Robert Goodman Accountants Blog

Is your farm a hobby or a business?

Hankering for a hobby farm? Have a penchant for a few shimmering vines, or maybe a cluster of Angus cows on green pastures? Maybe you're already "farming". You might see your rural acres as a hobby but your idyllic vision may not be one shared by the ATO if it morphs into a business. Which may not be such a bad thing! Find out whether or not your farm is a business and why it matters.

As you sip a drop from the latest vintage you've crushed with the toes of your family and friends, is it possible that turning these vines into wine has ventured into primary production, and this happy hobby has become a business?

What's the difference between a hobby and a business and how can you tell? Defining "primary production" and "business" is no problem. But just as it's hard to conclusively identify why one wine is better than another, so is figuring out whether or not a business of primary production is being carried on in your particular case.

Are you carrying on a primary production business?

First, let's look at the definitions. "Business" is clearly defined to include any profession, trade, employment, vocation or calling (other than an occupation as an employee), and "primary production" broadly refers to the following areas of activity:

  • plant or animal cultivation (or both)
  • fishing or pearling (or both)
  • tree farming or felling (or both).

Although determining whether a business of primary production is being carried on requires both these definitions to be satisfied, neither definition provides a simple test for when the nature and extent of your activities amounts to the carrying on of a business. Fortunately, there are a number of indicators, courtesy of case law, that give some direction.

Business indicators

The ATO emphasises that no one indicator will nail whether a business is being carried on, but it's a matter of weighing up all the relevant indicators in each individual case. It may look and smell like a business but when all the chips are counted it may not stack up.

So, this is not an exact science, but more a forensic approach, in which the individual pieces of evidence are examined, weighed and fitted together to build a case for a hobby or a business.

The indicators explore:

  • the nature of the activity – has it started, does it have a "significant commercial purpose or character", what is its scale (large enough to make a profit?), does it have repetition and regularity, is it organised in a businesslike manner, will it be profitable, does it match the way the activity is ordinarily carried out in that industry, and is it better described as a hobby?
  • the intention of the taxpayer – does the taxpayer have more than a mere intention to engage in business, does the taxpayer intend to make a profit, has the taxpayer carried out research and analysis, has the taxpayer kept records and created a business plan, and has the taxpayer sought the advice of professionals in the development of this activity?

So many questions! Here's another one: why does it matter?

Weighing up the tax considerations

Defining whether you are carrying on a hobby or a primary production business matters because there are tax considerations for both activities, such as the following.

If it's a hobby:

  • You can enjoy the activity in your own time with no reporting obligations.
  • You don't need to declare any money you make from the activity, but you also can't claim any losses from it.
  • Also, as a hobbyist you're not entitled to have an ABN, so to transact with (supply) another business you will need to complete a special form and provide a written statement to the payer, otherwise tax will be withheld at the highest rate.

If your hobby becomes a primary production business:

  • You will need to declare your income to the ATO, get an ABN and keep tax records.
  • You can claim general business deductions for your expenses (unless you're offsetting a loss against other income, in which case you need to satisfy the ATO's "non-commercial loss" tests or defer your loss until you make a profit). You can also claim the new instant asset write-off for SMEs of up to $30,000.
  • You can take advantage of tax concessions available to primary producers, eg tax offsets such as tax averaging, and tax deductions, eg for the depreciation of grapevines and immediate deductions for fencing and water facilities.

Don't hear it on the grapevine

If it's all enough to turn you to drink, come and see us for some expert advice and guidance on the most tax-effective way forward for your farm!

Email us at Robert Goodman Accountants at reception@rgoodman.com.au.  © Copyright 2019 Thomson Reuters. All rights reserved. Brought to you by Robert Goodman Accountants. 

You may have heard about the "instant asset write-off", but do you understand exactly how it can benefit your business? If not, you're not alone! Read our case study for insight into how the write-off could work for your small or medium business, and what you need to do by 30 June 2020 to take advantage of this limited-time incentive.

If you're thinking about purchasing some new equipment for your business, it may make sense to bring forward that purchase in order to take advantage of the "instant asset write-off" available until 30 June 2020.

The write-off allows small and medium businesses (with turnover up to $50 million) to claim a full deduction for any depreciating asset costing up to $30,000 in the year they first use it, rather than having to deduct the cost over several years under the usual depreciation rules.

