Located in
the heart of Sydney CBD you will find Chartered Accountants with over
20 years of experience in accounting, tax and business providing advice to
a broad spectrum of private and corporate clients on taxation and
business related matters.
•
Starting a Business •
Accounting
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Suite 649, 311
Castlereagh Street Sydney NSW 2000
PO Box15 Five Dock NSW 2046
robert barbariol
Investment
Investment 19.000
Income 19.100
Deductions 19.200
Capital gains tax 19.300
19.000 Investment
Investor taxpayers are faced with an extensive amount of law dealing with income, assets and deductions. This chapter is designed to provide a general summary of the more relevant issues together with references to more specific parts of this text.
19.100 Income
19.105 Bonus share issues
It had been argued that share rights issues (such as rights to sell shares back to the company) can in some circumstances be taxed on their market value as ordinary income (C of T v Mc Neil [2007] HCA 5). The operation of these rules was not entirely clear. However, a recent Government announcement stated that rights issues made to raise capital will be dealt with under the capital gains tax regime under proposed amendments (Press Release 26/6/07: Minister for Revenue and Assistant Treasurer). See 5.800, 5.820, 5.825, 5.990.
19.110 Children: interest and other unearned income:
See Interest on children's accounts, below.
19.115 Discounted or deferred interest securities
The yield on these securities may be subject to tax on the basis of accrual. See 4.260.
19.120 Dividends
These are taxable distributions by companies to shareholders, whether in money or shares or other property. Generally, dividends are sourced from retained profits (including some profits on sale of capital assets). Some distributions are protected from being a dividend (eg. certain distributions of gains covered by the small business capital gains tax concessions), but these distributions may have capital gains tax consequences when distributed to shareholders. See 4.700, 5.000, 11.000.
19.125 Foreign income accruals
Certain interests which residents of Australia hold in overseas companies and trusts can be subject to special taxation in Australia. See 14.500.
19.130 Foreign tax credits
In some instances, investments by residents in one country which are made in another country may be taxed in both countries. This may be subject to whether the two countries have a Double Tax Agreement. If an investor is affected by taxation in two countries with regard to the same transaction, it may be possible for that investor to claim credit in one country for tax paid in the other. See 8.500, 14.400, 14.700.
19.135 Franked dividends
Dividends (see above) may be franked by a company. This means the dividend can carry a tax credit, useable by certain taxpayers, to offset tax on the dividend. An individual investor in the company who receives a franked dividend will add the franking credit to the amount of the dividend, include the total as income and then claim a tax credit for the franking amount. If the investor has franking credits for the income year which exceed their total tax payable, a refund may be available for the excess. It should be noted that there are rules affecting shareholders' use of franking credits, including a general requirement to have held the shares (at risk to market forces increasing or decreasing the share value) for at least 45 days. As an alternative, the holding rule generally need not be satisfied if an individual investor's total franking credits from all sources in the tax year are $5000 or less. See 4.700, 11.400.
19.140 Entitlement to franking credits
Individual taxpayers who hold shares at risk of market fluctuations for at least 45 days (plus days of acquisition and disposal) are entitled to use franking credits on the shares, so that tax credits raised by the company (eg. in paying company tax) are claimed by the shareholder. The shareholder adds the tax credit (a 'franking credit') to their dividend income, fills in a tax return and claims the amount of the franking credit. There are special rules which in some cases do not allow franking credits to be claimed through trusts (see 4.745).
If an individual shareholder (eg. not a company or trust) has total franking credits of $5,000 or less in an income year and from all sources, the 45 day rule does not have to be satisfied.
19.145 Income tax
Individuals are assessed for income tax on their income largely as defined in case law. Income includes salary and wages, bonuses, tips, directors' fees and other payments for work done or services performed. Income can also be derived from property (eg. rent, dividends, royalties, interest, sell back or other rights on shares). Income can also be derived from business or commercial transactions (eg. sales made by a property developer). Where a transaction is caught by the income tax provisions, the amount assessable as income will reduce the amount assessable as a capital gain in situations where the capital gains (see earlier) provisions might also have applied. See 3.510, 4.670, 11.500.
19.150 Warrants
Instalment warrants are a geared lending product offered by certain institutions which allow an investor to take an interest in underlying assets, such as listed shares. Investors pay some of the cost up-front, and take the balance of the asset price as a loan which is limited recourse (ie. if the share value falls the investor does not suffer the loss). The underlying assets are held in trust until the investor, who receives throughout the income from the underlying asset (eg. dividends on the shares), pays out the warrant or exercises an option for the institution to buy the asset at the higher of the loan balance or the current market price of the asset.
Alternatively, the investor may roll-over the warrant and not change the underlying asset, or do nothing in which case the asset is sold without recourse to the investor if the sale proceeds do not meet the outstanding debt. The warrant may be accessed by cash application to the issuing institution (eg. about 50% of the share price up-front), or by application by certain holders of existing shares, or by those investors rolling over earlier instalment warrants. Interest under the loan component of the warrant is generally tax-deductible for amounts pre-paid for up to 12 months (individual investors), provided the interest period ends by the last day of the income year following the expenditure year and the dominant purpose of the investor in entering the arrangement is to derive assessable income from the investment (eg. dividends on shares).
Capital gains tax is also relevant. The part of the purchase price which relates to purchasing the right to sell the asset back to the institution (the 'put option') can form part of a capital gains cost base on the relevant asset (eg. shares) if the option is exercised and the asset is sold back (see 'Capital gains tax'). The cost base of the asset (eg. shares) is adjusted to remove the amount of any shortfall on the loan amount which the investor does not have to repay. If the put option expires without being exercised, a capital loss is made in the amount of the option fee.
