Australian Tax Office
The Australian Tax Office has warned those who make money from YouTube are “performing artists” who can be liable to pay income tax. An ATO ruling recognises application of above-average special professional income provisions to individuals who earn income from uploading videos on YouTube. Big Australian names on YouTube include beauty vlogger Lauren Curtis, who has 2.6 million subscribers to her self-titled YouTube channel, and Jason Simper, who has 715,000 subscribers to his Simple Cooking channel. Simper told SmartCompany his YouTube channel is now his full time job. He makes over $100,000 a year from his channel but says there is unlimited opportunity. "It's pretty much the sky is the limit. If you have that niche that strikes a chord with people there is a lot of potential." But Simper says producing a YouTube channel is also hard work. "You can't drop the ball as things are always changing on YouTube," he says. "It is a smaller market [in Australia] which can make it more difficult." Tim Cooper, co-founder of BoomVideo, an Australian YouTube certified multi-channel network, represents a number of YouTube stars including Simper. Cooper told SmartCompany some vloggers earn “six figures a year” on YouTube, but for the majority the video-sharing platform is just a hobby. “Its not a silver bullet creating a YouTube channel, it’s not guaranteed money and the creators who have turned it into a full-time job have more often or not spent years of hard work creating an audience,” Cooper says. He says it takes “hundreds of thousands or millions of views a month” to monetise a YouTube channel. Cooper says YouTube businesses should have been disclosing their earnings anyway if they have reached the tax thresholds. “When YouTube creators turn from a hobby into a profession they often get professional advice on the best way to set up those earnings,” he says. Paul Brassil, partner in Private Clients at PwC, says the ruling is an acknowledgement by the ATO that performers seek to gain income via YouTube and other digital means. “It’s a perennial question when people start to do things that stem from a passion or hobby, when does it become a business activity?” he says. “The old adage is that if you are making a profit it must be a business; if you are making a loss it must be hobby. But it’s not quite that straight-forward.” Brassil says the ATO looks at all the circumstances including regularity, business plan and a view to making a profit but “you are unlikely to convince the ATO you are not carrying on a business if you are making a lot of money.” According to Brassil, the vast bulk of people who put things on YouTube do not make a profit. “For the few that do strike it lucky the ATO is now saying … in the YouTube arena it is regarded the same as someone going and playing a gig or getting a recording contract with Sony or something.” Brassil says this is a “salutary warning” to those who have not been declaring income and has broader implications for anyone making an online income. “All forms of internet commerce need to address this question.” This story originally appeared on SmartCompany.
Changes to employee share option scheme laws, released in draft legislation by the federal government on Wednesday, will help fix the unworkable situation of taxing startup employees on value that they don’t have and may never get. The draft legislation provides more detail on the proposed changes, which the government committed to making last October, as part of its Industry Innovation and Competiveness Agenda. Senior lawyer at Adroit Lawyers, Reuben Bramanathan, says the draft legislation is great news for Australian startups and their employees. “If startups implement a complying ESOP, employees will generally pay tax when they exercise their options, rather than when they first get the options,” Bramanathan says. “This won’t give startups free reign to hand out tax-free options – there are still a number of conditions that need to be met. “There is more good news for all companies, not just startups, in the way that unlisted options will be valued for tax purposes. Under the proposed changes, options that are issued out-of-the-money will be deemed have a lower value than they do under current law. This will mean that options can be issued with a lower strike price, or for a longer period, without adverse tax consequences for the employee.” The law will cover all Australian early-stage startups – companies with less than $50 million turnover, existing for less than 10 years. However, the changes will only apply to Australian companies, and won’t help Australians employed by a foreign company if they get equity in that company. Bramanathan says he’s pleased to see practical changes contained within the legislation, like approved valuation methodologies and improved ESOP documents. These will be published by the Australian Tax Office and will remove the need for startups to get a professional valuation, which Bramanathan says can be prohibitive for early stage startups. The ATO is now inviting interested parties to comment on the draft legislation. The closing date for written submissions is February 6. Australian Private Equity and Venture Capital Association chief executive officer Yasser El-Ansary says it’s vital that the legislation is finalised and gets before Federal Parliament in enough time to ensure it takes effect on July 1 this year. “Startups have been waiting for close to five years for these changes, so we need to get on with it,” he says. “We will be looking closely at the draft legislation over the next few days to see if the changes deliver on the government’s stated policy objectives.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Brisbane-based bitcoin startup Living Room of Satoshi has reopened, two months after suspending operations in the wake of the Australian Tax Office’s decision to treat bitcoin as property. The startup offers a free service allowing users to pay BPAY bills using bitcoin and makes a small profit based on the price movement on bitcoin exchanges. When Australian-based exchanges were forced by the ATO’s decision to charge users that buy bitcoin 10% of the amount that is being purchased, it gave users a large disincentive to pay bills using bitcoin. Since, exchanges based in other markets have made it easier for Australian consumers to use their services, and avoid that extra cost, which Living Room of Satoshi co-founder Daniel Alexiuc says has made the service feasible again. “There are now many more options for small Australian businesses like ours to buy and sell bitcoins internationally and locally in compliance with the tax ruling, which has allowed us to reopen for business,” he says. Over the past two months Alexiuc had investigated moving the startup offshore, to Singapore or Hong Kong, until it became apparent that international exchanges would make the business viable again. “It’s pretty much running the same as it was before, with the same sort of service. We’ve got approval from ASIC to operate in this way, so it seems like it’s going to be sustainable for now,” he says. “We’ve got an app coming soon which will also make things easier. But the GST is still a problem for us because businesses in Australian can’t use bitcoin the way it needs to be used. And if businesses can’t use it in Australia that makes it difficult for us in the long term. “We still firmly believe that the double GST needs to be repealed for bitcoin to be ultimately useful as a currency in Australia, but for now we can continue operating as before.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
