New ‘work from home’ Deduction Rules – all you need to know.

The ATO has issued new draft guidelines around a new method (the revised fixed rate method) of calculating work-from-home running expenses from 1 July 2022 (as an alternative to calculating the actual work-related portion of all running expenses). 

The new revised fixed rate method will replace both:

■the 52 cents fixed-rate method for electricity and gas expenses, home office cleaning expenses and the decline in value of furniture and furnishings,

■the short-cut (COVID-19) 80 cents method (for all additional running expenses).

You are eligible to use the revised fixed-rate method from 1 July 2022 if you:

■work from home to fulfil your employment duties or to run your business (a separate home office or dedicated work area is not required)

■incur additional running expenses that are deductible, and

■keep and retain records of the time spent working from home and of the additional running expenses incurred.

New rate

The new rate of 67 cents (replacing the fixed rate of 52 cents was “based on the Australian Bureau of Statistics (ABS) household expenditure survey with consideration of annual Consumer Price Index (CPI) weightings”. It allowed 52c per hour for each hour a taxpayer worked from their home office to calculate their electricity and gas expenses, home office cleaning expenses and the decline in value of furniture and furnishings. In addition, a separate deduction for the taxpayer’s work-related internet expenses, mobile and home telephone expenses, stationery and computer consumables and the decline in value of a computer, laptop or similar device could be claimed.

The revised 67 cent fixed rate under the new rules is inclusive of:

■internet expenses

■mobile and/or home telephone expenses, and

■stationery and computer consumables.

The inclusion of these expenses within the revised fixed rate, when coupled with the current high inflation environment, means that there is a high likelihood that taxpayers may be worse off when moving from 52 cents to 67 cents.

Record keeping

From 1 January 2023, will see the need for you to keep a record of the actual hours worked from home (e.g. timesheets, rosters or a diary kept contemporaneously). This is more onerous than the 52 cent method where you only needed to keep a record to show how many hours you worked from home.

The ATO under the new revised fixed rate method also requires evidence in relation to each of the running expenses listed above.

For energy, mobile and/or home telephone and internet expenses, one bill per item needs to be retained.

If the bill is not in your name, additional evidence is needed to prove that you incurred the expenditure. For stationery and computer consumables, one receipt needs to be kept for an item purchased.

Under the new method, the amount that can be claimed will potentially be lower, while the compliance obligations are higher – the taxpayer not only needs to keep a record of times spent working from home, but also there is a need to keep an invoice/receipt for each of the additional costs, such as an electricity bill. 

This is a new requirement which never formerly existed under either of the replaced fixed rate methods. While the new draft guidance offers a transitional arrangement until December 2022, individuals currently availing themselves of the 52 cent fixed rate method will need to consider whether they can meet the additional administrative burden from 1 January 2023, or whether the “actual expenses” method is amore achievable alternative.

Contact Us

If you are uncertain which method is best for you please contact us directly to discuss your circumstances.

Please do not hesitate to get in touch and one of our de Kretser members would love to help you in the right direction.

T: +61 3 9550 6900 E:admin@dekretser.com.au

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A new frontier .au is here!

The domain namespace, “.au” has been made available exclusively to existing Australian domain name owners from 24 March 2022 – 20 September 2022.

After this time, if you have not registered your business name’s .au address – anyone can.

The “.au” has a Direct namespace and is intended to complement, rather than replace, the existing second-level domain namespaces and to provide domain holders with the option to register shorter, simpler domain names.

Unlike the existing second-level domain namespaces, there is no restriction on the domain names that can be registered in the .au namespace, provided the domain name applicant satisfies the Australian presence requirement.

 A domain name ending in .au signifies that the person or organisation using it has a connection Australia. In .au we have several different namespaces serving different sectors and purposes and with different rules for who can register them and what name they can have.

‘Open’ .au namespaces

The open namespaces are those in which the public can register names, provided they are eligible.

Each name space serves a specific type of enterprise or purpose and rules for who can register in them, and what names they can register vary between them.

The rules for who can register what names in these open namespaces can be found in the .au Domain Administration Rules: Licensing.

Background

The domain name was originally allocated by Jon Postel, operator of IANA to Kevin Robert Elz of Melbourne University in 1986.

After an approximately five-year process in the 1990s, the Internet industry created a self-regulatory body called .au Domain Administration (auDA) to operate the domain. It obtained assent from ICANN in 2001, and commenced operating a new competitive regime for domain registration on 1 July 2002. Since this new regime, any registration has to be ordered via a registrar.

Ready for the next step.

Registrations are currently permitted below a second-level domain, such as “yourname.com.au”. In April 2016, auDA announced it would introduce registrations directly at the second level, such as “yourname.au”.

Direct registrations were due to be implemented in 2017 although due to an ongoing debate on how cybersquatting would be mitigated with the release of the direct second-level registrations has led to a delay, with a new launch date of 24 March 2022.

Registration of a .au domain is completed through a reseller, known as a registrar, with the registry acting as the wholesale provider. auDA manages domain name policy as the ICANN and Australian Government-endorsed manager of the .au DNS.