Case study: David runs a distribution business with annual turnover of $1.4 million. He has been thinking about purchasing a computer upgrade (costing $8,000), an extra forklift ($24,000) and a new van ($35,000), which David would use 20% of the time for personal use.

Which assets qualify?

The $30,000 threshold is a per asset threshold, so the business could claim both the $8,000 computer upgrade and $24,000 forklift under the write-off, even though these total $32,000.

The $35,000 vehicle won't qualify. Even though businesses may only claim the write-off for the business use proportion of an asset (in this case 80% or $28,000), the full cost of the asset must still be below the $30,000 threshold. The vehicle would be subject to the usual depreciation rules.

What's the advantage of the write-off?

The write-off "accelerates" David's deductions because the business can fully write off qualifying purchases in the first year, rather than gradually claiming deductions for depreciation over several years. This is clearly a benefit, but David's decision about the purchases should also factor in:

  • how profitable the business is, and how a large deduction this year versus gradual depreciation over several years will be applied against the business' assessable income; and
  • the cashflow impact of making the purchase, including whether finance is needed. Does the business genuinely need the new assets, and does the tax benefit of the instant write-off justify the expense involved in this capital expenditure?

What's the deadline?

The $30,000 write-off is a temporary measure.

Unless there are further government announcements, the threshold will return to $1,000 from 1 July 2020.

David must do two things if he wishes to utilise the $30,000 write-off.

First, he must purchase the asset by 30 June 2020.

  • For small businesses like David's (with turnover under $10 million), the purchase can go as far back as 13 May 2015 (subject to the "first use/installation" rule discussed below).
  • If David's business turnover was between $10 million and $50 million, the purchase would need to have been made after 2 April 2019 (because the measure was not available to medium businesses before then).

Be careful about financing asset purchases. If you "lease" an asset you may not qualify because you're not the owner, but if you use a form of finance like a "chattel mortgage" (where the lender takes security over the asset) you can still claim the write-off.

Second, the asset must be first used, or installed ready for use, on or before 30 June 2020. This means David wouldn't qualify if he buys the asset but it's not delivered until after 30 June 2020.

If a small business purchased and also first used or installed an asset on or before 2 April 2019, a lower threshold will apply. Talk to your adviser about the tax treatment of that purchase.

Let's look at your expenditure plans

If you've been considering new equipment for your business, contact us today to explore the optimal timing for that expenditure and whether the write-off can work for you.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2019. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants.

Your business may be required to make superannuation contributions for some independent contractors, even if they have an Australian Business Number (ABN). Contractors hired under a contract "principally for labour" are captured – but what does that mean? Find out what test the ATO applies and check whether your business has its super obligations covered.

Hiring independent contractors can be a flexible staffing solution for many businesses, not only to meet fluctuating workloads but also to help fill gaps with specific skills. But did you know that some workers who are genuinely independent contractors are still entitled to compulsory superannuation contributions?

If a worker is not an employee in the general sense but is hired under "a contract that is wholly or principally for the labour of the person", the worker is deemed an employee for super purposes, even if they have an ABN.

This means the hirer must make superannuation guarantee (SG) contributions of 9.5% (in relation to the part of the contract that is for labour). Hirers can't meet this obligation simply by paying the worker an additional 9.5% – they must actually make contributions to the worker's superannuation fund.

So what sort of contracts are captured? The ATO's view is that a contract is "wholly or principally for labour" when three key requirements are all met.

  • First, the person must be paid "mainly" for their labour (if not entirely), and the ATO interprets this as "more than half the dollar value" of the contract being for labour. Labour includes not only physical work, but also mental and artistic effort.
  • The second requirement is that the person is paid for their labour, not to achieve a result. Being paid by the hour suggests the person is paid for their labour. In contrast, when a person is paid a fixed sum for a specific output, this suggests they're paid for a result.
  • Third, the person must personally perform the work and must not be able to delegate to someone else. The ATO notes that many contractors are often hired based on their personal skills, qualifications and experience, so many contractors will typically be unable to delegate their work.

What types of work can this affect?

All kinds of workers can be captured. Typical examples might include freelancers such as programmers, editors, graphic designers or administrative support workers who are paid by the hour (not for a specific result) and can't delegate the work to someone else. Similarly, labourers and other contractors performing physical work could be captured.

The rule can also extend to individuals in sophisticated business structuring arrangements. In a recent decision (Moffet v Dental Corporation Pty Ltd), the Federal Court found that a dentist who had sold his dental practice to a third party and continued to work as a dentist for that practice was an independent contractor, but had been working under a contract "wholly or principally for labour". The new dental practice owners were therefore required to make minimum SG contributions for him.

