATO now has sophisticated data matching techniques in place for Cryptocurrency trades or exchanges. It’s likely that they already have your information if you have an account with an Australian Designated Service Provider (DSP) as they have access to the Know Your Customer information supplied when you signed up for an Australian exchange or wallet.

In addition, the ATO has specific guidance and tools for cryptocurrency tax reporting, including the use of cryptocurrency tax software.

It’s vital to understand that attempting to avoid or evade cryptocurrency taxes in Australia is illegal and can lead to penalties and fines.

How To Avoid Tax On Cryptocurrency in Australia

It’s important to recognise that you cannot avoid paying tax on crypto currency in Australia however there are some measures that you can take to reduce the tax payable. You have to declare crypto in your tax return if you have sold, traded or earned it in the past financial year.

However, one of the ways to potentially reduce your CGT tax liability is to hold on to your investments for more than 12 months before selling. You may then be eligible for a 50% discount on the CGT tax payable.

In addition there is the Personal Use Asset exemption. Cryptocurrency is considered a personal use asset if you keep or use it mainly for personal use and it was purchased for less than $10,000. The most common situation of personal use of crypto assets is to buy items for personal use or consumption. If the crypto is considered a personal use asset, a capital gain / loss can be avoided.

One of the key considerations for determining whether your cryptocurrency is a personal use asset is the length of time you keep hold of it before using it to buy something. The longer you keep hold of it, the less likely it is to be considered a personal use asset. While the guidance is a little vague, some examples provided by the ATO indicate that if transactions take place within a 2 week period then they may be considered as personal use assets.

However, crypto assets are not personal use assets when you keep or use them:

  • as an investment
  • in a profit-making scheme
  • in carrying on a business.

Finally, donating crypto to a registered charity is also one of the few times that it is not taxable.

Can You Claim Crypto Losses on Taxes In Australia?

You can claim capital losses on cryptocurrency investments to offset capital gains. If you sell cryptocurrency at a loss, you can use this loss to reduce your overall tax liability. Capital losses can’t, however, be used to offset income.

It’s fair to say that crypto tax in Australia is complex. That’s why it pays to get advice from accounting experts. It’s crucial to maintain accurate records of all your cryptocurrency transactions, including purchase/sale dates, amounts, and the parties involved. This information is necessary for tax reporting. It’s advisable to report all cryptocurrency transactions accurately and seek professional tax advice to ensure compliance with tax laws.

What is the Small Business Technology Investment Boost?

The Small Business Technology Investment Boost by the ATO, is a tax incentive program designed to provide financial support to small businesses seeking to invest in technology to improve their operations and productivity. The scheme allows eligible businesses to claim an additional 20% tax deduction for technology-based expenses up to a threshold.

Eligibility For The Technology Investment Boost

For an entity to be eligible for the boost it must be “carrying on a business” with an aggregated annual turnover of less than $50 million. The boost can apply to sole traders, partnerships, companies, and trusts.

Business expenses that have a close connection with the entity’s digital operations or digitising its operations are eligible for the bonus deduction. As the legislation is very broad in its definition a large variety of expenses may be eligible.

Eligible Period

  • Eligible Expenditure must be incurred between 7:30pm AEDT 29 March 2022 and 30 June 2023.
  • If the expenditure is on a depreciating asset, the asset must be first used or installed ready for use for taxable purpose by 30 June 2023.

Eligible Expenditure

  • Digital Enabling Items – computer and telecommunications hardware and equipment, software (such as Xero or MYOB subscriptions), internet costs, systems and services that form and facilitate the use of computer networks.
  • Digital Media & Marketing – audio and visual content that can be created, accessed, stored or viewed on digital devices, including web page design.
  • E-Commerce – goods or services supporting digitally ordered or platform-enabled online transactions, portable payment devices, digital inventory management, subscriptions to cloud-based services and advice on digital operations or digitising operations, such as advice about digital tools to support business continuity and growth.
  • Cyber Security – cyber security systems, backup management and monitoring services.

