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ATO boss says by 2030, tax return process will be fully automated. Then do you still need a tax accountant?

ato_future_tax_accountant_bankstown

In the recent Xerocon event, ATO boss Chris Jordan says all future tax returns will be fully digitalized by 2030.  When it happens, tax returns will be fully automated since you can link your systems directly to ATO.  

So do you still need a tax accountant to help you after this?

The hard fact is, you probably do. Australia tax system is one of the most complicated in the world. And, you don’t know what you don’t know. Without full understanding on the tax law requirements, you could loss $$$ on missed deductions or planning opportunities. Or even worse, if you claim incorrect deductions you could expose yourself to heavy penalties when you are audited by ATO.

Below are some statistics we would like to share with you:

  • 99% of our new clients (both individual and business) are missing legitimate deductions before they engage our services. Total missed amounts are ranging from a few hundred dollars to thousand or tens of thousands of dollars per year. Some of them did use a tax agent as well. But due to limited time or expertise of their previous tax agents, these clients were not presented with all possible deductions or planning opportunities.
  • We noticed that about 30% of our new clients claimed incorrect deductions in prior years. This can also happen when they did work with a tax agent who was lacking time or expertise. Occasionally it could be caused by unethical agents adding deductions without client’s approval or full understanding on the consequences. (Most tax agents are responsible, but there are a small proportion of tax agents who are not delivering services in compliance with tax law or ethical requirements.) Many people have the misconception that if they use a tax agent to help them, they are not responsible on the deductions anymore. But the fact is, the taxpayers are responsible on their own deductions regardless of whether they use a tax agent. If they are audited and can’t provide necessary written evidence, not only they have to pay back the incorrect claimed refund, they could also be subjected to heavy penalties.
  • Most missed tax deductions or mistakes happen with people who are lodging returns by themselves. However based on ATO statistics, there are about 50% individual tax payers who are not lodging through tax agents.

Taking the above into consideration, engaging a good tax accountant to help you is definitely necessary at all times. When choosing a tax accountant, apart from their charge rate, below are a few more important factors you need to consider:

  • Do they spend enough time with you to explain what items are deductible related to your occupation? If they only spend 5-10 minutes with you in their initial consultation, you are probably missing deductions.
  • Do they have a structure to help you to maximize deductions. A well-structured checklist or return template will help you to refresh your memory so that you can add all expenses that could be deductible.
  • Are they knowledgeable in other related areas, such as taxes on companies / family trusts, FBT (fringe benefit taxes), tax / legal requirements on super or SMSFs (Self-Managed Super Funds), asset protection and estate planning? All these areas could be inter-connected. You can only minimize taxes (also reduce possible future risks) for your family group when you utilize all strategies from different areas. This is especially important for high income taxpayers or business owners.

Hope this information is helpful to you. If you are interested on what the ATO boss said in the Xerocon, please check out this link: ATO boss outlines future ‘where tax just happens’
 
P.S.: Now that you know how important it is to use a good tax accountant to help with your return, if you are already our clients, you probably understand what I meant already. Please share your experience with your friends or family members, especially if they are still lodging tax returns by themselves. Let them know that we can offer them first 30-minute consultation 100% free, with no strings attached. They will be thanking you on the extra tax savings! If you are not our clients yet, please don’t hesitate to utilize this free consultation to learn some tax saving techniques too. Due to limited space, please book in with us as soon as you can, ideally before 30 Sep 2022. For anyone who is interested, please email me your request and I will send you the booking link to my calendar. Thanks!

Best Regards,

Brenda Ferguson
Managing Director
CPA, RTA, SAPEPAA
0401763675

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    10 things you should consider before buying a property

    Are you considering buying a property? Do you know you could miss opportunities to save thousands, or tens of thousands of dollars if you don’t plan well before the purchase?

    Below are a few key considerations:

    1. How should you set up your loan structure? If you don’t have a loan offset account for a rental property, after you make extra payments directly to the loan account, you can only claim interest deduction on the remaining balance of the loan. For tax purposes, this deductible balance can’t be changed even if you redraw the overpaid amount later. A good loan structure could also help you to stabilize interest rate and speed up loan repayment by combining a standard variable loan (with an offset account) and a fix rates account.

    2. Timing of renovation. You might want to do a renovation right after you have bought the rental property. But do you know for any genuine repair & maintenance included in the renovation, you can claim an outright deduction against the rental income when the property is available for rental? If the work is done before the date when the property is available for rental, you can only claim the deduction against future capital gain when the property is sold. Depend on when you are going to sell, it could take years or up to decades before you can claim the deduction.

    3. How should you split ownership? You might want to share the property ownership with a family member. For tax purposes, the percentage of ownership is based on the legal title, regardless of who is paying more on the mortgage. If the property will give you a tax profit, you might want to allocate more
    ownership to the low-income earner to utilize the lower marginal tax rate. If it is giving you a tax loss, you might want to allocate more ownership to the high-income earner to utilize the loss. The goal is for the family to pay minimum tax together.

    4. Should you use a family trust to purchase the property? There are many pros and cons related to a family trust. The advantages include tax savings on rental profit or capital gain, asset protection and succession planning on family wealth. However, family trust can’t distribute losses. All losses are trapped in the trust to be used to offset future trust profit. Therefore, you can’t utilize any rental loss in a trust to offset other income such as salary & wages. Family trusts also attract high accounting fees on initial setup and annual fees on financial statements and tax returns. State governments also charge much higher land tax on family trusts.

    5. Will the income level change in future years for different owners? You might want to forecast the possible income for different owners to understand total tax payment / savings related to the property. This could also impact on your decision making on point 3 and 4 above.

    6. Understand when you can treat your property as main residence to receive an exemption on capital gains tax. When eligible, even if you have received rental income, you could still treat your rental property as main residence and receive the exemption. To be eligible, you will need to treat it as your main residence at the beginning. Please check out this ATO link: Treating former home as main residence.

    7. Decide whether you need to purchase a depreciation report. Most taxpayers don’t know that the depreciation on the building will need to be added back to calculate capital gains tax when the property is sold. When the property is held for more than 12 months, after applying the capital gains tax discount of 50%, it will effectively cut the tax rate by half at the time of sales. This makes depreciation deductions desirable for high income earners. However, for low-income earners it might not be ideal to claim depreciation as a rental deduction since they could be paying more on capital gains tax in the future. It could get more complicated if the property is under joint ownership between high and low income earners.

    8. You might want to consider Centrelink payments for future or existing owners. Most Centrelink payments are income and asset tested. Before attaching a rental property to a family member who is receiving, or plan to receive government benefits, you might want to check the testing thresholds first to see if the Centrelink payment will be impacted. This is also applicable when you are making distributions from a family trust to different family members.

    9. Have you considered using your SMSF (selfmanaged super fund) to make the purchase of a rental property? There are a lot of tax saving opportunities with a SMSF since the income tax rate is only 15%. And the capital gains tax rate is effectively only 10% after factoring in the 1/3 discount. The major downside with a SMSF is normally you can’t get the money out until you retire or on compassionate grounds (SMSF does have more flexibilities compared to normal retail super fund. But the choices are still very limited). It could be expensive to set up and operate a SMSF too. There are also strict legal requirements on the trustees. Penalties on incompliance could be severe. Tax law around SMSF is very complicated too. You will need to find a good tax accountant specialized in SMSF to help you to understand the structure, also do a cost-benefit analysis before setting it up.

    10. Consider internal ownership changes. For your existing rental properties, you can also consider whether you should transfer the ownership between family members, or between different business structures (this is not applicable for SMSF). You might want to do this when the income level changes with family members, or rental property changes between tax profit and loss. Before the change, you need to consider the cost of transfer including capital gains tax, stamp duty, conveyancer fees, etc. Again, a cost-benefit analysis is a must before the change.

    Last but not the least, did you combine all the above strategies and compare your choices? If you haven’t yet, how would you know that you have picked the best strategy to minimize your taxes? We can help you to factor in all considerations, compare different scenarios, also present you with a Property Prepurchase Report with all our findings to help you to make a decision. Contact us today to book in a consultation with an experienced tax accountant!

    IMPORTANT INFORMATION
    This is general advice only and does not consider your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from your financial adviser and seek tax advice from your accountant.

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