The dentist was earning a percentage commission of the fees collected from patients, but was also contractually required to pay a "shortfall" amount to the dental practice in the event the practice's annual cash flow fell below a set target – a risk not usually born by a worker in an employment-like arrangement. This case illustrates how even individuals like former business owners who agree to perform services under complex contractual arrangements can potentially be entitled to SG contributions.

Not sure about your contractors?

Don't wait for the ATO to come knocking. Contact us today for assistance in reviewing your contractor arrangements and ensure your business is protected.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2019. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants.   

 

 

The small business CGT concessions can save businesses some serious tax – and help business owners significantly boost their superannuation – but it's essential that you keep the right records, particularly for when the time comes to sell. Find out what your business should be doing now to keep the ATO at bay in the future.

Most taxpayers understand they must keep proper records to help calculate their future capital gains tax (CGT) liabilities. However, business owners taking advantage of the generous small business CGT concessions are very likely to receive a "please explain" from the ATO after lodging their claim. So even if you're not planning to sell your business any time soon, make sure you've got your record-keeping under control now to put you in the best possible position in future.

What concessions are available?

To access the concessions, you must either be a business entity with annual turnover under $2 million or have total net assets of no more than $6 million. (The turnover and net assets of some of your related entities will also count for these purposes.) The asset you're selling must also have been used in a business carried on by you, or a relevant related entity, for a minimum time period.

If you meet these requirements, you can potentially access one or more of the following concessions:

  • Where the asset is owned for at least 15 years and sold in connection with your retirement: you can potentially disregard the entire capital gain. You can also contribute proceeds of up to $1,515,000 into superannuation under your lifetime "CGT cap".
  • Alternatively, you can disregard up to $500,000 of the capital gain provided you make a superannuation contribution equal to that amount if you're aged under 55.
  • In many cases, you'll also have the choice to apply a 50% reduction to your capital gain (in addition to the regular discount for assets held for at least 12 months), and/or defer the gain until later.

These generous concessions can open up many planning opportunities for small business owners. All the more reason to keep your CGT records in good shape!

ATO record-keeping requirements

It's essential to record all relevant information about your business assets so that you can later substantiate your claim for the CGT concessions. This includes all the information you need to calculate the capital gain, such as purchase information (date of purchase, the price you paid, any stamp duty and legal fees you paid) as well as ongoing costs (repairs, insurance, installation costs and improvement costs). You'll need to keep documents like contracts, invoices and receipts to support your claim.

Usually, you need to keep all records for at least five years after the CGT event (generally, when you sell).

For example, if you purchased an asset in 2002 and sold it in 2019, you'd need to keep all the purchase records until 2024 – that's 22 years!

Alternatively, keeping a CGT "asset register" can make record-keeping simpler. This is a register where you keep relevant information for all your CGT assets, and a major advantage is that once an entry is certified by a tax agent, you only need to keep the original records for five years from the certification date. So, using the previous example, if you'd entered the purchase information into an asset register and your tax agent certified this in 2006, you would've only needed to keep the original purchase documents until 2011.

Your tax adviser can help you with the correct format for an asset register. Note, for example, that maintaining a simple electronic spreadsheet is unlikely to meet the ATO's requirements because it may lack the security measures needed to prevent entries from being easily altered.

Talk to the experts

Want to simplify your record-keeping? Or perhaps your records aren't completely up-to-date and need some reconstructing? Don't jeopardise your future tax planning – talk to us today for expert assistance in ensuring your business will be ready to take advantage of the CGT concessions.

 

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2019. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants.

Got a passive corporate entity that holds an investment property or perhaps plant and equipment? The ATO has confirmed it takes a broad approach to when a company carries on a "business", which means some company taxpayers may be entitled to business tax concessions they hadn't previously considered. Find out if your company is affected.

It's often obvious when a company is carrying on a business. But many clients have companies set up in their family or business groups for a wide variety of reasons, and whether those entities carry on a "business" may be less clear. Common examples include companies that simply hold assets used by another entity in the group, that receive trust distributions, or that appear to be "inactive" because they no longer trade.

Why does it matter? Whether an entity is considered to carry on a business can affect its tax position in various ways. For example, if it carries on a business it may be able to access the instant asset write-off for small and medium businesses, deductions for start-up expenses, or in some cases the choice to account for GST on a cash basis, among various other measures.

