One thing to bear in mind if you’re considering getting into crypto-currencies, or are already involved, is that there are tax implications to trading and investing in these new digital products. Here’s our guide to tax and bitcoin.

WHAT IS BITCOIN?

Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed, like dollars or euros – they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems.

It’s the biggest example of a growing category of money known as cryptocurrency.

There are three ways to get bitcoin – by mining them, buying them or providing good and services to earn them. Mining refers to the process by which bitcoins are created – a computer crunches through a set of difficult mathematical problems and success is rewarded with a bitcoin.

The alternative is to create an ‘online wallet’, visit a bitcoin exchange system that puts sellers in touch with buyers and the buyers pay for bitcoins purchased by transferring money via online banking.

The third way is possible because bitcoin is becoming an increasingly accepted virtual currency used by businesses and individuals around the world, including in Australia.

As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment. According to research produced by Cambridge University in 2017, there are 2.9 to 5.8 million unique users using a cryptocurrency wallet, most of them using bitcoin.

HOW IS BITCOIN TAXED?

Using bitcoin to pay for personal transactions

Generally, there are no income tax or GST implications if you are not in business or carrying on an enterprise and you simply pay for goods or services in bitcoin (for example, acquiring personal goods or services on the internet using bitcoin).

Bitcoin is a regarded as a capital gains tax (CGT) asset so CGT potentially applies whenever an Australian resident sends a bitcoin to another person. However, transactions are exempt from capital gains tax if:

• bitcoins are used to pay for goods or services for personal use – e.g. Expedia hotel bookings, or at a café which accepts bitcoins, and
• the cost of the bitcoins used to pay for the transaction is less than $10,000 (this is the exemption for personal use assets).

If the cost of the bitcoins used in the transaction exceeds $10,000, the personal use exemption will not be available and CGT will apply. The capital gain is calculated as the increase in value of the bitcoins between the time they were acquired and the time they were disposed of.

USING BITCOIN TO BUY AND SELL GOODS AND SERVICES IN A BUSINESS

If you receive bitcoin for goods or services provided as part of a business, you will need to record the value of the bitcoins in Australian dollars as part of your ordinary income for tax purposes. The value in Australian dollars will be the fair market value which can be obtained from a reputable bitcoin exchange, for example.

Where you carry on a business and purchases business items (including trading stock) using bitcoin, you are entitled to a tax deduction based on the arm’s length value of the item acquired.

There may also be capital gains tax consequences where you dispose of bitcoin as part of carrying on a business. However, any capital gain is reduced by the amount that is included in assessable income as ordinary income (so you aren’t taxed twice on the same amount).

MINING BITCOIN

Where you are in the business of mining bitcoin, any income that is derived from the transfer of the mined bitcoin to someone else is included in assessable income.

Any expenses incurred in respect of the mining activity are allowed as a deduction.

Losses made from the mining activity may also be subject to the non-commercial loss provisions, so they won’t automatically be available to offset against other income (there are tests you’ll have to meet first)

Bitcoin held if you are carrying on a business of mining and selling bitcoin is considered to be trading stock. You’d need to bring into account any Bitcoin on hand at the end of each income year.

TAXPAYERS CONDUCTING A BITCOIN EXCHANGE (INCLUDING BITCOIN ATMS)

Where you are carrying on a business of buying and selling bitcoin as an exchange service, the proceeds derived from the sale of bitcoin are included in assessable income.

Any expenses incurred in respect of the exchange service, including the acquisition of bitcoin for sale, are deductible.

Bitcoin held by someone carrying on a bitcoin exchange is considered to be trading stock and you would be required to bring to account any bitcoin on hand at the end of each income year.

DISPOSING OF BITCOIN ACQUIRED FOR INVESTMENT

If you acquire bitcoin as an investment, any profits resulting from the sale are not assessable income and no deductions can be claimed.

Capital Gains Tax will apply although where the cost of the Bitcoin does not exceed $10,000 the personal use asset exemption may apply if you can demonstrate that the bitcoin was to fund personal consumption.

Where the cost of the Bitcoin exceeds $10,000, the personal use exemption will not be available and CGT will apply. The capital gain is calculated as the increase in value of the Bitcoins between the time they were acquired and the time they were disposed of.

If the transactions amount to a profit-making undertaking or plan then the profits on disposal of the Bitcoin will be assessable income since you will be regarded as a trader in bitcoin rather than an investor.

Note: the rules around trading Bitcoin for business or profit versus buying and selling Bitcoin as an investment are essentially the same as those applying to share traders versus investors. There are other factors to take into account but broadly, if you are holding the bitcoin with a view to long term gain, you are likely to be an investor and if you are buying and selling bitcoin over the short term with a view to making profits, you are likely to be a trader.

RECORD KEEPING

Everyone dealing with bitcoins need to keep the following records:

• the date of each transaction
• the amount in Australian dollars at the time of the transaction (which can be taken from a reputable online exchange)
• what the transaction was for, and
• details of the other party (the bitcoin public address is enough).

If you want to rely on the CGT personal use exemption, you’ll need to be able to demonstrate that you actually did use the bitcoin to buy goods and services or that you intended to.

The post Bitcoin and Tax: Beware the pitfalls appeared first on CGH Accounting.

PLAN AHEAD

Selling a business of any size requires careful planning and considerable action. But it’s not as simple as flicking a switch from running a business to selling one. To get yourself and your business prepared – planning ahead is crucial. Start by getting your books in order and making sure your cash-flow is healthy. If you notice any areas of your business that needs attention, you need to address them as they could be deal-breakers for potential buyers. Because the process of selling is time-consuming and can be a distraction from the day-to-day running of the business, putting processes in place can help with keeping the wheels in motion.

BOOKS IN ORDER

Your books are essentially the lifeline of your business and any small business owner can vouch that books don’t balance themselves. In all likelihood, a potential buyer will go straight to your financials to assess their risk. Books that haven’t been properly managed can be a red flag for a potential buyers, so before you even think about putting the business on the market – invest in bookkeeping. As part of the due diligence process, a potential buyer may want to see financial records such as:

• Profit and loss statements for the past 24 to 36 months
• Current balance sheet
• Any financial forecasts and business plans
• Any bank loans or line of credit loans
• Details of your business’ financial systems and processes
• A detailed breakdown of the outgoing costs

If you’re planning to sell, work with CGH Accounting to get your records in order.

THE RIGHT REPRESENTATIVE

Starting and running a business are very different skills to selling a business. While you may know your business and industry inside out, navigating the process of sale is an entirely different story. Bad advice can cost you, so always do your research and make sure you find the right person to represent your sale. Whether that’s a broker, advisor, accountant, lawyer or a combination of advisors, having the right person beside you can make or break the transaction. As much as you’re selling your physical business, there’s also an emotional element at play and letting go can be a difficult process. Having a neutral third party can help mitigate that and ensure the process starts on point and stays on track.

DON’T SKIMP ON LEGAL ADVICE

The process of selling a business is relatively complicated. With so many moving parts and decisions to be made, it can quickly become overwhelming. In addition to financial considerations, there are a lot of legal implications when selling a business, both from a compliance and financial perspective. When it comes to legal advice, the best advice one can receive is to never cut corners. Always seek professional, reputable advice from a commercial lawyer who understands the ins and outs of selling your business. Not only can the right advice help you get the best price but it can also save you from making a costly mistake once the deal is done.

DON’T RUSH DUE DILIGENCE

As painful as due diligence may be, it’s a valuable and necessary process for both parties. The potential buyer has an opportunity to dig a little deeper and understand your business and the opportunity. At the same time, you as the seller can get to know the potential buyer and scope out whether this is the right opportunity before entering into a contract. Both your lawyer and accountant can help with this process.

DON’T SELL TO THE WRONG BUYER

You’ve poured your blood, sweat and tears into your business so it’s easy to get carried away in cashing in on your efforts. Not all deals, no matter the price tag, will work in your favour so it pays to pick the right buyer. Your first offer may not be your best offer so before leaping at the opportunity, make sure you understand what your risks and rewards are. In some cases, business sales can turn sour when the new owner takes over which may leave you without a full payout. Always have a lawyer and accountant evaluate the offer to make sure you know where you stand legally, financially and from a taxation perspective.

The post The dos and don’ts of selling your small business appeared first on CGH Accounting.

CLAIM TOOLS AND EQUIPMENT

You probably use a variety of tools every day and the rule is that if you’ve paid for them and you use them as part of your job or business, you can claim them as a deduction against your tax.

Exactly how you do that depends on whether you run your own business or work for someone else.

If you run your own business, you can claim a deduction straight away for the cost of all tools costing less than $30,000 (if acquired after 2 April 2019, before that the cost limit was $20,000 up to 29 January 2019 and $25,000 between 29 January 2019 and 2 April 2019).

For most self-employed tradies, that means that pretty much all your tools can be written off straight away against your taxable income.

If you’re employed by someone else, the rules are less generous. You can claim a deduction straight away for tools costing $300 or less but if the cost is more than $300, you’ll need to write off the cost over the life of the tool, which could be several years. Take care if you purchase a set of tools – you can’t claim each tool individually so unless the cost of the set is less than $300, you’re looking at writing off the cost over a few years.

It’s not just tools you claim either – the same rules apply to items of equipment for the office like computers, phones and printers as well as mobile phones and tablets.

Just remember to only claim the work or business use part of the cost. If you use the tools or equipment for private use, you’ll need to apportion the cost.

VEHICLES

You can also claim the cost of a vehicle, such as a van or a ute, which you use in your business or for your job, provided you paid for the vehicle (so there’s no deduction for work-provided vehicles).

If you run a business, you can use the same $30,000 instant write-off tax break outlined above, provided of course the vehicle costs less than $30,000 (as many second-hand vehicles do). If it costs $30,000 or more, you’ll need to write it off over the life of the vehicle.

If you’re an employee, you can claim depreciation on the vehicle over its life, but only if you keep a logbook of your work/private use. Your logbook can also be used to work out your various other work-related vehicle deductions, such as the cost of fuel, servicing, etc.

Alternatively, if you travel less than 5000kms, you can simply claim a set 68c/km allowance for every business km travelled.

Remember, you can’t claim for the costs of traveling from home to work in your vehicle, unless your employer requires you to transport heavy tools which can’t be stored at work.

WORK-RELATED CLOTHING

If your work requires you to wear either a compulsory uniform or protective clothing to keep you safe (or to protect the normal clothing you wear underneath), the chances are you’ll be able to claim a tax deduction both for the cost of purchasing the item and the cost of getting it periodically laundered or dry cleaned.

Look out for the following commonly claimed items by tradies:

• protective clothing and footwear to protect you from the risk of illness or injury, or to prevent damage to your ordinary clothes, caused by your work or work environment. This type of clothing:
  • is made to cope with more rigorous conditions, where conventional clothing would be inadequate.
  • is designed to protect you – for example heavy duty shirts and trousers, distinct from ordinary cotton drill trousers, shorts and short sleeve shirts that you might think are work wear but do not adequately protect you from the risk of injury or illness
  • has a density of weave which gives a UV rating sufficient to protect you from the sun where your job requires you to work outdoors.

Amongst the things you could claim are:

• fire-resistant clothing
• safety-coloured vests
• steel-capped boots
• gloves
• hardhats
• overalls
• non-slip safety shoes
• heavy duty shirts and trousers such as rip proof items of clothing made with heavy duty mesh that are designed to protect you or items with reflective strips
• Compulsory work uniform branded with the employer’s logo.
• Sun protection costs including sunglasses and sunscreen if you work outdoors

LAUNDRY AND DRY-CLEANING

You can claim the costs of washing, drying and ironing eligible work clothes, or having them dry-cleaned.

If the total amount of your laundry expenses are $150 or less and your total work-related expenses are $300 or less, you don’t need to provide written evidence for your laundry expenses. Instead, for washing, drying and ironing you do yourself, the ATO allows you to use the following amounts to work out your laundry claim:

• $1 per load – this includes washing, drying and ironing – if the load is made up only of work-related clothing, and
• 50 cents per load if other laundry items are included.

CLEAR THE DECKS

If you’re in business and have any obsolete, damaged or unusable materials left on your site at the end of the year, write-off the cost before the end of the year in order to claim a tax deduction.

In addition, if you have customers who can’t or won’t pay and you have done everything possible to recoup the debt without success, write it off by 30 June in order to claim a bad debt deduction. Make sure to record the write-off in the form of a Board Minute or other similar record.

FINALLY…

Two tips for making your taxes easy:

• Keep good records, including invoices and receipts. It makes completing your tax return easier and ensures you can claim for everything you’re entitled to.
• Ensure you use a tax agent like CGH Accounting. Tax is complicated and an agent can ensure you get it right.

 

Please Note: This is general advice. To learn more about the possibilities of claiming a tax deduction, please contact CGH Accounting.

The post Tax Tips for Tradies 2019 appeared first on CGH Accounting.

CGH Accounting has enjoyed a wonderful year and Jason & I would like to take this opportunity to thank you all for your continued support. Word of mouth still accounts for 95% of our business growth and we are as always very grateful for the continued patronage.

Tax time is upon us again and this is your friendly reminder to start your preparations. Please feel free to call or email myself, Jason or our staff to discuss your tax matters at any time.

If you are hoping to have your tax completed in July 2019, please be aware that it is up to you to ensure you provide us with the correct tax information. The ATO does provide us much of what we require, but not a lot is available until August 2019.

We have selected some interesting and relevant Tax Tips and Tax Topics including Travel Deductions and Bitcoin for you to peruse this year which can be seem below and also within the NEWS Tab of the CGH Accounting Website.

We are in it for the long haul & we are passionate about looking after You!

We strive to not simply make your business compliant, but truly aim to make it the most successful it can be.

Whether our involvement is through business and accounting services, education and knowledge sharing, the simplification of financial matters or simply by allowing you to spend more time with your family, your success dictates our own.

With our business partners our goal is to become the trusted advisor on taxation matters for each and every client. We’ve really only met our own expectations if we’re an important and valued part of your business.

The post June Update 2019 appeared first on CGH Accounting.

CGH Accounting has enjoyed a wonderful year and Jason & I would like to take this opportunity to thank you all for your continued support. Word of mouth still accounts for 95% of our business growth and we are as always very grateful for the continued patronage.

Tax time is upon us again and this is your friendly reminder to start your preparations. Please feel free to call or email myself, Jason or our staff to discuss your tax matters at any time.

If you are hoping to have your tax completed in July 2018, please be aware that it is up to you to ensure you provide us with the correct tax information. The ATO does provide us much of what we require, but not a lot is available until August 2018.

We have selected some interesting and relevant Tax Tips and Tax Topics including Travel Deductions and Bitcoin for you to peruse this year which can be seen below and also within the NEWS Tab of the CGH Accounting Website.

We are in it for the long haul & we are passionate about looking after You!

We strive to not simply make your business compliant, but truly aim to make it the most successful it can be.

Whether our involvement is through business and accounting services, education and knowledge sharing, the simplification of financial matters or simply by allowing you to spend more time with your family, your success dictates our own.

With our business partners our goal is to become the trusted advisor on taxation matters for each and every client. We’ve really only met our own expectations if we’re an important and valued part of your business.

The post June Update 2018 appeared first on CGH Accounting.

When submitting a tax return you are entitled to claim deductions for expenses incurred while working – known as work related deductions. To be able to claim work related deductions you must meet the following criteria:

• you must have record to prove it
• you must have spent the money yourself
• you must not have been reimbursed for the cost
• the expense must be related to your job.

If the expense you are claiming is for both work and private purposes, you can only claim the work portion of the cost.

What are the different types of deductions you can claim?

Vehicle and travel expenses

Using your car for work

If you’re required to use your car for work, you are entitled to a deduction for the costs which you incur whilst at work. This specifically excludes the cost of the commute from home to work, except in very limited circumstances (see below).

Typical situations where you might be able to claim for using your car for work include:

• Traveling between workplace sites during the working day
• Traveling directly from one job to another where you have a second job (provided you don’t go home first)
• Traveling to a business related meeting with a client, supplier or prospect
• Traveling to a work-related course

You can’t claim a deduction for home to work travel. This is regarded as private expenditure. The only exception to that rule is if you are required by your employer to carry bulky tools in your vehicle which cannot be safely secured at work. Take great care on that point – the ATO looks very closely at such claims and disallows lots of them.

Other travel expenses

To the extent you incur a cost which isn’t reimbursed by your employer, there are lots of other items you can claim. Remember all these must be work-related and mustn’t be connected to your journey from home to work:

• Bridge/tunnel tolls
• Public transport fares
• Airfares
• Car parking
• Taxi fares

You can’t claim the cost of fines for speeding, parking infringements or other motoring offences.

Overnight meals and accommodation

If you’re required to travel away from home overnight for work purposes, on an interstate trip perhaps, you can claim a deduction for any meals, accommodation or incidental expenses which you incur, to the extent you are not reimbursed by your employer.

Some people who travel extensively are paid an allowance by their employer to cover those costs. Those allowances are taxable but a deduction can then be claimed for costs incurred.

Work related clothing and laundry expenses

Do you need to wear a suit to work? Or perhaps you need to wear a uniform emblazoned with your company’s logo? Perhaps you work in a clothes shop and have to come to work wearing clothes bought in that store?

Whatever the case, you have to conform to your employers dress policy so there might be an expectation that you’ll be treated the same way by the taxman when it comes to claiming tax deductions for your work clothing.

What clothing can be claimed?

Clothing can only be claimed if it is specific to your occupation. For example, chef’s pants. You cannot claim the cost of purchasing or laundry for clothes that are not specific to your occupation. These include black pants and white collar shirts.

You can however, claim clothing and footwear you wear to protect yourself from injury or illness. For example sun protection can be claimed if you work outdoors.

Uniform specific clothing can be claimed if it has your company’s logo attached or if it sits inside your employer’s uniform policy.

Working from home deductions

If you’ve set up a home office in your study or converted a spare bedroom into a work space, you need to be aware of the potential tax deductions you can claim when you come to complete your 2018 tax return in a few weeks time. Here’s my list of the top five deductions you could be eligible for.

Heating, cooling and lighting bills

You have to heat your home office in the winter and keep it cool during the summer. You also need light to see what you’re doing! That means that you can claim a proportion of the various household utility bills which relate to the time you spend working in your home office. You can’t claim for periods where the home office space is being used for other purposes and nor can you claim for the element of your bills that relates to the rest of your home.

Depreciation of home office furniture and fittings

If you kit out your home office with furniture such as desks, shelving and cupboards, you can claim a deduction for the decline in value of that furniture to the extent that it relates to your work activity. That’s likely to lead to a write-off of the cost over a period of several years (the “effective life” of the asset).

Depreciation of office equipment and computers

Similarly, if you purchase items of technology for use in your home office, you can depreciate them over their life and claim a deduction each year for the work-related element. That might include:

• Computers
• Laptops
• Tablets
• Mobile phones
• Printers

Low-cost capital items

Capital items such as furniture and computer equipment costing less than $300 can be written off in full immediately (they don’t need to be depreciated). That could include some of the cheaper tablets and mobile phones, as well as many printers.

Other items

Make sure you claim for the work-related proportion of other costs such as:

• Computer consumables (like printer ink)
• Stationery
• Telephone and internet costs
• Cleaning costs

What you can’t claim

Many people try to claim a percentage of rent or the interest on a mortgage if they work from home using a home office. This isn’t allowable.

Diary method/actual running expenses

Keep a diary to work out how much of your running expenses relate to doing work in your home office or other workspace. The diary needs to detail the time you spend in the home office compared with other users of the home office. Keep your diary record for a representative four-week period. The ‘work-use proportion’ you come up with over that four week period can then be applied to all your actual expenditure over the course of the year. Of the two methods this usually produces the larger deduction but the record-keeping requirements are more stringent.

You’ll also need to work out how big your home office is compared to the rest of your house (using floor area as a guide). This will enable you to work out the split between costs which relate to the office and costs which are domestic in nature.

Mobile phone use

If you use your own phone for work purposes, you can claim a deduction if you paid for these costs and have records to support your claims. If you use your phone for both work and private use, you will need to work out the percentage that reasonably relates to your work use. You can’t double-dip and claim for phone expenses that have been reimbursed by your employer.

To work out your deduction, you need to choose a typical four-week period from some point in the tax year.

If you have a phone plan where you receive an itemised bill, you need to determine your percentage of work use over that 4-week period. You can then apply that to the full year.

You need to calculate the percentage using a reasonable basis.

Professional associations, magazine subscriptions and trade union fees

As a part of your profession, you may be a member of an association – the good news is, you can claim your subscriptions. If you’re part of a trade union, your fees are also deductible.

Magazines can make a dent in your return, as can subscriptions to mags associated with your line of work. If you’re an investor, financial publications and research services are claimable. Think ahead and prepay next year’s fees before June 30 and claim your deduction now.

Gifts and Donations

Gifts or donations can only be claimed if the organisation you donated to has the status of deductible gift recipients (DGRs). There are four key criteria to claim a tax deduction for a gift:

• The gift must be made to a DGRs
• Whatever you are gifting it must truly be a gift
• It must be money or property and includes financial assets
• The gift must comply with any relevant conditions. Some DGRs have different conditions so it is always best to check

The amount that can be claimed depends on the type of gift. For money, it must be $2 or more. For property the rules vary depending on the type and value.

How much to claim

For gifts of money, you can claim a deduction where the amount of the gift is $2 or more. For gifts of property, there are different rules, depending on the type of property and its value.

You can claim the deduction in the tax return for the income year in which the gift is made. Your receipt – which you will need to substantiate the deduction – should tell you whether or not you can claim a deduction.

If you used the internet or phone to make a donation over $2, your web receipt or credit card statement can be used to substantiate the deduction. If you donated through third parties, such as banks and retail outlets, the receipt they gave you is also sufficient. If you contributed through ‘workplace-giving’ your payment summary shows the amount you donated.

Interest and investments

Deductions can be claimed for expenses incurred earning interest, dividends or other types of investment income. For interest income expenses, you can claim account keeping fees for investment purposes. Something to be mindful of though is if you have a joint account, you can only claim your share of the fees.

For shares and dividends, you can claim a deduction for interest charged on money borrowed to purchase shares. If the money borrowed was used for both private and income producing purposes you must portion it between each purpose.

Income protection insurance

Insurance premiums that you take out against loss of income can be included in your deductions. But don’t make the mistake of incorporating life insurance, critical care insurance or trauma insurance because these are not eligible elements for deduction. Policies paid for out of your superannuation contributions are also not allowed.

Self-education expenses

Self-education expenses can be claimed if your study is directly linked to your work. The course you undertake must lead to a formal qualification that meets the below criteria:

• the course must maintain/improve skills and knowledge required in your current job
• result in or is likely to, an increase in your income

You cannot claim self-education expenses that does not have a significant enough connection to your current employment.

You can claim the following expenses in relation to your self-education:

• accommodation and meals (if away from home overnight)
• computer consumables
• course or tuition fees
• decline in value for depreciating assets (cost exceeds $300)
• purchase of equipment or technical instruments costing $300 or less
• equipment repairs
• fares
• home office running costs
• interest
• internet usage (excluding connection fees)
• parking fees (only for work-related claims)
• phone calls
• postage
• stationery
• student union fees
• student services and amenities fees
• textbooks
• trade, professional, or academic journals
• travel to-and-from place of education (only for work-related claims)

If an expense is partly for your self-education and partly for other purposes, you can only claim the amount that relates to your self-education as a deduction.

Tools and equipment

You can claim a deduction for some or all of the cost for tools and equipment if you require it for work purposes. If the work is used for both work and private expenses you need to divide what you can claim. The cost of the asset will affect the type of deduction you can claim:

• items that cost $300 or less and don’t form part of a set you can claim an immediate deduction
• items that cost over then $300 or form part of a set, you can claim a deduction for their decline in value. You can also claim the cost of repairing and insuring tools and equipment if need be.

Tax preparation fees and travel to see your accountant

Last year, if you were smart enough to enlist a tax professional to complete your return, you can claim for that this year. You can also declare your travel costs in getting to and from these consultations.

Always remember to prove your purchase

It is important to remember that anything you spend money on to earn income you can usually claim it, either as an immediate deduction or over time. That said it has to be a legitimate claim. You must be able to prove purchase, use the item at work and the expense is not private or domestic.

The post Tax Tips 2018 appeared first on CGH Accounting.

Deciding whether a person is a contractor or an employee can be a minefield, both for the individual and for the business taking them on. Getting it wrong can have a big impact, with consequences both for you and for the business which has engaged your services.

What is contracting?

Contractors (or consultants as they are sometimes called) are self-employed people engaged for a specific task, at an agreed price, with a specific goal in mind, often over a set period of time. They set their own hours of work and take care of their own tax obligations. Contractors are paid a fee for completing an assignment. They don’t receive a salary or wage. Often, once an assignment is finished, the contractor will move on to a new assignment with a different business. Contractors will often perform work for more than one business at a time.

Why do businesses like contractors?

Many businesses like taking people on as contractors. It gives them the flexibility to ‘hire’ and ‘fire’ at will to cover peaks and troughs in the order book. It also generally saves on costs and red tape. Some people prefer the relative freedom of contracting, though others resent the lack of rights and job security.

Employee or contractor?

The basic rule is that if you are engaged just for your labour, you will be considered an employee rather than a contractor from a tax point of view.

Beyond that, it gets complicated. There’s a long-standing myth that if you have an ABN, you can be treated as a contractor. As the table below shows, there’s much more to it than that. Here are the key attributes of an employee and a contractor, compared and contrasted.

The tax obligations facing the two types of worker are very different. Employees have tax deducted at source from their salary and receive compulsory superannuation payments from their employer. Contractors have to pay their own tax from their gross earnings and also need to make their own superannuation contributions.

The burden of getting the decision right rests with the hiring business. If they incorrectly – based on the facts – deem you to be a contractor when you should be treated as an employee, that business should account for PAYG on your wages, pay you superannuation and give you annual leave and long service leave. Similarly, if you run a small business and hire someone as a contractor, those obligations could fall on your business.

The Fair Work Act prohibits “sham contracting arrangements”, where an employer treats a worker as an independent contractor in an attempt to avoid meeting employee entitlements. It is illegal for a business owner to convert staff into contractors. Employers who try it can face prosecution for tax evasion and can be penalised for flouting superannuation laws and avoiding workers compensation laws.

The post Am I an employee or a contractor? appeared first on CGH Accounting.

One thing to bear in mind if you’re considering getting into crypto-currencies, or are already involved, is that there are tax implications to trading and investing in these new digital products. Here’s our guide to tax and bitcoin.

What is Bitcoin?

Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed, like dollars or euros – they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems.

It’s the biggest example of a growing category of money known as cryptocurrency.

There are three ways to get bitcoin – by mining them, buying them or providing good and services to earn them. Mining refers to the process by which bitcoins are created – a computer crunches through a set of difficult mathematical problems and success is rewarded with a bitcoin.

The alternative is to create an ‘online wallet’, visit a bitcoin exchange system that puts sellers in touch with buyers and the buyers pay for bitcoins purchased by transferring money via online banking.

The third way is possible because bitcoin is becoming an increasingly accepted virtual currency used by businesses and individuals around the world, including in Australia.

How is Bitcoin Taxed?

Using bitcoin to pay for personal transactions

Generally, there are no income tax or GST implications if you are not in business or carrying on an enterprise and you simply pay for goods or services in bitcoin (for example, acquiring personal goods or services on the internet using bitcoin).

Bitcoin is a regarded as a capital gains tax (CGT) asset so CGT potentially applies whenever an Australian resident sends a bitcoin to another person. However, transactions are exempt from capital gains tax if:

• bitcoins are used to pay for goods or services for personal use – e.g. Expedia hotel bookings, or at a café which accepts bitcoins, and
• the cost of the bitcoins used to pay for the transaction is less than $10,000 (this is the exemption for personal use assets).

If the cost of the bitcoins used in the transaction exceeds $10,000, the personal use exemption will not be available, and CGT will apply. The capital gain is calculated as the increase in value of the bitcoins between the time they were acquired and the time they were disposed of.

Using Bitcoin to buy and sell goods and services in a business

If you receive bitcoin for goods or services provided as part of a business, you will need to record the value of the bitcoins in Australian dollars as part of your ordinary income for tax purposes. The value in Australian dollars will be the fair market value which can be obtained from a reputable bitcoin exchange, for example.

Where you carry on a business and purchases business items (including trading stock) using bitcoin, you are entitled to a tax deduction based on the arm’s length value of the item acquired.

There may also be capital gains tax consequences where you dispose of bitcoin as part of carrying on a business. However, any capital gain is reduced by the amount that is included in assessable income as ordinary income (so you aren’t taxed twice on the same amount).

Mining Bitcoin

Where you are in the business of mining bitcoin, any income that is derived from the transfer of the mined bitcoin to someone else is included in assessable income.

Any expenses incurred in respect of the mining activity are allowed as a deduction.

Losses made from the mining activity may also be subject to the non-commercial loss provisions, so they won’t automatically be available to offset against other income (there are tests you’ll have to meet first)

Bitcoin held if you are carrying on a business of mining and selling bitcoin is considered to be trading stock. You’d need to bring into account any Bitcoin on hand at the end of each income year.

Taxpayers conducting a Bitcoin exchange (including bitcoin ATMs)

Where you are carrying on a business of buying and selling bitcoin as an exchange service, the proceeds derived from the sale of bitcoin are included in assessable income.

Any expenses incurred in respect of the exchange service, including the acquisition of bitcoin for sale, are deductible.

Bitcoin held by someone carrying on a bitcoin exchange is considered to be trading stock and you would be required to bring to account any bitcoin on hand at the end of each income year.

Disposing of Bitcoin acquired for investment

If you acquire bitcoin as an investment, any profits resulting from the sale are not assessable income and no deductions can be claimed.

Capital Gains Tax will apply although where the cost of the Bitcoin does not exceed $10,000 the personal use asset exemption may apply if you can demonstrate that the bitcoin was to fund personal consumption.

Where the cost of the Bitcoin exceeds $10,000, the personal use exemption will not be available and CGT will apply. The capital gain is calculated as the increase in value of the Bitcoins between the time they were acquired and the time they were disposed of.

If the transactions amount to a profit-making undertaking or plan, then the profits on disposal of the Bitcoin will be assessable income since you will be regarded as a trader in bitcoin rather than an investor.

Note: the rules around trading Bitcoin for business or profit versus buying and selling Bitcoin as an investment are essentially the same as those applying to share traders versus investors. There are other factors to take into account but broadly, if you are holding the bitcoin with a view to long term gain, you are likely to be an investor and if you are buying and selling bitcoin over the short term with a view to making profits, you are likely to be a trader.

Record Keeping

Everyone dealing with bitcoins need to keep the following records:

• the date of each transaction
• the amount in Australian dollars at the time of the transaction (which can be taken from a reputable online exchange)
• what the transaction was for, and
• details of the other party (the bitcoin public address is enough).

If you want to rely on the CGT personal use exemption, you’ll need to be able to demonstrate that you actually did use the bitcoin to buy goods and services or that you intended to.

The post Bitcoin and Tax: Issues to consider appeared first on CGH Accounting.

CGH Accounting has enjoyed a wonderful year and Jason & I would like to take this opportunity to thank you all for your continued support. Word of mouth accounts for 95% of our business growth and we are as always very grateful for the continued patronage.

Tax time is upon us again and this is your friendly reminder to start your preparations. Please call me to discuss your tax matters at any time.

We are in it for the long haul & we are passionate about looking after You!
We strive to not simply make your business compliant, but truly aim to make it the most successful it can be.

Whether our involvement is through business and accounting services, education and knowledge sharing, the simplification of financial matters or simply by allowing you to spend more time with your family, your success dictates our own.

With our business partners our goal is to become the trusted advisor on financial matters for each and every client. We’ve really only met our own expectations if we’re an important and valued part of your business.

Our people are outstanding. Yes, they are accountants, but they keep it simple and don’t use jargon. We’ll make sure that our knowledge directly contributes to your business success.

CGH ACCOUNTING UPDATE
We are delighted to welcome Samantha Holland to the firm. Sam is a well credentialed accountant and looks forward to getting involved during the year.

The post June Update 2017 appeared first on CGH Accounting.

When submitting a tax return you are entitled to claim deductions for expenses incurred while working – known as work related deductions. To be able to claim work related deductions you must meet the following criteria:

• you must have record to prove it
• you must have spent the money yourself
• you must not have been reimbursed for the cost
• the expense must be related to your job.

If the expense you are claiming is for both work and private purposes, you can only claim the work portion of the cost.

What are the different types of deductions you can claim?

Vehicle and travel expenses

The most important thing to remember when it comes to work related vehicle and travel expenses is that you must keep records. This will make life a lot easier for you come tax time.
If you use your car for work you are entitled to claim the work related travel expenses that relate to the business costs of using your car to do your job. There are a number of methods you can use to claim the car expenses. You must own the car to claim under any of these methods and the record keeping requirement is detailed for each method.

Travelling to and from work on a daily basis cannot be claimed as this is considered as private travel.

You cannot claim the cost of normal trips between home and work because that travel is private even if:

• You do minor tasks on the way to work, such as picking up the mail
• You travel back to work for a security call out or parent teacher interviews
• You work overtime and no public transport is available to use to get you home

Work related clothing and laundry expenses
Do you need to wear a suit to work? Or perhaps you need to wear a uniform emblazoned with your company’s logo? Perhaps you work in a clothes shop and have to come to work wearing clothes bought in that store?

Whatever the case, you have to conform to your employers dress policy so there might be an expectation that you’ll be treated the same way by the taxman when it comes to claiming tax deductions for your work clothing.

What clothing can be claimed?
Clothing can only be claimed if it is specific to your occupation. For example, chef’s pants. You cannot claim the cost of purchasing or laundry for clothes that are not specific to your occupation. These include black pants and white collar shirts.
You can however, claim clothing and footwear you wear to protect yourself from injury or illness. For example sun protection can be claimed if you work outdoors.
Uniform specific clothing can be claimed if it has your company’s logo attached or if it sits inside your employer’s uniform policy.

Working from home deductions
If you carry out all or part of your employment activities from home, then some portion of the home office expenses can be claimed as a tax deduction. Ideally, you should have a room set aside as a home office. Whilst you do not need to have a room set aside for your home office claim, if you are using a room with a dual purpose (e.g. dining room), or a room shared with others (e.g. lounge room) you can only claim the expenses for the hours you had exclusive use of the area.

If you work from home you may be entitled to expenses such as computers, phone or any other electronic devices you need for work. You can also deduct running costs for any electricals.
As a general rule you can claim home office equipment such as computers up to $300 or a decline in value for items costing $300 or more. You can also claim your phone bill if it is used in part for work related expenses.

Mobile phone use
If you use your own phone for work purposes, you can claim a deduction if you paid for these costs and have records to support your claims. If you use your phone for both work and private use, you will need to work out the percentage that reasonably relates to your work use. You can’t double-dip and claim for phone expenses that have been reimbursed by your employer.
To work out your deduction, you need to choose a typical four-week period from some point in the tax year.

If you have a phone plan where you receive an itemised bill, you need to determine your percentage of work use over that 4-week period. You can then apply that to the full year.
You need to calculate the percentage using a reasonable basis.
Professional associations, magazine subscriptions and trade union fees
As a part of your profession, you may be a member of an association – the good news is, you can claim your subscriptions. If you’re part of a trade union, your fees are also deductible.
Magazines can make a dent in your return, as can subscriptions to mags associated with your line of work. If you’re an investor, financial publications and research services are claimable. Think ahead and prepay next year’s fees before June 30 and claim your deduction now.

Gifts and Donations
Gifts or donations can only be claimed if the organisation you donated to has the status of deductible gift recipients (DGRs). There are four key criteria to claim a tax deduction for a gift:

• The gift must be made to a DGRs
• Whatever you are gifting it must truly be a gift
• It must be money or property and includes financial assets
• The gift must comply with any relevant conditions. Some DGRs have different conditions so it is always best to check

The amount that can be claimed depends on the type of gift. For money, it must be $2 or more. For property the rules vary depending on the type and value.

How much to claim
For gifts of money, you can claim a deduction where the amount of the gift is $2 or more. For gifts of property, there are different rules, depending on the type of property and its value.

You can claim the deduction in the tax return for the income year in which the gift is made. Your receipt – which you will need to substantiate the deduction – should tell you whether or not you can claim a deduction.

If you used the internet or phone to make a donation over $2, your web receipt or credit card statement can be used to substantiate the deduction. If you donated through third parties, such as banks and retail outlets, the receipt they gave you is also sufficient. If you contributed through ‘workplace-giving’ your payment summary shows the amount you donated.

Interest and investments
Deductions can be claimed for expenses incurred earning interest, dividends or other types of investment income. For interest income expenses, you can claim account keeping fees for investment purposes. Something to be mindful of though is if you have a joint account, you can only claim your share of the fees.

For shares and dividends, you can claim a deduction for interest charged on money borrowed to purchase shares. If the money borrowed was used for both private and income producing purposes you must portion it between each purpose.

Income protection insurance
Insurance premiums that you take out against loss of income can be included in your deductions. But don’t make the mistake of incorporating life insurance, critical care insurance or trauma insurance because these are not eligible elements for deduction. Policies paid for out of your superannuation contributions are also not allowed.

Self-education expenses
Self-education expenses can be claimed if your study is directly linked to your work. The course you undertake must lead to a formal qualification that meets the below criteria:

• the course must maintain/improve skills and knowledge required in your current job
• result in or is likely to, an increase in your income

You cannot claim self-education expenses that does not have a significant enough connection to your current employment.

You can claim the following expenses in relation to your self-education:

• accommodation and meals (if away from home overnight)
• computer consumables
• course or tuition fees
• decline in value for depreciating assets (cost exceeds $300)
• purchase of equipment or technical instruments costing $300 or less
• equipment repairs
• fares
• home office running costs
• interest
• internet usage (excluding connection fees)
• parking fees (only for work-related claims)
• phone calls
• postage
• stationery
• student union fees
• student services and amenities fees
• textbooks
• trade, professional, or academic journals
• travel to-and-from place of education (only for work-related claims)

If an expense is partly for your self-education and partly for other purposes, you can only claim the amount that relates to your self-education as a deduction.

Tools and equipment
You can claim a deduction for some or all of the cost for tools and equipment if you require it for work purposes. If the work is used for both work and private expenses you need to divide what you can claim. The cost of the asset will affect the type of deduction you can claim:

• items that cost $300 or less and don’t form part of a set you can claim an immediate deduction
• items that cost over then $300 or form part of a set, you can claim a deduction for their decline in value. You can also claim the cost of repairing and insuring tools and equipment if need be.

Tax preparation fees and travel to see your accountant

Last year, if you were smart enough to enlist a tax professional to complete your return, you can claim for that this year. You can also declare your travel costs in getting to and from these consultations.

Always remember to prove your purchase

It is important to remember that anything you spend money on to earn income you can usually claim it, either as an immediate deduction or over time. That said it has to be a legitimate claim. You must be able to prove purchase, use the item at work and the expense is not private or domestic.

The post Tax Tips 2017 appeared first on CGH Accounting.