Depreciating Assets

  • Expenses eligible for the boost can also apply to depreciation on assets that relate to digital operations, such as computer equipment.
  • Many small businesses have been utilising Temporary Full Expensing depreciation rules over the last few years, allowing them to immediately claim full depreciation on assets. As such, many of the assets purchased before the boost started (29 March 2022) will not be eligible for the bonus deduction as they have already been fully depreciated. However, Temporary Full Expensing will also allow for eligible new assets purchased and “ready for use” during the boost’s eligible period to be immediately depreciated and the bonus boost deduction to be calculated on the full depreciable value.

What You Can’t Claim As Part of the Technology Investment Boost

  • Salary & Wages
  • Phone Expenses
  • Capital Works Costs
  • Financing Costs
  • Training or Education Costs (they may be eligible for the Small Business Skills and Training Boost)
  • Expenses that form part of your trading stock costs

How to Claim The Tax Deduction

The bonus deduction for the boost will be taken up by us as a tax adjustment when we prepare the 2023 Income Tax Returns. The 2023 Income Tax Returns will include the tax adjustment for eligible expenses incurred during the 2023 financial year, as well as eligible expenses incurred during the eligible period within the 2022 financial year (29 March 2022 to 30 June 2022).

The boost is capped at $100,000 of expenditure per income year, resulting in a bonus deduction of $20,000. Therefore, since the eligible period covers one full financial year (2023) and part of another financial year (2022), the total bonus deduction claimable is $40,000.

What You Need to Do

  • If we have already prepared your 2023 Tax Return, we have already included the boost in your returns if you are eligible.
  • Ensure expense information provided to us has sufficient details so we can identify what they relate to. Where possible also attach tax invoices in your bookkeeping software.
  • Ensure single payments for multiple goods and services that include eligible and non-eligible expenses are recorded as separate amounts.
  • Separate out internet costs from phone costs so the internet can be included in the boost.
  • Separate out any private portion of expenditure, in particular technology expenses.
  • Email or call your MGI contact if you have any questions.

FAQ’s about the Small Business Technology Investment Boost

  • Does the boost only apply to new technologies, or also existing technologies?
    Although the scheme is focused on incentivising businesses to adopt new technologies, the legislation does not exclude existing technologies.
  • Are social media advertising expenses eligible?
    While ATO guidance isn’t particularly clear on this area, we believe this expenditure falls under the grouping of Digital Media & Marketing and would be eligible for the boost assuming the advertising has a direct link to the business’ digital operations.
  • What if I started digitalising my business before the boosts eligible period?
    The boost exclusively looks at the date the expenditure has been incurred. Therefore, on-going monthly digital expenses paid during the eligible period would qualify, but any prior expenditure would not. However, if the prior expenditure related to depreciable assets the expenditure may still be eligible depending on the depreciation method.

For further details on the Small Business Technology Investment Boost please click on this Australian Tax Office link.

Please contact the team at MGI if you have any questions or require further information.

As we highlighted in our recent blog on tax and the sharing economy, the Australian Taxation office (ATO) is paying closer attention to those involved in the sharing economy. This includes those offering short term rentals of all or part of their home on platforms like Airbnb or Stayz. Under the new Sharing Economy Reporting Regimes, these platforms are required to report seller transactions to the ATO. So it’s vital that if you’re earning some extra income by renting out that spare room or your holiday home, you understand the airbnb tax implications in Australia.

Airbnb Tax Implications For Individuals In Australia

Tax on Rental Income

You are generally required to pay income tax on the income you earn from renting out your property on platforms like Airbnb. The income should be included in your annual tax return as part of your total assessable income. It’s important to understand that the ATO is now using data matching processes so openly and accurately declaring your income earned via Airbnb is essential to avoid fines and penalties.

Income you earn from the sharing economy may not have tax withheld, which means you may have a tax bill when you lodge your return. We strongly recommend that you set money aside from your Airbnb earnings to cover the additional income tax that you will incur.

