From Craig’s desk
Welcome to Vault Accountants and Business Advisors’ March Newsletter.
The start to the year has been challenging for individuals and business owners alike, with another interest rate rise there is a little trepidation in what we are seeing at the coalface. There is no doubt that there is a slowdown, but we hope to give you the tools to manage a changing situation.
We are moving to a PDF format for April and have focused the content more on individuals, at the same time we have launched a business update newsletter, if you are interested in receiving this please email the team at email@example.com
The team at Vault has grown and it is now at 30. We have welcomed four more team members in the bookkeeping and accounting teams. As we continue to grow, we have been fortunate to have developed an amazing team, with all growth comes challenges and the team and I are rapidly learning the technology backend to make things continue to improve.
We are pleased that we have Gerrit and his family joining the Vault Team during the next six months. Gerrit has made the decision to move to Australia from South Africa and will be relocating to Grafton as soon as practical. Gerrit brings years of experience running his own practice and will be a welcome addition to the Grafton Team.
The domestic team had a training session in Inverell at the start of March, this was a great catch up and brought the team together for some training and some social activities.
We continue to Beta test the chatbot functionality and we expect this to be operational in time for the tax season. This will provide you simplified direct access to your tax preparer and will hopefully cut down on the number of emails that are needed to finalise a return. This functionality is hosted via Microsoft Teams and has the same security functionality as our email system.
Your early 2023 engagements will start in April and May, and we are releasing some more information about this over the course of the month. Our YouTube channelhas a guide to 2023 tax returns and will host our Q&A sessions.
Finally, a big thank you for being part of Vault, we are constantly trying to improve our services and any feedback is welcomed.
Work from home allowance changes
The revised fixed rate method applies from 1 July 2022 and can be used when taxpayers are working out deductions for their 2022–23 income tax returns.
First things first, make sure you are eligible to claim working from home expenses. To claim your working from home expenses, you must be working from home to fulfil your employment duties, not just carrying out minimal tasks, such as occasionally checking emails or taking calls. Also, you must incur additional expenses as a result of working from home.
No matter which method you use, make sure to keep records. This will give you more flexibility to choose the method that gives you the best deduction at tax time depending on your circumstances.
Items that are difficult and tedious for everyday Aussies to calculate actual work-use, like phone, internet and electricity expenses, are included in the revised rate. Assets and equipment that typically give taxpayers a bigger deduction, such as technological items and office furniture, are not included in the revised rate and need to be claimed separately.
You no longer need a dedicated home office to use the fixed rate method.’
From 1 July 2022 to 28 February 2023, the ATO accept a record which represents the total number of hours worked from home (for example a 4 week diary). From 1 March 2023 onwards, taxpayers will need to record the total number of hours they work from home.
Revised fixed rate method
The revised fixed rate method can be used from the 2022–23 income year onwards. The changes are:
- The cents per workhour has increased from 52 cents to 67 cents
- The revised fixed rate of 67 cents per workhour covers energy expenses (electricity and gas), phone usage (mobile and home), internet, stationery, and computer consumables. No additional deduction for any expenses covered by the rate can be claimed if you use this method.
What can be claimed separately
- The decline in value of assets used while working fromhome, such as computers and office furniture.
- The repairs and maintenance of these assets.
- The costs associated with cleaning a dedicated home
- The revised fixed rate method doesn’t require taxpayers to have a dedicated homeoffice space to claim working from home
- Taxpayers need to keep a record of all the hours worked fromhome for the entire income year – the ATO won’t accept estimates, or a 4-week representative diary or similar document under this method from 1 March 2023.
- Records of hours worked fromhome can be in any form provided they are kept as they occur, for example, timesheets, rosters, logs of time spent accessing employer or business systems, or a diary for the full year.
- Records must be kept for each expense taxpayers have incurred which is covered by the fixed rate per hour (for example, if taxpayers use their phone and electricity when working fromhome, they must keep one bill for each of these expenses).
