Articles and Technical Papers
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These are articles written by John Jeffreys that members of my website can use to promote their business. Members may send these articles to clients, use them on their websites, put them in a newsletter or any other use. Members have full licence to use the articles as they wish without any acknowledgement of John Jeffreys as the author or of John Jeffreys Tax Pty Ltd.
Some of the articles are technical papers which may not be suitable for sending to clients.
To access an article, note the article number in blue. Then click on the ‘Go To Articles’ button (you will need to be signed in). On the linked page, click the button with that number.
050
Working From Home Clarity
This article outlines the ATO’s revised fixed-rate method for working from home deductions, introduced in PCG 2023/1. Under this method, individuals can claim $0.67 per hour worked from home for eligible expenses—such as electricity, internet, phone, stationery, and computer consumables—provided they incur at least one of these costs. It also stresses the need for detailed contemporaneous records of hours worked, as estimates are not accepted. Taxpayers using this method have limited rights to object if audited, unless they maintain full records to support a claim under the actual expenses method.
Why Have a Trust?
049
This article introduces the concept of discretionary trusts and explains why they are commonly used in Australia. Trusts allow for the separation of legal and beneficial ownership, offering flexibility in distributing income to beneficiaries in a tax-effective way. They also provide benefits such as asset protection and succession planning, making them a popular structure for families and small businesses. The article recommends discussing with an accountant to assess whether a trust is suitable for your circumstances.
048
Trustees – Beware of this Case
This article discusses the Victorian Court of Appeal decision in Owies v JJE Nominees, which has important implications for trustees of discretionary trusts. The court found that a trustee breached its duties by failing to properly consider the personal circumstances of all beneficiaries before deciding how to distribute income. Trustees are reminded that even with broad discretionary powers, they must be informed and act in good faith—especially when distributions appear one-sided or unjustified.
047
Personal Services Income – The Results Test
This article explains the “results test” under the Personal Services Income (PSI) rules, which apply to small businesses where income is mainly earned through personal effort. Passing the results test—by being paid to achieve a specific result, supplying your own tools, and being responsible for rectifying defects—exempts individuals from the PSI rules. The article notes that many professionals may be affected and encourages seeking advice due to the complexity of the rules.
046
Margin Scheme for Real Property
This article explains the GST margin scheme, a provision allowing GST-registered property sellers to pay GST only on the “margin”—the difference between the sale price and purchase price—rather than the full sale price. It helps level the playing field for vendors who acquired property without being able to claim GST credits. Through a detailed example, the article shows how using the margin scheme can significantly reduce GST liability and preserve profits. Importantly, both buyer and seller must agree in writing to apply the margin scheme.
045
SMSF Schemes
This article warns SMSF trustees about ATO-identified schemes that misuse the concessional tax treatment of super funds or allow early access to superannuation. It highlights property development ventures involving non-arm’s length arrangements and first home buyer schemes where SMSF structures are misused. Both can lead to significant penalties, including loss of concessional tax status and 45% tax on non-arm’s length income. The article stresses the importance of complying with superannuation laws and avoiding arrangements that seem too good to be true.
044
Rental Property Deductions
This article discusses the deductibility of expenses for rental properties that aren’t currently generating income. It explains that deductions may still be allowed if the owner maintains a genuine intention to earn rental income, supported by actions such as repairs or redevelopment plans. A recent AAT case upheld this principle, reinforcing that deductions can be based on the purpose for incurring the expense, not merely the presence of income.
043
Receipts and Invoices
This article explains what receipts or invoices individuals (not in business) need to claim tax deductions. It highlights that claims over $300 require substantiation, detailing the required elements of valid documentation. It also covers specific rules for overtime meal allowances, laundry costs, and work-from-home deductions under the fixed rate method. Bank statements alone are insufficient proof, and proper records are essential to satisfy ATO requirements.
042
New ATO Ruling on the Meaning of Residency of an Individual
This article outlines the ATO’s new Taxation Ruling on individual tax residency, clarifying when someone is considered an Australian tax resident. Residency status affects whether a person is taxed on worldwide income or only Australian-sourced income. The ruling includes 18 practical examples, and while legislative changes were previously proposed, they are not yet in effect. Residency remains a complex issue requiring detailed analysis of each person’s circumstances.
041
Non-Arms Length Expenses (NALE) in a Superannuation Fund
This article warns SMSF trustees about the dangers of non-arm’s length expenses (NALE). It explains how general expenses provided below market value—like free bookkeeping—can trigger a tax penalty, with the fund being taxed at the top marginal rate on twice the value of the unpaid services. It also highlights that specific expenses, such as unpaid maintenance on a rental property, can taint all related income. Trustees are urged to ensure all dealings are at market value to avoid severe tax consequences.
040
Is a Self Managed Superannuation Fund Right for You?
This article explores the pros and cons of Self Managed Superannuation Funds (SMSFs). While SMSFs offer control, flexible investment options, and estate planning advantages, they also come with significant responsibilities, potential cost blow-outs, and complex compliance requirements. The article encourages individuals to carefully weigh these factors and seek professional advice before setting up an SMSF.
039
How a Small Business got into Trouble with the ATO
This article recounts an AAT case involving a Queensland couple whose company, Beta Leigh Pty Ltd, received over $1 million in tax, penalties, and interest following an ATO audit. Errors in trading stock calculations and undocumented management fees between the company and their partnership led to denied deductions. The case underscores the importance of accurate bookkeeping, reconciliations, and having formal agreements for related-party transactions to withstand ATO scrutiny.