Do You Need An ABN For Airbnb?

No – you don’t need an ABN if you rent out all or part of your home on Airbnb. The income is treated as residential rental income, in the same way as an investment property so an ABN is not necessary.

The ATO doesn’t view money earned from Airbnb as business income. However, it does pay to be thorough in your record-keeping of both your income and your expenses.

Airbnb GST Implications

Generally speaking, as you’re not classed as running a business by the ATO, you do not need to register for and pay Goods and Services Tax (GST). Even if you make more than the $75,000 GST threshold, you are unlikely to be required to pay GST because Airbnb rental properties are classed as residential income which is exempt from GST.

This also means that you are unable to claim GST credits for any expenses and associated costs.

Airbnb Tax Deductions: What Can You Claim?

The good news is that you can claim various tax deductions related to your Airbnb rental activity. However, it’s important to note that if you’re only renting out part of your home on Airbnb, you’ll have to apportion these deductions appropriately. The ATO has indicated that over-claiming expenses is forming a key area of focus when it comes to the short term rental market.

The Airbnb related deductions that you may be able to claim include:

Operating Expenses:

This includes costs for things like commercial cleaning of the rented area, maintenance, repairs, utilities and property insurance. You may also be able to claim for food and other basic food provisions made available to your guests.

Interest on Loans:

If you have a mortgage on the property, you can claim a portion of the interest as a deduction.

Depreciation:

You might be able to claim deductions for the depreciation of assets like furniture and appliances used in your rental property.

Council Rates and Land Tax:

These can be claimed as deductions.

Airbnb Advertising and Service Fees:

Costs associated with listing your property on Airbnb such as hiring a professional photographer for your Airbnb listing plus commissions and service fees charged by Airbnb.

Renting Your Home On Airbnb May Make You Liable for Capital Gains Tax (CGT)

Capital Gains Tax (CGT) comes into play when a taxpayer disposes of income-earning assets such as shares, investments, crypto currencies and properties.

While your main residence is generally exempt from CGT when you come to sell it, if you have used all or part of it to generate income, such as renting it out on Airbnb, then part of the ‘gain’ will be taxable.

However, there are some exemptions available if the property is your main residence for part or all of the time you own it. If the property is treated as an investment property, CGT rules related to investment properties would apply.

Airbnb hosts frequently overlook or get confused by the CGT implications of renting out their property. This can be a costly mistake and one you should consider before you decide to make your home available on Airbnb.

Remember, tax laws are complex and can vary based on your individual circumstances. It’s always advisable to consult with a qualified tax professional who can provide advice tailored to your situation and ensure that you’re complying with all relevant Airbnb tax obligations in Australia.

The tax accountants and business advisors at MGI South Queensland can help you understand what your Airbnb tax obligations are and if you are entitled to any deductions. Contact us now on 07 3002 4800 to get the latest advice.

The ATO has recently indicated its intention to more closely focus on those involved in the sharing economy. The introduction of the Sharing Economy Reporting Regime from July 1st, means that digital platforms involved in short term accommodation or taxi travel are required to provide the ATO with details of seller transactions. With so many Australians now involved in these services, it’s vital that you understand sharing economy tax requirements. So if you operate an Airbnb or provide ridesharing services, there are a few key things you should pay attention to.

What Is The Sharing Economy?

The sharing economy refers to a business model where individuals or businesses share their resources, skills, or services with others through digital platforms. Examples of the sharing economy in Australia include:

  1. Renting out all or part of your property to guests through platforms such as Airbnb or Stayz.
  2. Providing ridesharing services to passengers using your own vehicle through platforms such as Uber, Ola, Didi or Sheba.
  3. Offering various services or tasks to other users for a fee, including creative or professional services such as graphic design through platforms such as Airtasker or Fiverr.

