Tax Talk with Dr Ray No.2.
Chris Well folks after the last session with Dr Ray we were somewhat swamped with calls. Many listeners wanted some very specific advice & Dr Ray said he would attempt to answer many of the frequently asked questions over the next few sessions.
Welcome Dr Ray
Ray Many thanks Chris & many thanks to Easymix’s many listeners. I’m very surprised & quite frankly grateful for the many calls & support.
Chris Dr Ray last time you mentioned the ATO’s requirements for claiming some expenses. What have you this week?
Ray Thanks Chris – many listeners asked how they could claim,. This is where you stop listening to those GNDS and FATPs as I mentioned last time. Those people will get you into trouble with the Tax office and remember the Tax Office is getting a lot harder to please and probably rightfully so the ATO expects you to keep records.
My joke that the ATO hates you has an element of truth if you go doing reckless or stupid things and making claims that are wrong!
Chris – Dr Ray what is a major concern with claiming say the internet or the computer?
Ray Think of it this way. You use the computer at home or the internet & you are wondering whether or not you can get some sort of tax benefit out of it! Right?
Now if you are using it for private reasons then the answer is no; you cannot claim. If on the other hand you use the computer for work related purposes such as for research on say a particular topic because you are in that industry then there is probably some connection there. Many chefs use the computer to research recipes or health foods or writing up new menus etc.
It is the combination of work-related activities & expenses that are the keys to the claims.
Chris Dr Ray you mentioned travel last time. Can you re-hash that & perhaps provide us mere mortals with more examples?
Ray Okay young Christopher! Some employees receive a travel allowance and some don’t. Many construction workers receive a travel allowance just to attend their work site. This is not deductible and the allowance is taxed. However an employee such as a long distance truck driver gets a travel allowance then under the ATO rulings that person is entitled to deduct the travel allowance from their assessable income
At this point I might explain the difference between taxable income & assessable income.
Assessable income means that this amount is the gross income prior to any allowable deductions. Taxable income is the assessable income les any allowable tax deductions. Note that I said tax allowable!
Chris Dr Ray many of the listeners asked how they could save tax. Could you give us some tips please.
Ray Well Chris one of the best ways to save on tax is to wait for it, LIE!
Chris I don’t think that’s what they had in mind
Ray well seriously now the best ways to save on tax are to keep good & accurate RECORDS! Another way & most people won’t like this; is to earn less!
Chris Earn less?
Ray Yes if you don’t earn as much you won’t pay as much tax! Another GND or FATP solution!
Chris Dr Ray now please
Ray Sure I was being a bit facetious there but I wanted to make a point. First of all by keeping accurate records you will have documentary evidence that will stand scrutiny! If you don’t keep the appropriate records then you risk the ATO scrutinizing your tax returns and taking appropriate action. Rember they know where you are!
As far as earning less that’s true you will pay less tax! Remember that you don’t pay 100% tax on everything you earn. It may seem like it but I assure you that you don’t. Let’s say your tax rate is in the 30 cents in the dollar bracket. If you earnt $1 less you would save tax of 30c cents not including the Medicare levy. If you earnt $1 more you would pay 30 cents more tax not including the Medicare levy.
GNDS & FATPS would say spend $x dollars & you will save tax. Yes you may. But for every $ you spend you will save as I mentioned just before, approximately 30 cents. It’s not logical to spend to save tax.
Let’s take a really stupid example. Your mobile phone is tax deductible. To save tax you go and smash it so you can buy another one & as the expense is tax deductible you save tax! You can claim 100% business use of your car so you get a mattock and smash it up to pay to get it repaired because it’s tax deductible!
This is basically what the GNDs & FATPs are saying. Waste a dollar to save 30cents!
Chris Now that you have put it that way Dr. Ray, I can see your points about the spending money to save tax idea.
Ray Yes & unfortunately people will do that because they don’t understand the system and in many cases they talk with GNDS & FATPS who give them very poor & un-professional advice with often dire consequences.
Many clients coming to me saying that they were “advised to run their business at a loss".
Now how smart is that?
It’s hard to believe the stupidity of some idiot advising people to run their business at a loss!
What the so-called “advisor” is saying to people is that they should work hard all year & not make any money because they then won’t pay any tax etc. I suggest that the so-called advisor should be flogged!
I suggest that those so called advisors should listen to my theory of sight & sound.
Remember it? Some people appear bright until they open their mouths?
Chris – obviously very poor advice & certainly not very smart.
Ray exactly! and to wrap up this session I would like to say to the listeners, please seek appropriate professional advice before going into business or similar.
I’m sure people are frightened to seek advice from a professional accountant because they don’t want to pay a fee, but I have seen it so many times before in my various practices over the years; it is a "mighty lot" cheaper than not seeking advice.
Remember - if it doesn’t make common sense then don’t do it!
Until next time
Chris Many Dr Ray & to all of our listeners once again if you would like to ask Dr Ray some questions on particular topics please call us or write to email address!
Thanks Dr Ray from Sierra Accounting & Consulting (07) 4041 7777