To provide guidance, the ATO has recently published a ruling on when a company is considered to carry on a business – and it confirms that even passive, small-scale or irregular activities will often amount to a "business".

These principles apply not only to the tax concessions mentioned above, but also the specific issue of whether a company qualified for the lower corporate tax rate in the 2015–2016 and 2016–2017 years (which included a requirement that the company carry on a "business"). Therefore, if your family or business group includes company structures that might be affected, consider speaking to your adviser about your tax position in light of the ATO's views.

Profit intention is key

The ATO confirms the general principle that there's no single test to apply when determining whether a business is carried on. Rather, it's a weighing-up of many factors and this will depend on the particular facts.

However, one of those factors – the intention to make a profit – is very influential for companies. Where a company aims to make a profit, and has a prospect of profit, it is presumed that it intends to carry on a business. The ATO says once this profit intention is established, other factors (eg the size and scale of activities, and how regular and repetitive they are) may carry less weight than they would for individuals or trusts.

As a result, companies carry a stronger presumption of a business than individuals or trustees who undertake the same activities. The ATO gives the following examples of companies that are carrying on a business:

  • An inactive company with retained earnings that generate bank interest of $12,000 p.a.
  • A company that has ceased trading and now leases its plant or equipment to third party operators under a commercial lease agreement.
  • A new company that is investigating whether a proposed business would be viable, but is also deriving interest of $9,000 p.a. from the share capital held in its bank account.
  • A company that derives passive rental income from real estate at a profit. (It's important to be aware, however, that an asset you use mainly to derive rent is specifically excluded from the small business capital gains tax concessions.)
  • In some cases, corporate beneficiaries – even companies set up to repeatedly receive income distributions from a family trust. How those income amounts are then dealt with will impact whether the ATO believes a "business" is carried on.

On the other hand, companies that the ATO would not consider to be carrying on a business include those set up solely to hold and maintain personal use assets (eg a boat or holiday house of the shareholders), or those with no prospect of making a profit.

Reviewing your tax position

Contact us today to discuss how the ATO ruling may affect your company structures.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2019. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants. 

Have you run a small business that has ceased or paused operations? Or perhaps you've been hired as an ABN contractor? The ATO is cleaning up the Australian Business Register and is on the lookout for people who may not be entitled to hold an ABN. Find out what the ATO's concerns are and understand your responsibilities as an ABN holder.

This year, the ATO has been focused on improving the integrity of the Australian Business Register (ABR). You may have even heard that the ATO has been "bulk cancelling" a large number of ABNs. So, what's the problem and how might this affect you?

When does the ATO cancel an ABN?

Only entities that "carry on an enterprise" are entitled to hold an ABN. An enterprise includes running a business, as well as other activities like leasing property or being the trustee of an SMSF. It does not include working as an employee. The ATO is focused on identifying the following types of ABN holders who are not entitled to hold their ABN:

  • businesses that are no longer active
  • businesses that hold multiple ABNs
  • workers who are incorrectly classified as contractors rather than employees (discussed below).

If your ABN is cancelled by the ATO and you think they've made a mistake, you can object to the decision within 60 days. Alternatively, if you agree with the cancellation because your business has ceased, you can re-apply for an ABN at a later time if you need it. You will receive the same 11-digit ABN, provided your business has the same structure.

It's illegal to quote an ABN that has been cancelled, so make sure you're on top of any cancellation issues.

Concerns about "sham" contracting

The ATO is also concerned that some businesses are incorrectly classifying their workers as "independent contractors" when in fact they are likely to be "employees". In such cases, the employer may ask the worker to obtain an ABN and call the arrangement "contracting". Unfortunately, this illegal practice is sometimes done to avoid paying entitlements like award wages and superannuation contributions.

You're entitled to hold an ABN if you're legitimately an independent contractor – but not if you're really an employee. The ATO says it is sensitive to this issue and understands many workers in "sham" arrangements have been placed in that difficult position by their employer.

If you're currently being hired as an ABN contractor and have concerns this may not be legitimate, contact the Fair Work Ombudsman for help. If you're a business hiring workers as independent contractors, make sure you've got it right because penalties can apply for unlawful arrangements. The ATO publishes some useful online information to help businesses work out whether their workers are employees or contractors.

Responsibilities of ABN holders

If you hold an ABN, you must update the register within 28 days of becoming aware of a relevant change. This includes things like your contact details (including your business address) and your main business activity and business category.