Sharing Economy Tax Implications

The platforms through which you provide sharing economy services may ask you for more information to meet their obligations under the Sharing Economy Reporting Regime (SERR) including:

  • ABN and business trading name
  • your full name
  • date of birth
  • residential or business address
  • email address and telephone numbers
  • bank account details.

Tax Implications For Individuals Engaged In The Sharing Economy:

1. Goods and Services Tax (GST): If you are registered or required to be registered for GST and your annual turnover from the sharing economy exceeds the GST threshold (as at August 2023, the threshold is $75,000), you need to account for and remit GST on your services or sales. However, the GST registration threshold may change over time, so it’s essential to check the current threshold with the ATO.

2. Income Tax: Any income earned from sharing economy activities is generally considered assessable income for tax purposes. This means you must report your earnings from platforms like Airbnb, Uber, or Airtasker in your annual income tax return. Keep records of your earnings and expenses related to the sharing economy activities to accurately report your income.

3. Capital Gains Tax: If you rent out all or part of your home, you will no longer be able to claim the full capital gains tax (CGT) main residence exemption. Instead, you’ll pay capital gains tax on the sale proceeds according to the portion of the property that you have rented out.

Potential Tax Deductions For Sharing Economy Participants:

As a participant in the sharing economy, you may be eligible for tax deductions on expenses related to your business activities. Common deductions may include:

1. Vehicle expenses: If you use your vehicle for ride-sharing or delivery services (e.g., Uber), you may be able to claim deductions for fuel, maintenance, registration, insurance, and depreciation.

2. Home expenses: If you rent out part of your home on platforms like Airbnb, you can claim a portion of your home-related expenses, such as utilities, internet, and cleaning.

3. Equipment and tools: If you use specific equipment or tools for your sharing economy activities, you may be able to claim deductions for their costs and maintenance.

4. Service-related expenses: You may also claim deductions for expenses related to providing your services, such as cleaning supplies or materials required for a task on Airtasker.

It’s crucial to keep accurate records of all your income and expenses to substantiate your claims during tax time. Additionally, the tax implications and deductions may differ for businesses or individuals with unique circumstances, so it’s always best to seek advice from a qualified tax professional.

The tax accountants and business advisors at MGI South Queensland can help you understand what your tax obligations are and if you are entitled to any deductions. Contact us now on 07 3002 4800 to get the latest advice.

The ATO is paying increased attention to checking the validity of trust distribution minutes.

Points of interest by the ATO include:

  1. Profit distribution is made to beneficiaries that are included beneficiaries under the trust deed.
  2. If particular categories of income are allocated to different beneficiaries, this streaming of the different categories of income is allowable under the trust deed.
  3. Decision is made by the appropriate parties who are actually the trustee/s of the trust or directors of the trustee of the trust.
  4. Decision is made in time in accordance with trust law and the trust deed for that particular year. This is normally by 30 June each year unless there is some unusual wording in the trust deed.

To assist us with ensuring that the decision is documented by the trustees and that it is in time, we have this year introduced the drafting of the minutes through the CAS360 software. This software is what we use for maintaining the electronic updating of corporate registers for our client’s companies and trusts.

The CAS360 software also allows us to utilise sending out most of our client’s trust distribution minutes for electronic signing via FuseSign. FuseSign is an electronic method of signing of documents based on each signing parties’ unique email address or mobile. Essentially it means that the trustees will each receive a message with a link to review the documents and if they are in agreement to the distribution minute, it can be approved on the screen with a few clicks.

For our clients whom are receiving trust distribution minutes, please watch out for emails from asic@mgisq.com.au to access these distribution minutes. Please note if you have multiple trusts, you will be receiving a separate email for each trust.

Once all trustees or the sole trustee have signed via FuseSign, we are instantly advised that the trust distribution minutes have been signed for our records.

FuseSign (using the email address noreply@fusesign.com) also sends a signed copy via email to the trustee/s for their records.

Both MGI and the trustee/s will receive a detail report from FuseSign which advises per signing party the exact time and date they confirmed their acceptance to the trust distribution minute. It will mean that we will have these details available if the ATO requests it.

We ask that if you do receive emails from asic@mgisq.com.au that you attend to them promptly to ensure that your trust/s distribution minutes are completed on time.

If you have any questions, please do not hesitate to contact our MGI team at (07) 3002 4800 or asic@mgisq.com.au

As the end of tax year approaches, the Australian Taxation Office (ATO) has announced its 3 key areas of focus for Tax Time 2023. Landlords, those working from home and capital gains tax (CGT) will all be the subject of an ATO crackdown when it comes to tax returns this year. According to ATO Assistant Commissioner Tim Loh, the areas being targeted are due to the high number of common mistakes being made in these areas. With access to the financial information of 1.7 million rental property investors from 17 of the countries largest banks and mortgage lenders, the ATO will be able to use new data matching techniques to crosscheck claims made by landlords in 2023.

The ATO Targets For Tax Time 2023

Rental property deductions

As landlords (and homeowners) feel the pinch from mortgage interest rate hikes, many have been trying to push the boundaries with their claimed deductions. While there are a number of legitimate deductions available on rental properties, it’s vital that you stay within the law and understand what is acceptable and what’s not. As many as 9 out 10 rental property investors made mistakes on their annual tax returns and incorrectly claimed expenses.

The ATO is particularly focused on interest expenses and ensuring owners understand how to correctly apportion loan interest expenses where part of the loan was used for private purposes (or the loan was refinanced with some private purpose).

You can only claim interest on a loan used to purchase a rental property to earn rental income – don’t forget, if your loan also includes a private expense, such as for a new car or a trip to Bali, you can only claim an interest deduction for the portion relating to producing your rental income,” Mr Loh said.

Work-related expenses

From March 1st taxpayers claiming working from home expenses are required to provide more detailed documentation and calculations. This means you can’t do a copy-paste from last year’s annual return. Previously you could choose from a number of different methods to calculate how much you could claim when working from home. However, as the working landscape changes and more people are working back in the office more frequently, the methods of calculation have changed and there are limits on what you can claim.

The ATO crackdown is particularly focused on ensuring taxpayers understand the changes to the working from home methods and are able to back up their claims.

Keeping good records will give you flexibility to choose the right method that suits your circumstances and gives you the best deduction this tax time,” Mr Loh said.

Capital gains tax

Do you rent your home out for example on AirBnb or Stayz? Then you may need to pay capital gains tax (CGT). CGT is generally incurred when you dispose of assets such as shares, crypto, managed investments or properties.

The ATO wants to make sure that taxpayers have considered all their assets when calculating capital gains tax as well as apportionment of the main residence exemption if taxpayers have used their property to earn income.

It’s important that you have kept records of the income-producing period and the portion of the property used to produce income to calculate your capital gain.

Generally, your main residence is exempt from CGT, however if you have used your home to produce income, such as renting out all or part of it through the sharing economy, for example Airbnb or Stayz, or running a business from home, then CGT may apply,” Mr Loh said.

Avoid an ATO Crackdown

By announcing it’s focus areas in advance, the ATO aims to promote fairness, transparency and greater compliance with tax laws through increasing awareness of the issues and providing guidance on how to avoid them.

Outside of these 3 main areas of focus, it has also been reported that income earned from the ‘gig economy’ or side hustles would attract greater scrutiny. This includes ride-share drivers and even social media influencers.

If you’re running bootcamp sessions in addition to your nine-to-five job, well this is a side hustle and you need to declare this income to the ATO. If you’re an online content creator earning money or receiving gifts, you’re also likely to be running a business and there are tax obligations you need to comply with.” Mr Loh said.

A hobby crosses over to a business when there is an intention to earn a profit and the activity is planned and organised to achieve that goal.

The best way to avoid the issues highlighted as a focus in this ATO crackdown is to work with experienced tax accountants. Please contact the team at MGI if you need any assistance.

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