The G20 nations, including Australia, need to take the lead when it comes to producing a regulatory framework for bitcoin that recognises it is unlike anything the world has seen before, according to the US Chamber of Digital Commerce president Perianne Boring. Boring was one of a number of experts giving evidence before an Australian Senate inquiry into digital currency on Wednesday. She told the inquiry it’s important to follow a path similar to the way in which government treated the internet in its infancy: allow bitcoin to grow and flourish before racing to regulate it. She admits that striking a balance between regulation that protects interested parties and doesn’t stifle innovation is tricky. “The best way to do that is to provide regulatory clarity in existing laws,” she says. “I would go through and clarify which types apply to these (digital currency) tech companies and which ones don’t. “This is about strengthening the existing finance system. Nobody is trying to replace existing government currencies.” Others giving evidence to the inquiry included Ron Tucker from the Australian Digital Commerce Association, entrepreneur Mark Pesce, Clayton Utz partner Andrew Sommer and the founder of Australian bitcoin startup ABA Technology, Chris Guzowski. Inquiry chair Senator Sam Dastyari told the witnesses the government was looking for the best way to maximise the potential opportunities that bitcoin represents to the economy, but at the same time ensuring it doesn’t expose the country to “potential downfalls” or actions that could stifle the Australian bitcoin industry. “The lack of a regulatory framework or regulatory oversight is one of the key drivers for lack of investment in this space,” Guzowski told the inquiry. Senator Bill Heffernan told the panel of experts the Australian bitcoin industry should return to discussions with government on regulation when it can classify the digital currency as being a bag of wheat or a bag of coins. The question Heffernan ultimately wants answered is whether or not bitcoin is property or currency. Earlier this year the Australian Tax Office gave guidance that bitcoin would be treated as property and as such GST would be applied. Heffernan was particularly concerned with how this might relate to corporate tax avoidance and “the redefinition of sovereignty”. Both Pesce and Boring pointed out that in the United States, various government bodies had taken different views on that question, based on common sense regulation about how bitcoin is predominantly used, rather than global “harmonisation” that Heffernan was after. All of the witnesses spoke of the inevitability of digital currencies becoming mainstream in the future, regardless of whether or not such harmonisation occurs. “Within a decade, every networked device will have some version of blockchain technology running inside it, serving as the first line of defence against network attacks, providing badly needed security and authentication capabilities,” Pesce says. “Blockchain technology will be everywhere, in everything, so pervasive it becomes invisible. Digital Currencies such as bitcoin are at the start of a transformation that will leave our world more open and more secure.” Sommer built on that point of openness, describing bitcoin blockchain’s public ledger as an auditor’s dream. “As a regulator, the amount of information that is available through the documentation of transactions on the blockchain is unprecedented,” he says. “The blockchain can distinguish between a transaction that’s supply for a GST purpose, and a supply that’s GST free.” He said it could be an additional tool to improve transparency in the finance industry. Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Tracking mobile and data usage for expense claims is about to get easier, thanks to Perth-based startup Mobilyser. The Mobilyser app, which launched this week and is available on smartphones or via a web portal, allows subscribers to easily tag contacts and dialled numbers as personal or work-related. It then calculates the claimable total on calls, data and SMS in an “easy to read” report. It uses the Australian Tax Office’s recommended calculation method to get the best result. It stores 24 months of call-related data, enabling users to report on call usage for a full financial year. Mobilyser founder Robbie Adams says the app is solving a problem that anyone who has made a work-related call on their mobile can relate to. “Even when we have all the information in front of us it’s not easy to calculate all the genuine work calls,” he says. “Even harder is making an accurate assessment of work-related data usage. “Whether users lodge regular expense claims to their employers or an annual claim on their tax return, Mobilyser can generate detailed logs and reliable totals at the touch of a button.” Mobilyser is available for free for the first 30 days, but requires a $4 per month subscription to be paid from then on. In the short term, the startup is targeting individuals as its primary customers, although it plans on developing a solution for enterprise in the coming months. Adams says he will be targeting big tax companies like H&R Block, as the product has the potential to save them a lot of time. Adams says it’s only been in recent years, as smartphone adoption has begun to skyrocket, that such a solution became viable. The startup is heading to the Web Summit in Dublin later this year, where Adams says it will be chasing investment. So far, he’s bootstrapped Mobilyser himself. “That’s going to present some fantastic opportunities for us,” he says. “Straightaway the business has been built for the global market. The great thing about Mobilyser is we’ve built it at the moment to comply with ATO regulations, they’re [regulations] also extremely similar elsewhere.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
A new consumer-to-consumer bitcoin exchange has launched, looking to take advantage of the vulnerability of exchanges that sell directly to users, caused by the Australian Tax Office’s decision to treat bitcoin as property. Independent Reserve, launched on Tuesday, is backed by “a group of private investors in Australia and Asia”, promising to be the cheapest Australian bitcoin exchange. Other bitcoin exchanges, which sell bitcoins directly to users, are required to charge 10% GST on the total amount of bitcoins being provided. So $1000 worth of bitcoin will cost $1100 plus any commissions they might charge. Independent Reserve charges a .5% commission on exchanges, and absorbs the 10% GST it’s required to charge on that commission. The startup’s head of business development, Lasanka Perera, says while the ATO ruling is good for Independent Reserve, it’s not ideal for the state of bitcoin. The exchange has been in development since early 2013 and Perera says the decision to operate a consumer-to-consumer exchange was not influenced in any way by the ATO decision. “We couldn’t have foreseen the GST ruling from such a long way out,” he says. The exchange is trading in US dollars in an effort to make it more appealing to global bitcoin buyers. Perara says his experience in foreign currency exchange means Independent Reserve is able to offer competitive exchange rates, so the decision to trade in US dollars won’t hurt Australian consumers. “We’d love to be in Australia’s biggest and best marketplace for bitcoin in three to six months’ time,” Perera says. In the coming months, Independent Reserve will be looking at developing a consumer app as well as entering the merchant point-of-sale space. The startup is based in Sydney and chief executive Adam Tepper says Australia is a good regulatory environment from which to operate. “Australia is politically stable with a strong regulatory regime,” he says. “We have spoken consistently with ASIC and the ATO as Independent Reserve has developed, as well as had the company audited by PricewaterhouseCoopers. We’re very comfortable that we have the right settings here to ensure its safety and success.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Brisbane-based bitcoin BPAY startup Living Room of Satoshi has suspended operations, after the Australian Tax Office’s decision to treat bitcoin as property made its business model impractical. The startup offered a service free to users which allowed them to pay BPAY bills using bitcoin. It made a small profit based on the price movement on bitcoin exchanges. Now that Australian exchanges must charge users that buy bitcoin 10% of the amount being purchased, that is no longer possible. Co-founder Daniel Alexiuc says that development gave users strong reason not to use the service. “If an electricity bill costs either $100 in Australian dollars or $110 in bitcoin, there is a huge disincentive to pay it in bitcoin. It is basically economically infeasible to run the service in this way,” he says. “Or any Australian-based GST registered business for that matter.” The company had been growing steadily and was getting about $20,000 a week in bills up until the ATO’s bitcoin guidance announcement. Alexiuc says he’s not ruling out Living Room of Satoshi returning should the regulation of bitcoin in Australia change. “My primary goal was to build a useful and innovative startup for bitcoin-using Australians. We have only been open for a few months, and have been cut short from reaching our full potential,” he says. “So of course I invested a lot of time and money into the venture and it was not profitable yet. “I’d love to see Living Room of Satoshi make a comeback, but for bitcoin to be truly useful by business in Australia, it needs to be treated as money for GST purposes. “I plan to continue improving the service in the background and figure out a way to get it running again in anticipation of a change in regulation.” He’s hopeful the changes might not be too far off. “Bitcoin is a new concept that didn’t exist when the laws were written, so I am hopeful that regulators will treat it as something different, and not try to shoehorn it into existing definitions of money.” Despite the impact regulation has had on his startup, he’s still bullish about the future of bitcoin. “Bitcoin will not be affected by Australian regulations like these, it is an international currency that will continue its rise unabated,” he says. “But innovation in Australia will be affected, and innovative startups and companies may find it easier to just head overseas.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
The Senate Economics References Committee has released its terms of reference for its inquiry into bitcoin, with incorporating “digital currencies into Australia‘s national security framework” being on the agenda. StartupSmart first reported news of the inquiry in mid-September. It was officially announced on Thursday, October 2, and will be chaired by NSW Labor Senator Sam Dastyari. The official terms of reference for the inquiry, released today, are as follows (emphasis added): Digital currency, with particular reference to: (a) How to develop an effective regulatory system for digital currency that: (i) ascertains the most appropriate definition of digital currencies under Australian tax law (ii) promotes competition and growth of the digital currency industry (iii) ensures ongoing stability in the financial services industry (iv) secures protection of consumers and businesses against illegal activity (v) incorporates digital currencies into Australia‘s national security framework, and (vi) ensures the financial stability of the industry (b) The potential impact of digital currency technology on the Australian economy, including the: (i) payments sector (ii) retail sector, and (iii) banking sector (c) How Australia can take advantage of digital currency technology to establish itself as a market leader in this field; and (d) Any other related matters. Ronald Tucker, the chairman delegate from industry lobby group ADCCA (Australian Digital Currency Commerce Association) told Private Media he “absolutely welcomes” both the inquiry and its terms of reference. “It’s a good chance to discuss the opportunities for Australia to participate in the opportunities around the emerging fin tech sector,” Tucker says. “We will be attending and giving testimony, and we will also submit our financial services inquiry testimony.” As StartupSmart previously reported, ADCCA advocated both industry self-regulation and changes around the tax treatment of bitcoin by the Australian Tax Office. Tucker also says there are good reasons why national security could be on the agenda. “I think what they’re referring to is making sure sufficient mechanisms exist to ensure anti-laundering and counter-terror process can be followed by law enforcement and intelligence,” he says. “So if there is anything that needs to be investigated, the processes are in place to allow that to happen. “What’s great about the bitcoin is many of these features that allow you to track transactions are built right into the protocol and available to be looked at by anyone who has a computer. “So by having this conversation early on, we can have a discussion to see what processes and protocols they need.” Follow StartupSmart on Facebook, Twitter, and LinkedIn.
Brisbane-based bitcoin startup Living Room of Satoshi is giving Australian consumers the opportunity to pay bills though BPAY with bitcoin. During the last financial year, $293 billion worth of payments were made through BPAY and 870,000 BPAY payments occur each day. Living Room of Satoshi co-founder Daniel Alexiuc says they saw significant opportunity in the space for bill payments with cryptocurrency. The service is completely free, although the startup can make small profits on bitcoin exchange rate movements. The payments are processed on the same day the bitcoin transaction is completed. The name is a nod to the pseudonym used by the individual or group of individuals who created the technology that powers bitcoin. With regard to his ‘living room’, there’s also an explanation. “I guess we imagined that’s where ‘Satoshi Nakamoto’, if he was going to pay bills, that’s where he might do it,” Alexiuc says with a laugh The startup launched in May and has processed $180,000 worth of bill payments since, and is currently processing around 10 bills per day. “I bought some bitcoin about a year ago, and it was a service I was looking for, so my brother and I came up with a solution,” Alexiuc says. Offering such a service for free is part of Alexiuc’s plan to help bitcoin grow in Australia. A strong bitcoin ecosystem is required if Living Room of Satoshi is to successfully develop its own bitcoin-based bill payments system. Alexiuc, who also started an e-commerce business that ships live fish, says they’re currently developing such a system called SatoshiPay, which he hopes will provide an alternative billing option for small businesses. “It’s surprising how high the fees are for merchants who use BPAY,” he says. “There’s an opportunity there for a lot of merchants to save money. “We had a lot of trouble as a small business with payment options. PayPal is the only viable solution, but they’re very difficult to deal with. “We’re approaching merchants, and also some companies that offer printing services on behalf of billers and aggregated different payment options. It’s still in beta but we’re hoping to get our first merchant online in three months’ time.” The viability of such a service relies on what decision the Australian Tax Office makes regarding the regulation of cryptocurrencies. Alexiuc says the worst case scenario is if the ATO decides to treat bitcoin as property. “If they treat it as property and we have to pay GST on transactions, that would basically kill it in Australia,” he says. “But we really don’t think that’s very likely. They look pretty favourably on it.” The startup is being funded by its founders, although they have spoken with venture capital investors. Follow StartupSmart on Facebook, Twitter, and LinkedIn.
While the Australian Tax Office labours over whether or not it should classify bitcoin as money or property, here are some of the Australian companies and individuals already operating on the cutting edge of the crypto-currency space. Jackson Palmer, creator of Dogecoin Palmer accidently invented Dogecoin in December last year and has since relocated to San Francisco. Dogecoin is an open source peer-to-peer digital currency, inspired by the popular Doge meme. Coinjar The Melbourne-based bitcoin exchange and payment system is Australia’s largest and longest running bitcoin company. Coinjar’s app allows users to manage their bitcoins on multiple devices, keeps those bitcoins safe and buy more bitcoins. Domenic Carosa, co-founder and chairman of the Future Capital Bitcoin Fund The Future Capital Bitcoin Fund has launched a $US30 million fund that will invest in companies that are leveraging services based on bitcoin and other crypto-currencies. Bitcoins Reserve This Melbourne-based company is the world’s first crypto-currency arbitrage investment fund. It’s a subsidiary of the Hong Kong-based Chesham Group Limited and has been operating for the past year. It says it has generated a 662.3% return on investment for its customers, in its first 11 months. Diamond Circle Diamond Circle is a startup based in Brisbane that offers debit cards and cashless ATMs for bitcoins. The company uses technology like that found in credit cards capable of wave and pay, to allow distributors and merchants to accept bitcoins, and earn commission by accepting bitcoins on purchases, providing cash-out facilities and by selling bitcoin debit cards. Igot The South-Australian based bitcoin exchange is one of the few, if not the only, exchange that accepts BPAY, direct debit and bank transfers. Cointree A new Melbourne-based bitcoin exchange that says it’s focusing on price, ease-of-use and security. It has no buying or selling fees, no bitcoin withdrawal fees, and a 2% cash withdrawal fee. CoinTree creates secure bitcoin wallets for its users and transfers actual bitcoin into the wallet when purchased, which enables users to verify their balance at any time using external sites. Forepost Forepost is an Australian startup that allows its users to buy bitcoins via over-the-counter bank deposits at any one of Australia’s big four banks. Cryptothrift Cryptothrift runs an eBay-style online auction site where users can buy and sell items with bitcoins and litecoins. It sells everything from computer game download codes, to fishing hats, laptops and tablets.
Australian bitcoin and litecoin marketplace Cryptothrift, wants to become eBay for crypto-currencies and is trying to create an economy for anonymous currencies. The company, which runs an eBay-style online auction site where users can buy and sell items with bitcoins and litecoins, was founded last year by Sydney-based crypto-currency enthusiasts Ahmad Aoun and Paul Screen. Cryptothrift sells everything from computer game download codes, to fishing hats, laptops, tablets and YouTube video views. Sellers pay a 2.5% flat rate or a transaction fee, whichever is higher. Buying items is free, but the company charges a 1% fee if escrow is selected at the checkout. Screen told Private Media the company was accepting a number of other crypto-currencies for a brief period, but it just wasn’t worthwhile. “In practice there just wasn’t the volume in sales to advocate supporting them,” Screen says. “What we’re seeing is people are only interested in bitcoin.” Screen says the company’s sales are continually growing month on month, 90% of which are in bitcoin, with litecoin making up the other 10%. Dealing with scammers attracted by the anonymity of bitcoin has been Cryptothrift’s biggest challenge. In response, Screen says the company has implemented an escrow payment system. “Bitcoin and crypto-currency has this tag that it’s anonymous and therefore it tends to attract a lot of the wrong types of people,” he says. “We’re trying to approach things from the opposite way, we want our system and business to be as transparent as it can, we’ve registered with ASIC here in Australia and we’re not hiding from the ATO (Australian Tax Office).” Trust has been a problem for the site, it’s been accused by some users of being a scam. They’re accusations Screen says are inevitable, but unjustified. “I can’t hide away from that, it’s going to happen,” he says. “It’s why we’ve introduced the escrow system that allows buyers 30 days to determine if they’re happy with their purchase and release the funds.” He says there have been cases of scammers operating on the site and “it’s generally pretty clear cut what’s happened”, but the company provides arbitration services and refunds. A large number of the products available on Cryptothrift are digital, which Screen says can lead to stolen items being sold, something the company is constantly on the lookout for and doesn’t tolerate. Screen says in the coming months, Cryptothrift is looking at introducing a verification process, to ensure transparency amongst sellers and in order to comply with know your customer regulations and anti-money laundering laws. “We’ve been in talks for the last few weeks, we’re looking to outsource the verification process for simplicity, but the cost is holding us back, we need to justify that expenditure,” he says. “We’re toying with the idea of doing it in house.” The company has been funded entirely by its founders so far, and while they’re not actively searching for investment, Screen says they’re not opposed to external funding. “It’s something we’re considering,” he says. “We know we want to expand, and we have a lot of good plans for sure, there’s a lot we want to do, but we’re going to need some kind of capital investment.”
Did you know you can claim for cleaning costs and wear-and-tear on your furniture at your home business? As the name suggests, a home-based business is one where you operate the business at, or from, home. That said, you don’t have to do your work at home to be a home-based business. For instance, a house painter would do most of their work elsewhere, but if they didn’t rent or own premises other than the home, they would count as a home-based business. Generally speaking, a home-based business can claim all the deductions any other SME can; yet there are also some specific deductions to be aware of. There are broadly two types of expenses you can claim related to your home business area: occupancy expenses and operating expenses. Parts of the home you use for business Occupancy expenses include rent or mortgage interest, council rates, land taxes and home insurance premiums. Before you can claim occupancy expenses, you have to pass the Australian Tax Office’s interest deductibility test. This means you must have an area of your home set aside exclusively for your business activities, such as an office or workshop. When assessing this test, the ATO will consider factors including whether you have a sign identifying your business at the front of your house; whether or not the business area is also suitable for domestic purposes; and whether it is used regularly for client visits. If you pass the test you can claim the proportion of your home mortgage or rent which corresponds to the amount of space you use for your business. For instance, if the floor area of your home office or workshop is 15 per cent of the total area of your home, you could claim 15 per cent of your rent or mortgage interest, council rates and insurance. There’s a potential sting in the tail you need to be aware of before you start deducting a portion of your mortgage. You might have to pay capital gains tax on the sale of your home if you pass the interest deductibility test. This can apply if you ran a small business from home, even if you never claimed; the issue is how much you transformed your home into a place of business. Operating expenses: the costs of doing business You can claim a deduction for any expenses in running your home business that are above the costs you would have incurred by living in the home. Running costs include electricity and gas for heating, cooling and lighting; phone and internet costs; the decline in value of plant and equipment like chairs, bookcases and computers; as well as the decline in value in furnishings like curtains, carpets and light fittings. Cleaning costs are also deductible. Like claiming the mortgage or rent, you can only deduct these expenses for the portion of your house that you actually use for your home business – and there are different ways of working this out. You can calculate this figure using the floor area of your home office. For instance, if the floor area of your home office is 10 per cent of the total area of your home, you can claim 10 per cent of electricity costs. This is the simplest method, but if you don’t have an area set aside for home use only, you’ll have to use another method and you must be able to show how you calculated your deductions. If you get audited, the ATO will want to see that the claim is fair and reasonable and excludes the expenses associated with normal living costs. It’s a good idea to keep a diary for a four week period to demonstrate how use of your work-at-home office has increased your expenses, particularly your phone bill. Another alternative is to claim a deduction of 34 cents for every hour you work at home. This method, however, covers only heating, cooling, lighting and furniture depreciation, and you will have to work out other expenses such as phone and internet usage separately. Don’t forget wear-and-tear You might be able to claim a deduction for the decline in value of some of the assets used for your business, such as computers and other office equipment, electrical tools and motor vehicles, as well as furnishings, carpet and curtains. As with other deductions, you can only claim the proportion used for business, so you should also record business and non-business use of these assets in a four week diary. Chris Ridd is MD, Xero Australia
Budget 2014: Funding slashed for Australian Tax Office and ASIC as government moves to privatise regulator5:23AM | Tuesday, 13 May
The Australian Tax Office and Australian Securities and Investment Commission have both had their funding cut in this year’s budget. The ATO’s funding will be cut by $142 million over three years from 2015. The tax office will bring forward 4,700 job cuts that were already planned. 900 staff will be cut this year, 500 next year, 1,600 in 2015-2016, 1,200 in 2016-2017 and 500 in 2017-2018. ASIC’s funding will be cut by $120 million over five years. The budget papers do not outline how the corporate regulator will make these savings, only saying ASIC will “adjust its priorities”. The savings from both measures will be redirected by the government “to repair the budget and fund policy priorities”. The government also announced “scoping studies” into privatising ASIC’s registry function. “The proceeds from future privatisations will be reinvested into the Asset Recycling Fund for new productive infrastructure,” the budget papers state. As previously reported by SmartCompany, ASIC’s register is estimated to generate more than $625 million in revenue and has annual costs of around $140 million. ASIC chairman Greg Medcraft told the economics references committee in February the corporate register was “frankly, a technology business” and there could be “huge benefits” in separating the registry business and “merging it with other government registries to leverage the economies of scale from [its] Siebel management system”.
The end of the financial year is fast approaching and small businesses need to get their tax affairs in order. Chris Ridd of online accounting software provider Xero outlines strategies to help your business minimise its tax bill. Tax time takes it out of the best of us. A small saving grace is the general rule that you can claim deductions for any expense your business incurs while generating its income. Many of these deductions are straightforward – rent, materials, wages, supplies – but here are five you might not have heard of. Interest – don’t overlook what you can deduct You can deduct any interest on money your business borrows, including interest paid on business loans, overdrafts and other finance facilities. This might sound obvious, but there are other interest expenses you can deduct that can easily be overlooked. Firstly, any interest that is accrued on a business loan but not paid by June 30 is potentially deductible. Secondly, many small business owners fund their business through personal loans or with their personal credit card. And because the interest costs aren’t being incurred by the business itself, but by the business owner, you can claim a deduction on the interest in your own personal income tax. Depreciation – take advantage of the $6500 cap Small businesses shouldn’t forget to claim for depreciation – getting a deduction for the loss of value and wear and tear on the business’ assets. Assets usually have to be depreciated bit by bit over several years, but special rules for SMEs mean that they can get an immediate tax write off for any asset with a value of up to $6500. For example, if your business bought a $4000 computer in the current tax year, the business could claim an immediate 100% tax deduction when you do your tax return. The federal government has signalled it wants to drop the limit to $1000, backdating the change to 1 January 2014. This denies SMEs to take advantage of this concession before it goes out the window (although it remains to be seen if this change will be passed by the Senate). Nonetheless you can, at the very least, take advantage of the $6,500 cap for assets purchased before 31 December 2013. Motor vehicles – drive a better deal with the tax man There are also generous depreciation concessions for small businesses when they buy motor vehicles. SMEs can depreciate cars, trucks or vans and so on more quickly than other businesses. They receive 100% deduction on the first $5000 cost of the vehicle and can then depreciate the rest at 15% in the year they bought it. So a $14,000 car would attract a tax deduction of $6350 in the year of purchase. (If the vehicle cost less than $6500, the whole amount can be claimed as an immediate deduction under the instant asset write-off provisions outlined above.) But, as with the general depreciation rule, the government wants to remove these concessions; the initial deduction on a $14,000 car would then drop to $4200. But, as with the general depreciation rule, the government wants to remove these concessions and backdate them to 1 January. If this happens the initial deduction on a $14,000 car would drop to $4200. Trading stock – profit from your losses Tax time is a good opportunity to do a stocktake to see if you qualify for any deductions on your trading stock – anything you produce, manufacture, purchase for manufacture or sell for your business. You can write off any lost, damaged or obsolete stock for a tax deduction. If your stock level changes by more than $5000, you must take into account the change in value of your trading stock when you work out your taxable income for the year. If the value of the trading stock is higher at the end of the year than at the beginning, then the rise counts as part of your taxable income. But if your stock is worth less you will qualify for a deduction. There are three different methods of valuing stock: the price you bought it for; its current selling value; and its replacement value. You can choose which you use for which piece of stock, giving you the opportunity to maximise your deductions. Bad debts – there is some good news It’s always bad news for a small business when debtors fail to pay for the goods or services you’ve sold them. But at least there’s a small silver lining – you can claim a tax deduction for the bad debt. A bad debt is any debt which has been outstanding for 12 months or more and which you have made a reasonable effort to recover. It pays to go back through your outstanding invoices to find bad debts and write them off before the tax year on June 30. Also, if you calculate your GST on an accrual basis, don’t forget to claim a refund for the GST you paid to the Australian Tax Office when you issued the original invoice. So there you have it: five small business tax deductions to start looking at before the end of the financial year. Chris Ridd is managing director of Xero, an online accounting software provider which helps small businesses get their financial affairs in order. This article was updated after changes were announced in the budget.
My business is innovative and experimenting with new ideas. How do I determine whether we qualify for the R&D Tax Incentive? The Research and Development (R&D) Tax Incentive program was developed to assist businesses recover some of the costs of undertaking R&D. The program is administered jointly by AusIndustry and the Tax Office. The R&D tax incentive provides a tax offset to eligible companies that engage in R&D activities. Companies engaged in R&D may be eligible for either: a 45% refundable tax offset (equivalent to a 150% deduction) - for entities with an aggregated turnover of less than $20 million per annum, or a 40% non-refundable tax offset (equivalent to a 133% deduction) - for all other entities. Eligibility begins with the structure that is conducting the R&D. The following are considered eligible entities: an Australian resident company; or a foreign company that: is a resident of a country with which Australia has a double tax agreement; and carries on R&D activities through a permanent establishment in Australia; or a public trading trust with a corporate trustee. If you are operating through an eligible entity, you must register your R&D activities with AusIndustry: within 10 months after the end of the income year (registering for the income year in which the offset is to be claimed), and prior to claiming the R&D tax offset in the tax return. This means that you have until 30 April to submit your R&D application with AusIndustry. Once you have met the deadline and submitted your application, AusIndustry will review your activities in order to determine whether they are eligible ‘core activities’. To be eligible, core activities must be experimental. Experimental activities are (as per the Tax Office's Guide to the Research and development tax incentive): activities whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that: is based on principles of established science; and proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions, and that are conducted for the purpose of generating new knowledge (including about creating new knowledge or improved materials, products, devices, processes or services). Excluded activities can be found through the AusIndustry website. Non-core R&D activities include: market research; management studies or efficiency surveys; developing, modifying or customising computer software for the dominant purpose of internal administration of business functions; and commercial, legal and administrative aspects of patenting, licensing or other activities. The registration of R&D activities is managed by AusIndustry, which checks that the activities comply with the law. The Australian Tax Office (ATO) determines the eligibility of the expenditure claimed in the company tax return. A common misconception is that the R&D Tax Incentive is a government grant. It is a tax incentive and its benefits flow through the company tax return. This means that the R&D Tax Incentive has nothing to do with government grants. The law and logic here is that anyone advising businesses on R&D Tax for a fee must be a registered tax agent. Make sure that your adviser is one and has the experience necessary to guide you. If in doubt, visit the Tax Practitioners Board website. One final note – the deadline for the 2012/13 financial year for the submission of the R&D application and activity registration form is 30 April 2014. Best to connect with your tax advisor before the April rush.
The business community has enthusiastically welcomed the news that Small Business Minister Bruce Billson has issued a warning to the Australian Tax Office to go easy on independent contractors and the self-employed. The comments fulfil a hope within enterprise that Billson’s appointment will plug a knowledge gap of small business issues in government. “This is very good progress,” said Peter Strong, chief executive of the Council of Small Business of Australia. Ken Phillips, chief executive of the Independent Contractors Australia, told SmartCompany he was “absolutely delighted”. “I’m delighted to have a government moving so quickly on these key issues – it’s really impressive,” he says, adding this announcement is yet more evidence the new government doesn’t simply think of small business as a token industry. “Bruce Billson has small business as his only title, and they’ve moved his department to Treasury which gives him a real authority. “This is quite a big shift and clear signal at the earliest stage of government that what they’ve said about small business being front and centre is being taken seriously.” Billson told The Australian Financial Review the ATO, along with the construction watchdog and the Fair Work Ombudsman, have been told to take it easy on independent contractors. “The issue is less about the law itself; it’s the way in which it has been administered,” he said. “There are hundreds of thousands of these courageous, enterprising, self-motivated individuals who are making a contribution to the economy but suddenly found themselves in the Bermuda Triangle as contributors to the economy.” Billson claimed the previous government had told these authorities to pressure contractors in order to move them towards employment agreements in which unions have more sway. “We’ve seen independent contractors … in the clothing, textile and footwear area engaged to do contract work now being told they have to be engaged as employees to get minimum hours.” Billson also mentioned a practice within the Tax Office to either refuse issuing of ABNs or withdraw ABNs from individuals. “We’ve had examples raised with us that the ATO has denied a business an ABN for reasons that were not clear but there is no avenue to appeal.” The ATO regularly reviews ABNs to determine if their holders are actually carrying on a business. The Abbott government has pledged one million new jobs during its term – Ken Phillips says in order to reach that number, it needs to focus on small business. “It’s good to see the small business is front and centre here,” he says. Peter Strong says independent contractors need to be protected if the government wants to promote the virtues of being self-employed. “This works hand-in-hand with fixing up contracting law,” he says. “The people who have been targeted have been victims, so you need to stop haranguing those who are doing the right thing. “This is about people who are looking to increase their income and aren’t doing it in any way that could be considered dodgy.” The Fair Work Ombudsman has been consistent in cracking down on the practice known as ‘sham contracting’, in which businesses classify employees as contractors in order to avoid paying them wages and entitlements.
The federal government is set to consult with Australian industry over the tax treatment of employee share option schemes, which start-ups say needs to be overhauled to promote growth. The government is aware the current tax situation around employee shares creates difficulties for some sectors of the economy, especially start-ups, and will consult with industry on the impact of tax and administration requirements for the schemes, StartupSmart has been told. Revamping the tax treatment of employee share option programs is fundamental to growing the start-up sector in Australia, says Malcolm Thornton, investment director at venture capital fund Starfish Ventures. “It’s a key currency that people employ to keep highly talented people on board while conserving cash,” says Thornton. The start-up sector can expect consultations with the relevant federal government departments in the future, with sources telling StartupSmart the government is aware the current tax situation around employee shares creates difficulties for some sectors of the economy, especially start-ups. Employee share option programs enable start-ups to attract and retain leading talent to their company by offering staff a proportion of the future company on top of the (often low) wages they are able to pay. The complexity of the current system has held Australian start-ups back from embracing the system. A key drawback is that employees can become liable for significant amounts of tax based on the asset’s value, even if it’s not currently earning any capital. Thornton says an update of taxation rules around the program is “imperative” for the start-up sector. “It’s completely complicated and convoluted in Australia, compared to when our companies are US-based, and we can just take a program off the shelf and every lawyer in San Francisco knows how to manage the process.” Thornton says the current system fails to grasp the variety of companies that would benefit from the implementation of such schemes. “Start-ups and high growth companies have very different characteristics to large, mature multi-decade companies,” he says. “One of the key elements to appreciate is that there is little to no value in the options until the company has grown and either lists or is acquired.” Alan Downie, chief executive and co-founder of BugHerd, a visual bug tracker for web developers, has recently implemented an employee share scheme for one of his six staff and is working on setting the scheme up for another employee. “It’s a critical issue for start-ups,” says Downie. “As a start-up you don’t have a lot of cash so it’s the way to keep talent. If you have to compete with guys like Telstra and Atlassian for developers, all you’ve really got is the growing company equity.” Downie and his co-founder Matt Milosavljevic spent 12 months working out how to implement the scheme for their first hire, a developer. “It was a very long and tedious and expensive process,” he says. “There is no standard way to do it and that’s the problem.” “When our developer started with us, he was on a third of what he could make as a developer. But he was so engaged and he got we didn’t have the money, so it was really important to him to get a piece of the company.” Downie says he spoke to four accountants, a few lawyers and several entrepreneurs about how to implement an employee share scheme, and they all had different answers. “It’s still not ideal for the employee, as they still have a bit of uncertainty. From the employer’s point of view, you want to have solid understanding of what the government wants, rather than jumping through hurdles.” He says the Australian Tax Office hasn’t spoken to any of the parties involved, so it’s still untested. According to a report by the ABC, the employee share options scheme will be explored in the next update to the National Digital Economy Strategy.
A Coalition government will commit Commonwealth departments and agencies to pay small business suppliers on time or face paying interest on outstanding bills, Opposition treasury spokesman Joe Hockey says. “Under the Coalition, all small businesses that provide services to the Commonwealth will get the benefit of a ‘pay on time or pay interest’ approach- formal contracts or not,” Hockey said in a post-budget speech to the National Press Club in Canberra. He says that if a bill isn’t paid within 30 days, interest will be applied at the same rate the Australian Taxation Office expects people to pay for late tax payments, currently 9.95%. “Small businesses work hard for their money and should not be bankrolling government,” he said. Hockey attacked the Labor government’s budget handed down last week, which revealed a $19.4 billion deficit, claiming it lacks integrity, pledging the Coalition would build a strong economy. Pointing out he came from a family of small business people, including cousin Gus whose menswear business in Sydney had recently gone broke, Hockey says enterprise is the backbone of the Australian economy. He says government should support business and reiterated that small business would be a cabinet portfolio within the Treasury department if the Coalition wins the federal election on September 14. The Coalition’s objective is to reduce the overall tax burden on businesses and taxpayers “over time”, he said. Hockey says the Coalition would also seek to create a more “cooperative” relationship between taxpayers and the Australian Taxation Office by appointing people with business experience to senior posts, reducing the complexity of tax laws while increasing their certainty, and establish a standing Parliamentary Committee to oversee tax administration. Expressing reservations about the ATO administering and policing Australia’s tax system, Hockey says the Coalition would be prepared to break up the tax office and separate its policing and administration functions if the oversight committee believed it was necessary. Australian Tax Office staff numbers were boosted by 508 in the federal budget as the government announced a crackdown on trusts and closing corporate tax loopholes. Tax and small business experts had expressed concerns the crackdown could extend to small businesses.
The father of Swisse chief executive Radek Sali has launched a defamation action following claims on ABC’s consumer affairs program The Checkout, claiming a recent episode ‘‘severely injured his reputation and standing’’. Presenters Craig Reucassel and Julian Morrow along with executive producer Nick Murray and the ABC are all named as defendants in the lawsuit. Avni Sali’s lawsuit centres around claims made during the episode broadcast March 21, which alleged the National Institute of Integrative Medicine he founded was not independent in conducting clinical tests of Swisse products. “The program was meant and was understood to mean that the plaintiff performed clinical tests... and then manipulated the published results for the commercial benefit of Swisse,’’ Sali says. Packer lieutenant John Alexander appointed to Seven West Media board Seven West Media has announced it is appointing John Alexander, the former executive deputy chairman of James Packer's Crown Casino empire, to its board of directors. "We are delighted John has accepted the invitation to join the board of Seven West Media," Seven West chairman Kerry Stokes states. “His success in media and business speaks for itself. His appointment adds further depth to the board of our company as it continues to develop its businesses.” Treasury looks at closing tax loopholes for digital services The Treasury has released an issues paper examining the ways in which international online giants, including Google, Apple and Microsoft, minimise their tax bills by shifting profits from online services into low-tax jurisdictions. “The global reach of multinational enterprises, along with the developments in information and communication technology…provides them with a high degree of flexibility in how to structure their affairs,” the paper states. “These developments raise serious concerns about the efficiency, equity and sustainability of the income tax system.” The paper also calls for submissions suggesting possible solutions to the erosion of tax revenues by international tech companies, along with further data that could assist the Australian Tax Office. Overnight The Dow Jones Industrial Average is up 0.9% to 14831.6. The Aussie dollar is up to US102.48 cents.
This article first appeared June 22, 2012. With warnings of a second global financial crisis and consumers at home who refuse to part with their cash, it may seem like hard times are ahead for Australian small businesses.