Actual cost method
The actual cost method hasn’t changed. Taxpayers can claim the actual work-related portion of all running expenses.
This includes keeping detailed records for all the working from home expenses being claimed, including:
- all receipts, bills and other similar documents to show taxpayers have incurred the expenses, a record of the number of hours worked fromhome during the income year (either the actual hours or a diary or similar document kept for a representative 4-week period to show the usual pattern of working at home).
- a record of how taxpayers have calculated the work-related and private portion of their expenses (for example, a diary or similar document kept for a representative 4-week period to show the usual pattern of work-related use of a depreciating asset such as a laptop).
The ATO is reminding taxpayers that if they are claiming their actual working from home expenses, they can’t claim a deduction for expenses which have already been reimbursed by their employer. This means you can’t claim twice.
No matter which method is used, if taxpayers purchase assets and equipment for work and it costs more than $300, they can’t claim the full amount immediately. For each of these items, the deduction must be claimed over a number of years and the work portion claimed (known as decline in value or depreciation).
Need help? The ATO has online calculators to help taxpayers work out the decline in value of assets and equipment purchased. There is also the myDeductions tool in the ATO app, which can help keep track of expenses.
Keep a log of your hours at home.
Keep your receipts.
If you are buying larger items these need to be claimed over time.
During February and March we are running a range of events covering Xero and business planning.
The team has developed the events calendar which can be found here and there is a guide to what the events are about. We have started rolling out the face to face events in Inverell and will be offering face to face events in Grafton and Moree as well.
We are running events for businesses as well as individuals, these are all complimentary and will be held via Teams. The recordings of the sessions will be made available on the Vault YouTube page.
We hosted our first face to face events in February with good numbers, Our sessions in Inverell have started with Vault Business Basics, a session on understanding the basics of business better. We are rolling out the same sessions in Grafton, Moree, Warialda, Woolgoolga, Brisbane and Gold Coast over the next three months.
We are running sessions on the upcoming tax season in all the offices as well as online. These sessions cover the basics of tax deductions, some simple mistakes and what you can do to improve your return. The sessions are complimentary.
We are covering the first home buyer sessions in the next article, but these will be running at all locations during April and May. Co-hosted with BoQ, we will be covering the journey of buying your new home.
Face to face events
Inverell – Vault Business Basics – Does my balance sheet balance? – 14 March 5.30pm at our Otho Street office.
To join us email firstname.lastname@example.org
Grafton – Vault Business Basics – 14 March 5.30pm, venue to be determined.
To join us email email@example.com
Tax and Crypto – 14 March
Book your tickets here
To download our eBook click here.
Starting a business – 5 April
Book your tickets here
2023 Tax Return Program
Covering what we did last month you will be receiving your 2023 tax return engagement over the next six week.
With 30 June around the corner we have been looking at some options to make tax time a lot easier and less stressful. For the upcoming year we have set the price for our tax returns lower than the 2022 pricing.
During April and May you will receive your engagement for the upcoming financial year, which will give you access to upload your documents and get the process underway.
Do I have to pay early?
No, as you are a returning client your tax return fee is only payable after the completion of the return. We will let you know when we send out your return.
What if I have paper receipts?
Your link will accept photos of your receipts, so feel free to take a photo and upload them, we do not need paper receipts to be delivered to the office. If you have paper receipts, we offer a limited scanning service, please reach out to your office to see if it’s available.
When will my return be scheduled?
The tax return process is heavily dependant on when the full information is available, we will email you when all the relevant information has been provided and will complete the return within a fortnight of the information being made available. For crypto and returns with managed funds this can take as long as three months before the information has been made available.
We will be releasing a calendar in June with the estimated lodgement dates depending on your situation.
What happened last year?
The ATO did not process any returns for the first two weeks of the new financial year and we expect the same to occur this year. We will commence work on some returns as soon as the year rolls around but we will not be lodging until at least the third week.