If you need to cancel your ABN, you can do this online. You should cancel your ABN if your business has been sold or is no longer operating. However, before cancelling your ABN you should make sure you've complied with all of your lodgment and reporting obligations.

You may also need to cancel your ABN if you're changing your business structure (eg from a sole trader to a company) and then apply for a new ABN. Of course, you should get professional advice before changing your business structure to make sure you understand the associated tax consequences.

Need help?

Don't stress over business administration – get help from the professionals. Whether you're thinking of starting a new business or need help sorting out a registration issue, we can handle all of your ABN registration needs, as well as related registrations like GST, PAYG and business names.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2019. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants.   

Is your company planning to develop software as part of an experimental R&D project? You may qualify for the R&D tax incentive, even if you're not a software developer but operate in a technology-focused industry such as manufacturing. However, the activities you claim for must genuinely meet the relevant tests – and the ATO says some companies are incorrectly assuming their project qualifies. Make sure you understand the criteria before making an R&D claim.

In our modern economy, software development is a key driver of growth and innovation across many Australian industries. However, the ATO is concerned that some companies are assuming that their software development projects are eligible for the government's R&D tax incentive without properly considering their eligibility. The incentive broadly offers:

  • for companies with turnover below $20 million: a refundable tax offset of 43.5% of eligible R&D expenditure; or
  • for other companies: a non-refundable offset of 38.5%.

These offsets apply to expenditure between $20,000 and $100 million. Expenditure outside this range has different incentives.

The Department of Industry, Innovation and Science (DIIS) has recently released guidelines to help clarify the rules as they apply to software development.

The DIIS and ATO both stress that the incentive applies to specific activities, not projects as a whole. It's therefore essential to identify and document particular activities.

To qualify for the scheme, a company must have "core" R&D activities. It can then claim the offset for expenditure on those core activities (as well as for "supporting" activities that are directly related to the core activities: more below). Core activities are essentially experimental activities conducted using scientific principles to generate new knowledge. Crucially:

  • you cannot know the outcome of the experimental activities on the basis of current knowledge, information or experience;
  • the new knowledge generated must result from a systematic progression of work that involves testing of one or more hypotheses; and
  • the knowledge generated must be "new" in the sense that it's not already available and reasonably accessible in the public arena on a world-wide basis.

This is a high bar, and the guidelines note that "innovative" activities won't necessarily meet this test. The DIIS provides the following examples of activities that generally may be, or won't be, eligible:

May be eligible as core R&D activities Generally not eligible
  • developing new operating systems orlanguages
  • designing new search engines based on originaltechnologies
  • resolving conflicts within hardware or software based on the process of re-engineering asystem or a network
  • creating new or more efficient algorithms based on new techniques or approaches
  • creating new and original encryption orsecuritytechniques
  • developing business application software andinformation systems using known methods andexisting software tools
  • adding user functionality to existing programs
  • creating websites or software using existing tools
  • customising a product for a particular use, unless during this process knowledge is added that significantly improves the base program
  • routine debugging of existing systems and programs

If your software development activities don't qualify as "core" activities, you may still be able to claim these as "supporting" activities that directly relate to other core activities. For example, a manufacturer who undertakes some manufacturing R&D that genuinely qualifies as "core" R&D might be able to claim some software development that directly relates to that core R&D. The DIIS provides examples of: setting up test beds, coding algorithms that will be used in an experiment and collating a data sample that will be used to conduct a relevant experiment.

One final tip: developing software that will be used predominantly for an entity's "internal administration" is expressly excluded from being a core activity. You may still be able to claim this as a supporting activity, but only if it's undertaken for the dominant purpose of supporting the core R&D.

We're here to help

If you're thinking about a software development project, talk to us today about whether it may qualify for the R&D incentive. We can also help you register a claim and guide you through the necessary documentation requirements.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2019. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants.  

From 1 July 2019, Single Touch Payroll (STP) reporting will become mandatory for all employers. Small businesses (ie those with fewer than 20 employees) have previously been exempt, but will now need to take action to ensure they're ready. These small businesses have a three-month transition period between 1 July and 30 September to get their STP reporting fully operational.

STP is an electronic reporting system that requires employers to submit payroll information such as salaries, wages, allowances, PAYG withholding and superannuation contributions to the ATO directly through their payroll software (or third party service provider) when they pay their employees. The government says that STP reporting will improve the ATO's ability to monitor tax and super compliance, and to take action when required.

