JUNE 2022 NEWSLETTER
Welcome….to The Enterprise Sanctuary’s June 2022 newsletter.
Coming back into what used to be normal now feels strange. As we all learn to settle into a phase of new normal, we at The Enterprise Sanctuary are here to continue helping and support you and your business through these familiar and “new” times ahead.
Today, we will have a look at some items relating to the approaching tax season, specifically the work-from-home deduction and cryptocurrency. We will also briefly cover the Federal Election 2022 results, specifically on how it will affect us from a tax perspective.
WORK FROM HOME DEDUCTIONS
There are three methods available depending on your circumstances, for claiming a deduction for your working from home expenses. You can choose from the shortcut (all-inclusive), fixed rate and actual cost methods, so long as you meet the eligibility and record-keeping requirements.
Shortcut Method
Individuals who work from home can claim a fixed rate of $0.80 per hour worked from home. The shortcut method covers expenses such as phone expenses, internet expenses, depreciation on furniture & equipment and electricity and gas.
The shortcut method is meant to make it easier for individuals to claim home office expenses during pandemic and The Australian Taxation Office (ATO) have extended this method for claiming home office deductions to the 2021-22 income year.
To claim home office deductions using the shortcut method, a record of the actual hours worked at home e.g. timesheets, roster or a diary are required to be maintained.
Note that the shortcut method is not compulsory, and individuals can still claim based on actual expenses incurred but may involve more complex record keeping requirements.
Fixed rate Method
A fixed rate of 52 cents per hour can be claimed for each hour worked from home and represents running expenses. This method is simple and more commonly used as it does not require full substantiation of actual expenses. You will need to keep a record of actual hours worked at home or a diary showing the usual pattern of working from home over a four-week period (applied across the remainder of the year). For instance, if an employee spent 5 hours per week for the whole year (48 weeks estimated after excluding public holidays and annual leave), the claim under this method will be: 5 hours per week x $0.52 per hour x 48 weeks = $124.80.
This method covers heating, cooling, lighting, cleaning and the decline in value of home office furniture and furnishings e.g. desk.
If using this method, the following can be claimed in addition (if applicable):
Phone and internet expenses, including the decline in value of the handset
computer consumables and stationery, and
decline in value on computer, laptops and other equipment.
Actual cost Method
To calculate the claim for running costs as an alternative to the fixed rate method, individuals can use the actual running expenses method. This method is more complex and will require more detailed records but may result in a larger claim.
To use this method, you will need to work out how much of the household running expenses ‘reasonably’ relate to performing work in the dedicated office. As an example, a reasonable method of apportionment could include working out what floor area relates to the dedicated home office as a percentage of the total floor area of the home. This percentage is applied to actual running costs incurred during the period including electricity etc. You will need receipts of expenses and records to prove the claim.
If your phone, data and internet use for work is incidental and you're not claiming more than $50 in total, you do not need to keep records. To claim a deduction of more than $50, you need to keep records to show your work-related use. Your records need to show a four-week representative period in each income year. Record keeping may include diary entries, bills or evidence that your employer expects you make work-related calls from home.
It should be noted, however, that if your employer re-imburses you for any of these costs, you cannot claim them as a tax deduction.
CRYPTOCURRENCY – TRADING OR INVESTMENT
Tax responsibilities:
If you buy, sell or invest in cryptocurrency, you need to be aware of your tax responsibilities.
Your tax responsibilities vary depending on your circumstances, but you need to keep records for all cryptocurrency transactions.
If you have transacted with a foreign cryptocurrency exchange you may have tax responsibilities in another country.
How does the ATO treat cryptocurrency?
Individuals transacting with cryptocurrency in Australia may incur tax liabilities in the form of Capital Gains Tax (CGT) or Income Tax. The type of tax payable (as well as the quantity of how much) will depend on the type of transaction in question. As an example, crypto to crypto swaps (such as swapping an amount of Bitcoin for an equivalent amount of Ethereum) incurs capital gains tax, whereas receiving an airdrop would incur income tax.
It’s important to remember that your cryptocurrency will be taxed differently based on whether you are considered to be an investor or a trader. While investors will pay capital gains tax when they dispose of cryptocurrency, traders pay income tax.
Here’s a breakdown of the differences between investors and traders as per the ATO’s guidelines.
Investor: typically buy cryptocurrencies for the long-term and are primarily interested in building up their wealth over time. Most retail crypto investors would likely fall into this category.
Trader: If you’re mining or trading cryptocurrency in what the ATO describes as an “organized, business-like manner”, you may be considered a trader. Here are a few signs that you may fall into this category:
A significant capital investment
A focus on generating profits in the short-term
A large volume of trades on a daily or weekly basis
Documentation and assets that suggest business-like activity such as revenue projections, an Australian Business number, and dedicated office space
Record keeping for cryptocurrency
You need to keep the following records in relation to your cryptocurrency transactions:
the date of the transactions
the value of the cryptocurrency in Australian dollars at the time of the transaction (which can be taken from a reputable online exchange)
what the transaction was for and who the other party was (even if it’s just their cryptocurrency address).
The sorts of records you should keep include:
receipts of purchase or transfer of cryptocurrency
exchange records
records of agent, accountant, and legal costs
digital wallet records and keys
software costs related to managing your tax affairs
FEDERAL ELECTION 2022 – TAX OVERVIEW
What does the Labor’s win means?
Tax cuts
Reduction of 32.5% marginal tax rate to 30% for tax bracket between $45,000 and $200,000 from 1 July 2024. The 37% tax rate will be entirely abolished.
Tax rises
The Low and Middle Income Tax Offset (LMITO) will no longer be available from the 2023 tax year. This will mean a rise of up to $1,500 for those currently entitled to the full LMITO (in the 2022 tax returns).
First home buyers
Eligible first home buyers with a minimum 2% deposit can get an equity contribution from the Federal Government of up to a maximum of 40% (new home purchase price) and up to a maximum of 30% (existing home purchase price).
Eligibility:
Australian citizen of at least 18 years of age.
Earn yearly income of less than $90,000 (individuals) or $120,000 (couples).
Using it as a principal place of residence.
Don’t own any other land or property in Australia or overseas.
Have the minimum 2% deposit of the home price and qualify for financing the remainder of the purchase through a standard home loan.
Able to pay for any associated purchase costs like stamp duty, legal fees, bank fees and other ongoing property costs.
Note that if the homebuyer’s income exceeds the annual income threshold for two consecutive years, they will be required to repay the Government’s financial contribution in part or whole.
Please contact us at ESF Partners if you would like to talk about these topics in more detail.
Disclaimer
Clients should not act solely on the basis of the material contained in Client newsletter. Items herein are general comments only and do not constitute or convey advice. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Client newsletter is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.