Should I hold off if I think I have a tax debt?
We recommend getting the return completed as soon as practical, even if you have a debt as it gives us time to organise payment arrangements or to ensure that you do not end up with tax instalments.
Want to know more?
We are running sessions on the 2023 tax season and pre 30 June tax planning during April and May, keep an eye out on our events page for more details.
Our first buyers sessions
We are hosting first home buyer sessions in Brisbane, North Lakes, Inverell, Grafton, Moree and Bingara during May and June. These sessions are designed for people looking at buying their first home, what to expect, what is the process, how to go about getting a mortgage and more importantly how to budget to make sure that you can afford your new home. The session is interactive, and for those unable to make it the session will be available on our YouTube channel.
The session is not just for those buying the next few months but designed to assist people looking to get into their own home and who might need some help getting started.
Understanding that buying a home can be life changing experience we will cover;
- Basics of buying a home
Looking at some of the decision-making processes and why the first place you see is unlikely to be the place you end up with.
- Basics of a mortgage
You are about to enter into a 25 or 30 year relationship, you need to know what that means and who you are walking down the property altar with.
- Saving for a deposit (and the Government assistance scheme)
Developing a savings plan is critical to buying a house. We will look at the Government concessions and how they work, basics of setting a budget and understanding how much you will need.
- Your credit file and what you need to know
We cover what is in your credit file and why it is critical to make changes now before you start the buying process. What are some things to avoid and what you can do if you have slipped up.
- How much can you borrow?
We will be explaining some of the affordability aspects and why it is critical to make sure that you understand how much you can borrow, and why this is different to how much you should borrow.
- Things you don’t think of
Day one of owning a property is a blur, day two is the same blur but reality is kicking in, there are often little things we all forget on the first property, and we will run through the basics.
- What happens next
Once you are in the property it is time to consolidate and make sure that the place is affordable, and you can achieve your dreams. We look at understanding how interest rates work and why the new kitchen can wait.
We are partnering with a bank to assist us in explaining what happens from the bank side and why it is important to start the conversation earlier rather than later.
Need some help? The team will be running sessions on Tax planning for 2023 during June and July, if you have any specific questions reach out to the team at firstname.lastname@example.org
Thinking about an investment property?
For most people their first large investment is their home and then they think about investing in property, is property for you, and how do you go about it?
Some questions before you start.
What am I buying? We are often faced with the answer, I want an investment property, but what does this mean? For a lot of people, the answer is before the question, so understand what type of property you are looking for and where. If you need help reach out to Bud and he will give you some tips on what’s available.
Are you buying for tax reasons? Then don’t, the best properties are positively geared. A negative geared property is a short-term sugar high, and unless there is long term improvement it will be a long-term financial hangover. Look for properties that have a long-term cash flow positive outlook.
Who’s buying it? Don’t assume. Once the contracts are signed it is going to cost you double stamp duty to change it, before you sign give us a call.
Buying to renovate? You are buying to invest and not to live in, the hardest thing is not to over-capitalise the investment. Make sure that your numbers stack up.
Are you over-geared? Buying an investment property is great but what will be the net cash flow position and how will you fare if you lose a tenant or interest rates rise. Make sure that the property is in your budget.
Am I buying off the plan? This is a tough one and one that needs very careful planning. What you think you are buying and what you receive may be a different concept, tread carefully when buying off the plan.
Retail, commercial or industrial? I am very biased towards industrial as there is long tenancies and the tenant covers the outgoings, but the properties can be empty for equally as long periods. Understand the nature of the underlying businesses and who wants your property. It may be a good option as an investment choice.
Is it for me? You are investing in a single asset. It needs interaction and can be a considerable investment of energy and money. Equally a well tenanted property looks after itself, do the research and invest time prior to making the leap.
Need help? We work closely with Bud and recommend you reach out if you are looking for an investment property. Before signing any contracts reach out to the team to make sure it is being purchased in the right name.
Understanding Financial Concepts
With times a little tougher, a lot of people are struggling to understand their financial position, it is often criticised that we learn trigonometry at school but never financial literacy, so we will try and demystify some basic concepts.
A non-deductible debt is one that you need to pay after you have already paid tax, you get no tax benefit from this. It is often described as bad debt, or debt that you pay twice for. Examples of this are credit card debt or debt on the family home.
The interest rate on debt is the cost of borrowing the money, stated as an annual percentage, it is generally worked out daily, so the published rate is often lower than the actual rate. A 26% annual interest rate is actually 29.68% when calculated on a daily basis.
A tax refund is not a gift from the Government, it is a refund of the overpayment of tax you have made during the year. The best outcome for a taxpayer is to be completely neutral when their tax return is completed. A refund is just getting your overtaxed amount returned.
A tax deduction is money that you have spent that the Government takes a portion off your tax. Don’t just spend to get a deduction.
A red-hot investment
Sadly, by the time it gets to you, chances are it is no longer the red hot investment it once was. Take a step back. If it was such a great investment why are they giving me the information for free.
Super is not an investment. Super is a tax structure, the underlying investments decide the performance of your super, not super itself. Think of super like a cooking pot, what you add to it decides the flavour, but the cooking pot itself doesn’t have a taste.
Tax planning by BBQ
The tax system is complicated, some would say overly complicated. Deductions are not necessarily what you think should be claimable and the ATO have their positions which may differ from the BBQ expert. The problem is that if they are wrong, you’re the one dealing with the consequences.
Want to know more? We are running plain language sessions on buying your first home, tax Q&A and improving your tax position. Click here for our events.
Cash flow with increasing interest rates
There has been a rapid increase in interest rates and this is having a flow on effect to household budgets, practically this can mean that if you are on the edge that something small can push you over.
It is critical to understand what an interest rate rise will do for you, and what your options are for managing it. Start with a budget, make it practical and then see if things are under control. Each interest rate rise can be stressful. Some simple tips are;
Managing your mortgage
Get in the habit of making an extra payment, even if it is $50 a payment, you want to be ahead of the minimum.
Use an offset
This allows you to park money in the mortgage until you need it.
Consolidate into the mortgage
Cut any high interest by rolling them into the main mortgage. This only works if you get rid of the high interest facilities after.
Delete the apps
Lose the UberEATS, menulog and doordash. If you are ordering in, jump in the car and grab it. The price difference is significant and the risk of over ordering drops considerably.
Check the subscriptions
Go for one streaming service at a time. Whilst it is often advocated to cut them all, in the real world bring it back to one.
There are deals available to switch. Whether it be electricity, internet or even your mortgage. See if there is a better deal and chase it.
Adding up the debt now is problematic, if the car, phone or technology can wait… wait.
Cut the card
Credit cards are prohibitively expensive and often lead to out of control spending. Start small, cut the number of cards to one and then bring the balance down. It’s not an overnight fix but it will help.
Make a budget
Start small and make some changes, it is not all going to happen overnight.,
Cut the coffee
Don’t listen to the breakfast tv experts; you are not cutting out the morning coffee, so don’t rely on this to make the budget.
Grab a second job
It does my head in when the primary suggestion is to grab a second job to cover the costs. It means that you are closer to mentally struggling. Have a realistic budget before you start working the midnight hours.
Cash your super
This is becoming more prevalent. It is only a short term option and there is a substantial long term cost to doing so.
Ignore the issue
There is no doubt that some families are under cash flow and mortgage pressure. The earlier you deal with the issue, easier it is going to be into the future.
Need some help?
There are a lot of free budgeting tools (like the moneysmart website), if you are struggling with your mortgage, speak with your lender as they have a lot of facilities available to help you. Don’t be afraid to reach out for help.