How does it work?

You'll still pay your staff according to your regular pay cycle (eg monthly or fortnightly), but with the added requirement of submitting payroll information electronically to the ATO each cycle.

Many businesses will take care of this in-house with payroll software that can connect to the ATO. Alternatively, you can arrange for a registered tax or BAS agent to report on your behalf.

You'll still give your staff a payslip each pay cycle, but you'll no longer need to prepare payment summaries at the end of the financial year because your staff will be able to access all of their STP payroll information through the ATO website in order to prepare their tax returns.

If your business has "closely held payees" such as family members who are not paid a regular salary or wage, talk to your adviser about flexible STP reporting arrangements that may be available to you.

Simple software solutions

There are many software providers in the market offering STP-compliant software that meets the ATO's requirements. If your business already has payroll software, check with your provider whether it has been made STP-compliant and whether you need an upgrade.

If you don't have existing software or you want to find a new solution, you should refer to the ATO's website for help finding a provider. As well as publishing a list of all commercially available STP software solutions that it has approved, the ATO has a separate list of "low-cost" ($10 or less per month) and "no-cost" STP solutions that have been designed for "micro" businesses with four or fewer employees.

These have been created by third-party software developers and are designed to take only minutes to complete each pay period. They don't require the employer to maintain the software and include formats like mobile apps, web-based portals, desktop software and other simple solutions. The ATO is continually updating the list as new products are released.

Need more time?

Small businesses can start reporting any time from 1 July 2019 to 30 September 2019. If you need more time to get ready, you can apply online for a deferred start date through the ATO's business portal. You can also apply for an exemption from STP reporting for one or more financial years if you operate in an area with poor or no internet.

Get STP-ready

Don't wait until the last minute – talk to us to get started now. No matter how small or large your business is, we can help you find the right solution to match your STP reporting needs and ensure you're ready for the deadline.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2019. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants.  

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The Tax Institute has published on its Federal Budget website a summary table setting out the Coalition and Labor policies for businesses.  

This may help you understand the competing policies being offered.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2019 The Tax Institute. Brought to you by Robert Goodman Accountants.  

Have you ever taken home an item of your business' trading stock for your own personal use, or use by your family members? This is common in many businesses such as bakeries, butchers and cafés, but it does have some tax consequences. "Trading stock" means anything that you hold in the business for the purposes of manufacture, sale or exchange. An example is a café owner who consumes some of the food on hand in their café.

If you use any trading stock for personal use, you need to declare this in your business' tax return. This is because you are treated as if you sold the trading stock to someone else, and the value of that stock is therefore assessable income.

The ATO accepts two different ways of accounting for this stock: an estimate based on ATO guidelines or an actual value using your own records.

Method 1: ATO estimate

The ATO recognises that record-keeping in these circumstances is often difficult or impractical. To help business taxpayers, it publishes some estimates of personal use for selected industries. The ATO's estimates for the 2018-2019 income year are as follows:

Type of business

Amount (excl. GST) for adult/child over 16 years

Amount (excl. GST) for child 4 to 16 years old

Bakery

$1,350

$675

Butcher

$830

$415

Restaurant/café (licensed)

$4,640

$1,750

Restaurant/café (unlicensed)

$3,500

$1,750

Caterer

$3,790

$1,895

Delicatessen

$3,500

$1,750

Fruiterer/greengrocer

$800

$400

Takeaway food shop

$3,430

$1,715

Mixed business (includes milk bar, general store and convenience store)

$4,260

$2,130

 

Example: Susan runs a takeaway business and often brings home various food items for her family to eat. It is not always practical to record the value of every item she brings home. Her family includes herself, her husband and child aged 11 years. When preparing her business' tax return, she uses the ATO estimates for takeaway shops for two adults (2 x $3,430) and one child (1 x $1,715), a total of $8,575. She declares this as assessable income in her return.

Method 2: actual value

Alternatively, a business may declare the actual value of goods taken from stock. This option would suit businesses who can show that they took a lesser amount for personal use than the ATO's estimates. This option requires thorough record-keeping as you will need to keep details of the date; a description of what was taken; why it was taken; and the value of the item (excl. GST).

Get help from the professionals

Declaring private use of trading stock is just one aspect of the trading stock tax rules. Contact our office for expert assistance in preparing your business tax return. We take the stress out of taxes so that you are free to focus on running your business.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2019. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants.