In 2021 Tax Tips

Tax In Australia: What You Need To Know

Are you an Australian tax resident? If so, there are a few things you need to know about your tax obligations. 

This article provides an overview of the key points, including residency requirements, income taxes and deductions. So whether you’re filling out your first tax return or need a refresher, read on for everything you need to know about Australian taxes.

Australia has a complex and comprehensive tax system. It can be difficult to keep track of all the changes, so we will outline some of the key points you need to know in this post. 

We’ll also talk about what you need to do if you’re starting a business in Australia or an overseas investor looking to invest in Australian property. So whether you’re a resident or non-resident taxpayer, read on for essential information about taxation in Australia!

Wondering how your taxes work in Australia? You’re not alone! This guide will break down the process step-by-step, making it easy for you to understand. Plus, we’ll answer some of the most commonly asked questions about Australian taxes.

If you’re an Australian resident, it’s important to familiarise yourself with the country’s tax system. In this blog post, we’ll outline some of the key things you need to know about paying taxes in Australia. 

We’ll also provide some tips on how to reduce your tax bill. So whether you’re a first-time taxpayer or you’ve been paying taxes in Australia for years, read on for useful information!

If you’re an Australian taxpayer, it’s important to understand the tax system so you can make the most of your money. This guide will give you an overview of what you need to know about taxes in Australia

We’ll cover topics such as income tax, GST, property taxes, and more. So whether you’re a first-time taxpayer or want to brush up on your knowledge, read on for information on Australia’s tax system.

As an Australian taxpayer, it’s important to know what tax you’re liable for and how to submit your return. This article will outline the main types of tax in Australia and provide some tips on preparing your return. 

So, whether you’re a first-time taxpayer or need a refresher, keep reading for everything you need to know about taxes in Australia.

If you’re an Australian tax resident, there are a few things you need to know about the tax system here. This article will give you an overview of how the system works and some of the things you need to keep in mind when filing your taxes. 

Regardless of your tax residency status, it’s always important to make sure you’re meeting your obligations and taking advantage of any applicable deductions or credits. So if you’re looking for a quick introduction to Australian taxation, keep reading!

Tax in Australia is complicated. It’s hard to know what you need to do, even if you’re doing it right. This blog post is here to help make tax in Australia a little less confusing. First, we’ll go over tax basics in Australia, what you need to know, and how to file your tax return. 

So whether you’re new to Australia or just feeling a little lost when it comes to your taxes, read on for some helpful tips!

Let’s get started!

What Is A Tax Agent Service?

Tax agent services relate to:

  • working out or advising about liabilities, obligations or entitlements of clients under taxation law, or
  • representing entities in their dealings with the Commissioner of Taxation,
  • The client can reasonably rely on the service to satisfy liabilities or obligations or claim entitlements under a taxation law.

Registration Exemptions

There are limited situations where you do not need to register as a tax agent. These include if you are:

  • an employee or contractor of a registered tax agent, and you do not provide tax agent services in your own right. However, if you are working for a registered company or partnership tax agent, the company or partnership might need you (as an individual) to be registered so that it has a sufficient number of registered individual tax agents
  • a registered qualified tax-relevant provider (QTRP) with ASIC
  • a company or partnership providing tax (financial) advice services, and you ensure every individual providing tax (financial) advice services on your behalf is registered either as a QTRP or a tax agent
  • a legal practitioner and you:

                -are not prohibited from providing tax agent services under a State or Territory law that regulates legal practise and the provision of legal services, and

                -do not prepare and lodge returns or return like statements*, except in acting for a trust or deceased estate as trustee or legal personal representative.

*Note: Return like statements include business activity statements, instalment activity statements, superannuation guarantee statements and pay as you go withholding payment summary or income statements.

Certain services are specifically excluded from the definition of a tax agent service, and you do not need to be registered to provide these services. For a full list of these specified services, refer to sub-regulation 13(1) of the Tax Agent Services Regulations 2009.

Transitional Arrangement For Tax (Financial) Advisers 

Transitional arrangement applies if you were registered as a tax (financial) adviser as at

31 December 2021, you are not a relevant provider with the Australian Securities and Investments Commission (ASIC). 

Under this transitional arrangement, you can legally provide tax (financial) advice services for a fee or other reward until 31 December 2022 without being registered as a tax agent.  

What A Licensed Adviser Can provide tax Advice?

As discussed above, licensed advisers or authorised representatives can also provide taxation advice under TASA if they have the status of a registered tax (financial) adviser or a tax agent. 

Typically taxation advice is covered by a licensed adviser’s statement of advice (‘SoA’). Broadly, SoAs prepared by licensed advisers will generally include any taxation advice. Therefore, there is no need to rely on an exemption under the CA or CA Regs; subject to the qualification below; the financial product advice is not covered by authorisation concerning that financial product under their licence.

A licensed adviser can rely on the exemption in CA Reg 7.1.29(4)(aa) to provide tax advice as follows:

(aa)    if the person is a financial services licensee (including a limited licensee) or a representative of a licensee — the advice mentioned in paragraph (a):

  • (i) about the licensee or the representative — is not covered by authorisation in the licence held by the licensee; or
  • (ii) about the representative — is not covered by authorisation in the licensee to the representative.

Thus, a licensed adviser who is a registered tax (financial) adviser or a tax agent can rely on the exemption about tax advice that is not covered by an authorisation under their licence.

Note, in contrast, that accountants must not provide financial product advice unless they have an AFSL or become an authorised representative of an AFSL holder apart from the exceptions provided concerning tax advice related to financial products under section 766B(5)(c) and CA Reg 7.1.29(4).

What A Non-Licensed Adviser Can provide tax Advice?

CA Reg 7.1.29(4) (as modified by ASIC Corporations (recognised Accountants: Exempt Services) Instrument 2016/1151 as amended by ASIC Corporations (Amendment) Instrument 2017/464) provides:

(4)      For this regulation, a person also provides an exempt service if:

(a)      the person provides advice to another person on taxation issues, including advice concerning the taxation implications of financial products; and

(aa)    if the person is a financial services licensee (including a limited licensee) or a representative of a licensee — the advice mentioned in paragraph (a):

  • (i) concerning the licensee or the representative — is not covered by authorisation in the licence held by the licensee; or
  • (ii) about the representative — is not covered by authorisation in the licensee to the representative; and

(b)     the person will not receive a benefit (other than from the person advised or an associate of the person advised) as a result of the person advised acquiring a financial product mentioned in the advice or a financial product that falls within a class of financial products mentioned in the advice; and

(c)      either:

  • (i)       the advice does not constitute financial product advice to a retail client; or
  • (ii)      the advice constitutes financial product advice to a retail client, and it includes, or is accompanied by, a written statement that:

(A)     the person providing the advice is not licensed or authorised (as applicable) to provide financial product advice of the kind mentioned in paragraph (a); and

(B)     taxation is only one of the matters that must be considered when deciding on a financial product; and

(C)     the client should consider taking advice from the holder of an Australian Financial Services Licence with the appropriate authorisation before deciding on a financial product.

CA Reg 7.1.29(4) was modified by ASIC Corporations (Recognised Accountants: Exempt Services) Instrument 2016/1151. 

This modification was implemented to facilitate accountants moving to the AFSL regime by permitting limited AFS licensees to advise retail clients about taxation implications of financial products that are not covered by their licence.

Subsequently, ASIC Corporations (Recognised Accountants: Exempt Services) Instrument 2016/1151 was amended by ASIC Corporations (Amendment) Instrument 2017/464 to allow full AFS licensees (and ARs of full AFS licensees) with limited authorisations to provide exempt advice under CA Reg 7.1.29(4).

Note that tax advice can be provided regarding a financial product by a tax agent under CA Reg 7.1.29(4), provided broadly that the adviser does not benefit from that advice apart from payment from the client or an associate of the client. 

An adviser can also provide financial product advice related to the provision of the tax advice provided a disclaimer is issued under CA Reg 7.1.29(4)(c)(ii).

Example:

An adviser who is a tax agent but who does not have an AFSL can discuss what a member’s concessional contribution cap is and whether the member is entitled to a tax deduction for super if they satisfy the appropriate tests in the Income Tax Assessment Act 1997 (Cth) (‘ITAA 1997’). 

However, they should not recommend a member contribute $25,000 to superannuation as that, on its own, would constitute financial product advice. 

Further, the adviser providing such tax advice should issue a disclaimer that they are providing taxation advice and do not offer financial product advice, nor do they have an AFSL.

A typical disclaimer regarding the provision of taxation advice that should be issued by an accountant who is not a licensed adviser would be as follows:

We are not licensed to provide financial product advice under the Corporations Act 2001 (Cth). However, taxation is only one of the matters that must be considered when deciding on a financial product. 

We recommend that you obtain advice from the holder of an Australian financial services licence under the Corporations Act 2001 (Cth) that has the appropriate authorisation before deciding on a financial product.

The provision of taxation advice is a common basis for advice being provided by non-licensed advisers. Taxation advisers, therefore, need to be focused on when their advice relates to a financial product or could be considered to constitute financial product advice. 

Provided TASA covers the taxation advice, a disclaimer is issued, and no benefit is received about financial products, taxation advice that satisfies the exemptions in section 766B or CA Reg 7.1.29(4) should generally not contravene the CA.

The above (especially section 766B and CA Reg 7.1.29(4)) mean that an accountant who is a tax agent can generally provide taxation advice about superannuation and SMSFs about the following fact scenarios (with examples of tax advice under each heading):

1. making contributions:

Example:

Your concessional contribution cap for FY2019 is $25,000. Your non-concessional contribution cap for FY2019 is $100,000 subject to the ability to invoke the ‘bring forward rule’ and make up to three times $100,000 over three years, provided your total superannuation balance does not exceed $1.6 million.

2. paying superannuation benefits:

Example:

Suppose you obtain a lump sum benefit from a superannuation fund under 60 years. In that case, the taxable component will generally be taxed at 15 per cent plus applicable levies, subject to the lifetime low rate cap amount for those who have attained preservation age. Therefore, a lump sum benefit paid from a superannuation fund should be tax-free once you attain 60 years.

In comparison, the taxable component of a pension is generally taxed as ordinary income less a 15 per cent tax offset plus applicable levies if you are under 60 years. Therefore, a pension should be tax-free once you attain 60 years.

3. commencing or commuting a pension:

Example:

Broadly, a tax exemption will apply to the fund to its extent in pension mode. Thus, the fund’s tax will generally only be payable on the fund’s taxable income to the extent it is not in pension mode. There are two methods of claiming an exemption when an SMSF is in pension mode. 

The segregated method requires assets to be selected to fund the pension (or if the entire fund is in pension mode, it will be taken to be segregated unless the disregarded small fund asset rule in section 295–387 of the ITAA 1997 applies). 

The unsegregated method requires an actuarial certificate each financial year confirming the portion of assets related to funding pension liabilities. In addition, the pension exemption is subject to a maximum $1.6 million general transfer balance cap (ignoring earnings and growth). 

Further, the segregated method is generally unavailable to an SMSF member with a total superannuation balance of more than $1.6 million who also receives a pension from an SMSF.

4. insurance premiums and insurance proceeds:

Example:

Typically, the premium for life and permanent incapacity insurance (permanent and temporary) can be claimed as a deduction by a superannuation fund. 

The proceeds for such insurance is generally tax-free on receipt by a superannuation fund. (Note, this does not cover the tax treatment of payments by a superannuation fund that includes insurance proceeds.)

5. an SMSF purchasing or disposing of assets:

Example:

A superannuation fund generally obtains a cost based on an asset’s purchase price plus related costs. Where a superannuation fund disposes of an asset, if the proceeds on disposal exceed the asset’s cost base, the gain will be assessable to the fund. 

A superannuation fund trustee may also benefit from a one-third CGT discount on a capital gain realised on an asset that has been held for more than 12 months. However, a superannuation fund in pension mode may obtain part of the gain tax-free.

Penalties For Unregistered Conduct

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The civil penalty provisions in the Tax Agent Services Act 2009 prohibit certain conduct while unregistered. The Federal Court can impose severe penalties to breach these civil penalty provisions.

1. Providing tax agent services for a fee or reward

  • Up to $55,500 for an individual
  • Up to $277,500 for a body corporate.

2. Advertising tax agent services

  • Up to $11,100 for an individual
  • Up to $55,500 for a body corporate.

3. Representing as a registered tax agent

  • Up to $11,100 for an individual
  • Up to $55,500 for a body corporate.

For Consumers

1. Check registration

To check if a tax agent is registered:

  • search the TPB Register, or
  • look for the Registered tax practitioner symbol.

2. Benefits of using a registered tax agent

Registration ensures that tax agents:

  • have the qualifications and experience required to provide tax agent services
  • meet our fit and proper requirements
  • have appropriate professional indemnity insurance cover to protect consumers.

Additionally, under the safe harbour provisions in the Taxation Administration Act 1953, you may not be liable to some administrative penalties imposed by the Australian Taxation Office in certain circumstances if you use a registered tax agent.

Other Duties

Note that tax agents and tax (financial) advisers under TASA are subject to the code. Broadly, under the code, a tax agent and tax (financial) adviser must ensure that the taxation advice and services they provide or that are provided on their behalf, among other things, are provided competently. 

This will generally require the tax agent or tax (financial) adviser to maintain adequate supervision and control over services provided on their behalf, including any outsourced or offshoring arrangements. 

Additionally, partnerships and companies registered with the TPB must have a sufficient number of individual tax practitioners to provide services to a competent standard and carry out supervisory arrangements.

FAQs

1. I run a small business and prepaid 12 months’ rent on the premises that I operate from in June. Can I claim the whole amount on my tax return even though most of the payment is next year?

If your turnover is less than $50 million, you will qualify to claim certain eligible prepaid expenses in the year they were paid.

Some prepaid expenses that can be claimed in the year they are paid are rent, insurance and subscriptions to professional associations.

Eligible expenses will be payments made for 12 months or less, and the period covered ends in the next income year. 

Your prepaid rent qualifies because the period it covers does not exceed 12 months, and that period will end before the end of the next income year. Therefore, the whole amount will be claimable on your tax return this year.

2. I keep a room set aside for a home office and would like to claim some expenses.

If a taxpayer carries out all or part of their employment activities from home and has an office set aside to do the work, some of the running expenses can be deducted. A diary should be kept for a minimum of 4 weeks stating the hours the office was used for work-related purposes.

From 1 July 2014, the Commissioner’s rate of 45 cents per hour (increased from 34 cents per hour allowed in the 2014 year) can be claimed for the home office’s hours. 

Only running expenses (electricity, heating and depreciation of office equipment) can be claimed for home office unless the home is being used as a place of business.

Where a home is a place of business (and is easily identified as such – for example, a separate entrance, signage, clients/customers coming to set area of your home etc.), deductions can be claimed on occupancy and running expenses, including:

  • mortgage interest
  • rent
  • house insurance
  • council rates
  • insurance
  • repairs
  • cleaning
  • pest control
  • maintenance
  • decorating
  • telephone
  • heating
  • lighting.

3. I have just received a letter from the tax office saying that I did not declare interest from my bank account. What should I do?

If you believe this is incorrect, you should contact your bank to verify the income details for your accounts. The bank should notify the ATO in writing if this information is incorrect.

You have 28 days to correct this information. However, if you have omitted the taxable income, you will not need to contact the ATO. Instead, they will amend your return and send you a new assessment requesting payment of the additional tax, a general interest charge and, in some cases, penalties.

4. What is a Living Away From Home Allowance?

A Living Away From Home allowance is paid by employers when they require an employee to work in an area different from their normal workplace, and the employer pays the costs to the employee for living away from home.

For example, I work and live in Melbourne, and after a few months, the company requires me to go to Regional NSW for a few months to do some work there. They pay me an allowance for the costs of living in regional NSW because they have requested me to work there for a time. 

This is not taxable income, so I do not need to declare a tax return. It is an allowance paid by an employer to an employee and is not subject to tax by the employee, provided it is paid under the tax office guidelines. No expenses can be claimed against this allowance.

From 1 October 2012, the LAFHA continued to be taxed to the employer under the Fringe Benefits Tax system. However, the employer can reduce the Fringe Benefits Tax payable on the amount paid to the employee for a maximum period of 12 months, provided the employee meets the following conditions:

  • maintains a home in Australia for their personal use and enjoyment at all times whilst required to live away from home for their work; and
  • provides a declaration relating to living away from home.

If these rules are satisfied, the employer can reduce the taxable value of the LAFHA by:

  • the amount of the employee’s actual substantiated accommodation expenditure while living away from home; and
  • the amounts incurred by the employee for food or drink costs while living away from home, less a statutory amount if applicable.

5. I have inherited some money. Do I need to pay inheritance tax?

An inheritance is not taxable unless the executor advises you that a part is taxable. However, if you invest the income from the estate, then any earnings will be taxable.

Conclusion

The above complex outline results from a drawn-out dispute between tax accountants and financial advisers, whereby the tax industry sought to prevent financial advisers who were not registered tax agents from providing tax advice from mid-2014. 

Broadly, a new dsignation of tax adviser was introduced to cater for financial planners to provide ‘limited’ taxation services (within the ambit discussed above for ‘tax (financial) advisers’). 

Further, a financial adviser can become a registered tax agent that authorises them to lodge tax returns and represent their clients in matters involving inquiries or disputes with the ATO.

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