Second-level domains

  • .com.au – Commercial entities
  • .net.au – Commercial entities (historically only ISPs, but the use has been broadened)
  • .org.au – Associations and non-profit organisations (historically only for organisations that did not fit in other categories)
  • .edu.au – Educational institutions (see Third-level domains, below)
  • .gov.au – Governments and their departments (see Third-level domains, below)
  • .asn.au – Associations and non-profit organisations
  • .id.au – Individuals (by real name or common alias)
  • .csiro.au – CSIRO (Commonwealth Scientific and Industrial Research Organisation)

The *.edu.au, *.gov.au and *.csiro.au namespaces are referred to as “Closed” namespaces, since registration is not available to the general public. All other second-level namespaces are referred to as “Open” namespaces.

The new rules provide an “Australian presence” requirement for all domain name holders. To satisfy the Australian presence requirement, an individual must be an Australian permanent resident or citizen, while an organisation must either be incorporated in Australia or hold an Australian Business Number (ABN). Holders of an Australian trade mark also satisfy the Australian presence requirement, provided the domain name is an exact match of the trade mark.

For most domain types, the licensing rules also require that the domain name must be:

  • a match, acronym or abbreviation of the name of the holder; or
  • a match of the name of products, services, events, programs, premises or activities associated with the domain name holder; or
  • a match of the holder’s Australian trade mark.

Sub-licensing of a domain name is prohibited, unless the domain name holder is a parent company of the licensee.

What’s next?

You are not obligated to sign up for the .au address, though it may be something your business would like to consider.

If you need help with this – please do not hesitate to get in touch and one of our de Kretser members would love to help you in the right direction.

T: +61 3 9550 6900 E:admin@dekretser.com.au

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What is the Best Business Structure?

At the start of each year, business owners typically review their affairs, including at times their trading structure. Others may be going into business and choosing their initial structure.  Choosing the right one for your business is an important decision as it can impact decisions initially, and further down the line. We provided a brief introduction to these structures for business owners, new or existing looking for a bit of clarity of the subject. Here are the main characteristics of the various business structures. 

There are four main business structures – partnership, trust, company and sole trader (or a combination of these).

Partnership

A partnership is a group or association of people who carry on a business and distribute income or losses between themselves (between two and up to 20 people). The partners themselves are liable for tax on the income from the partnership commensurate with their share of the partnership, however this is again subject to the PSI rules – see earlier. The losses and control of the business are also personally shared. Partnerships are governed by a partnership agreement which should be in writing and deal with all aspects of how the partnership operates. Some of the advantages of operating a partnership is that they are easy to understand, reasonably inexpensive to set up and maintain, and other individuals can easily be admitted. On the other hand, there is no real asset protection, in that each partners ‘jointly and severally’ liable for the partnership’s debts (that is, each partner is liable for their share of the partnership debts as well as being liable for all the debts). Each partner is also an agent of the partnership and is liable for actions by other partners.

Trust

This is quite a common business structure whereby the trustee holds your business on trust for the benefit of the beneficiaries (usually the business owners, but can include other parties such as family members, companies etc). The trustee can be a person or a company and is responsible for the operation of the trust including compliance with its deed. In practical terms, the beneficiaries pay tax on the trust income that they receive from the trust at their own tax rate. Note however that trust income may be caught by the PSI rules, see earlier.

The advantages of a trust include asset protection (even more so when there’s a corporate trustee), potential legal tax minimisation, and for family trusts compliance is relatively straightforward. On the downside, trusts can be complex, costly to establish, and on the tax front losses are trapped inside the structure and can only be used to offset future income. Trusts are also a strong focus of the ATO.

Company

Here, the directors (and mainly in the case of small businesses, shareholders) run the business. The company itself pays tax on the income at a reasonably low company tax rate of 25%, though directors can be personally liable for tax if they are caught by the personal services income (PSI) rules. These rules can come in to play where the business income is a result of your personal effort, expertise or skills. Subject to any personal guarantees or any director penalty notices being issued, companies provide asset protection for the owners, potential legal tax minimisation, they easily allow the admission of new business partners, and they can trade anywhere in Australia. On the downside, companies are not eligible for the 50% CGT discount, are highly scrutinised and regulated, and are reasonably expensive to establish, maintain and wind up.

Sole trader

This is how many businesses commence. Under this structure, an individual operates the business and is liable for all aspects of the business including income, debts and losses. These can’t be shared with any other individual. Advantages of this structure include simplicity, and minimal set up or ongoing costs. Disadvantages include personal liability, and also an inability to take on a business partner, noting however that as a sole trader you can still employ workers.

What you need to know

Aside from tax, there are many factors to consider when determining the best structure for your business, including ease of understanding, set up and compliance costs, the ability to admit new owners, asset protection etc. You can change your business structure at any time, however there may be costs involved such as capital gains tax and stamp duty. Talk to a professional if you are considering changing your structure or if you are going into business and choosing your initial structure.

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This is a de Kretser Client Information Newsletter keeping you on top of the issues, news and changes you need to
know. Should you require further information on any of the topics covered, please contact us via the details below.

T: +61 3 9550 6900 E:admin@dekretser.com.au