038
Getting a Tax Deduction for Investment Advice
This article clarifies when financial advice fees are tax deductible for individuals not in business. It explains that upfront advice to establish an investment portfolio is considered capital in nature and therefore not deductible, while ongoing investment advice may be. Advice relating to household budgeting is also non-deductible due to its private nature. However, fees for tax advice on investments remain deductible under a specific provision of the tax law.
037
GST and Services Supplied Cross-Border
This article explains when services supplied by Australian businesses to overseas clients can be GST-free under Australia’s GST law. It outlines key scenarios where services are not subject to GST—such as those connected to offshore property or provided to non-residents outside Australia—and provides detailed examples from architecture and legal practices. The article emphasises that these rules are complex and nuanced, often requiring careful interpretation of ATO guidance.
036
FBT on Work Vehicles
This article explains the FBT rules for work vehicles and highlights how certain vehicles—such as utes and panel vans—can qualify for an FBT exemption if private use is limited to work-related travel or is minor, infrequent, and irregular. It also outlines the ATO’s “safe harbour” conditions under PCG 2018/3, which, if satisfied, reduce the risk of ATO scrutiny. Employers must ensure they have the right policies in place and obtain employee confirmations to rely on this concession.
Employee v Contractor – The ATO has its Say
035
This article explains the ATO’s recent guidance on distinguishing employees from individual contractors, highlighting Taxation Ruling TR 2023/4 and Practical Compliance Guideline PCG 2023/2. It outlines the ATO’s expectations for businesses to treat contractor arrangements as “very low risk,” including the need for comprehensive written agreements, shared understanding of tax consequences, and obtaining specific advice on classification. Businesses that engage contractors should closely review these requirements to avoid compliance risks.
034
Division 7A
This article outlines the risks of private company loans to shareholders or their associates being treated as unfranked dividends under Division 7A. It explains how to avoid this outcome by either repaying the loan or entering into a complying Division 7A loan agreement. The article also highlights the ATO’s position on unpaid present entitlements from trusts to companies and notes that this is currently being tested in the Full Federal Court.
033
Debt Forgiveness in the Context of Division 7A
This article explains how debt forgiveness can give rise to a deemed dividend under Division 7A of the ITAA 1936, focusing on sections 109F and 109G. It outlines various forgiveness scenarios, including “in substance” forgiveness, debt parking, and partial repayments with property. It also explores exceptions—such as commercial debt assignments, prior deemed dividends, and Commissioner discretion in cases of undue hardship—supported by ATO private rulings. Accountants are reminded that debt forgiveness under Division 7A can trigger complex consequences even if loans were previously compliant. This is a technical paper.
032
Death and the Main Residence
This article addresses the CGT implications when a home is inherited following the owner’s death. Using a case study, it explains how the main residence exemption can continue to apply—even if the home was rented prior to death—and highlights the impact of pre- and post-CGT ownership. It also outlines the importance of selling the home within two years of death to potentially avoid CGT.
031
Section 99B Trust Distributions
This article explains the ATO’s draft guidance on section 99B ITAA 1936, which can tax certain distributions from non-resident trusts to Australian beneficiaries. It examines two key documents—TD 2024/D2 and PCG 2024/D1—which clarify how the ATO interprets exceptions to 99B, particularly around trust corpus and non-taxable income. It highlights the difficulty of proving these exceptions without extensive records, and outlines scenarios where the ATO may treat arrangements as “low risk” for compliance purposes. This is a technical paper.
030
Rental Properties
This article provides essential guidance for owners of rental and holiday properties, especially those using platforms like Airbnb. It explains how to correctly apportion expenses, outlines CGT consequences when a main residence is rented out, and highlights additional taxes for foreign owners. Accurate record-keeping is strongly advised to substantiate deductions and avoid ATO scrutiny.
029
Commercial Debt Forgiveness
This article provides an overview of the commercial debt forgiveness provisions in Division 245 of the ITAA 1997, which adjust tax attributes—such as tax losses and asset cost bases—when a commercial debt is forgiven. It outlines what qualifies as a commercial debt, how forgiveness is defined, and how to calculate and apply the net forgiven amount. The article also discusses complexities such as related-party transactions and debt-for-equity swaps, stressing the importance of accurate records and professional advice.
028
Superannuation Re-Contribution Strategy
This article explains the superannuation re-contribution strategy, which involves withdrawing and re-contributing funds to convert taxable components into tax-free components. While this may seem unnecessary, it can significantly reduce the tax paid by adult children when they inherit superannuation. The strategy is subject to eligibility criteria and contribution limits, and professional advice is strongly recommended.
027
Repairs for Investment Properties
This article outlines when repairs to an investment property are immediately deductible and when they are capital in nature. It explains that repairs restoring the property to its original condition (e.g., fixing a burst pipe) are deductible, while improvements or initial repairs made at the time of purchase (e.g., replacing an entire plumbing system or damaged kitchen) are treated as capital expenses. The article also clarifies changes to depreciation rules for second-hand assets acquired after May 2017.
026
Christmas and Tax
This article explains the tax implications of Christmas parties and gifts. It outlines when entertainment provided to employees may be subject to Fringe Benefits Tax (FBT), and when exemptions (such as the sub-$300 rule) apply. It also clarifies the deductibility of gifts to employees and clients, noting that non-entertainment gifts are generally deductible, while the purpose and value of the gift can influence the tax treatment.