The warrant may not function as intended if the taxpayer is a trader in the asset (eg a share trader) rather than merely an investor. The tax implications may also be different if the investor is not an Australian resident. Dealings between the investor and the institution must also be at arm's length
19.155 Interest
Children's accounts
Interest is generally assessable income. If a bank account is opened for a child with the child's money, and the interest is for the benefit of the child, the interest is usually assessable to a trustee, parent or guardian acting on the child's behalf with the tax being assessed on the basis of the child's total income and not the income of the trustee personally (see 2.060 and 2.065). If the trustee, parent or guardian of the child uses the proceeds of an investment for their own personal purposes, then the income is regarded as that of the trustee, parent or guardian and not the child. Where the income is that of the child, there are special rules placing higher than normal rates of tax on what is known as 'unearned' income of children: at its most basic this means income from investments or other unearned income such as distributions from trusts. There are exceptions such as income from deceased estates, or disability, or family breakdown investments. The threshold for no tax being payable on unearned income of children is $1666.66 (2007/08) or $1333.00 (2006/07), where the child has no other income.
Interest: income
Interest on investments is usually assessable to the taxpayer. See 4.250.
19.160 Investment
Investment bodies: tax file number rules
Investment bodies such as banks are required to withhold tax from investment earnings where the taxpayer does not quote a Tax File Number or Australian Business Number. See 10.020.
Investment income
See Income tax above. See 4.250.
19.165 Overseas income
This can be assessable to a taxpayer who is an Australian resident (see 4.010). A foreign tax credit may be claimed in some instances. See 14.700.
19.170 Rental income
Income from rental property is assessable. See 4.500, 16.000.
19.171 Stapled securities
Stapled securities involve two or more securities stapled together and traded as one entity. Stapled securities are usually bought and sold as one unit, but can have an underlying interest in both a trust and a company. This means investors can receive at the one time, separate payments for dividends and distributions paid on the companies and unit trusts underlying the stapled securities. These components must be recorded and reported separately for tax purposes. The company dividend component is assessed in the tax year received whereas the trust distribution is assessed in the income year it relates to. It can be quite common for a stapled security to have a underlying trust distribution that is assessed in one tax year and the underlying company dividend in the next year.
Capital gains or losses need to be treated separately for each of the underlying securities. So even though you buy and sell a stapled security you need to calculate the CGT consequences by apportioning the purchase costs and sale proceeds according to the underlying holdings of its company and trust allocations.
Stapled securities can have more than two underlying holdings and the percentage of each holding can vary over time, making CGT calculations quite complex.
Scrip for scrip rollover is only available to the extent that the original interest is exchanged for a replacement interest in an acquiring entity. This means that if shares were exchanged for a stapled security that comprised shares and events, a scrip for scrip rollover can only apply to the extent that the shareholder receives replacement shares.
19.175 Tax file number
Taxpayers who lodge returns with the Tax Office are allocated a Tax File Number. See 10.000.
19.200 Deductions
19.205 Borrowing expenses
These may be claimed on certain income-producing purpose loans. These include legal expenses on mortgage documents, valuation fees, loan fees and mortgage insurance, stamp duty on mortgage documents and other costs on the taking out of the loan. See 8.135.
19.210 Capital assets/improvements: writing down value
The major claims available to investors under this heading are for building or capital allowance. This is a claim for the cost of construction of, or structural improvement to, buildings. The claims are available where the building is used to produce assessable income. A claim can be made for actual construction costs, or for the amount remaining after claims made by a previous owner. In some cases the capital gains cost base must be adjusted for claims. See 7.000, 8.320 and 16.000.
19.215 Capital protected loans
Investors can in some cases access loans which they use to buy investment assets (eg. shares). Some loans are on a 'capital protected' basis. This means the principal does not have to be paid in part should the asset value fall below the principal. The fee for the capital protected component forms a capital loss should the asset (eg. shares) not be returned to the lender. If the lender does acquire the asset, the capital protection fee is part of the borrower's capital gains cost base for the asset. If the underlying asset is acquired by the lender, the part of the loan which is not repayable is removed from the borrower's cost base in the underlying asset. See 6.950.
19.220 Carry forward losses.
Income or capital losses may be carried forward and used by taxpayers in later years. See 6.950, 11.260-11.275.
19.225 Deductions
A general checklist is set out at 6.020. See also 16.000 (rental properties). To be deductible, an amount must usually relate to generating assessable income - for example, it usually cannot be private expenditure or capital in nature.
19.230 Depreciation
Certain items of equipment or other assets used to produce assessable income may be depreciated. This means a gradual claim is made for these items over their effective life. See 7.160 for listed items.
19.235 Discharge of mortgage
Costs of this type may be claimed on income-producing properties. Amounts may include fees and charges. See 8.140.
19.240 Home office expenses
These can be claimed where a distinct part of a home is used for income-production but is not a place of business. The claim allowed is generally a total of 26 cents per hour for heating, cooling, lighting and furniture depreciation but the taxpayer can claim actual use. Occupancy expenses (eg. rent, mortgage interest) cannot be claimed where it is merely convenient to work in a room within the home and the place is not a place of business.
19.245 Interest deduction
Interest may be claimed as a deduction in certain cases when the loan was for income-producing purposes. This means the loan must have been used in a genuine attempt to produce income (eg. purchase of a rental property, purchase of income-producing shares, purchase of a business). Interest cannot be claimed if the relevant property was already owned before the loan, unless circumstances exist such as a company borrower using the borrowed funds to maintain business working capital. It should be reasonable to expect, at the time the borrowed funds are first used, that the use will generate assessable income. If borrowed funds are merely used to generate the same or a lower rate of interest as is being paid to the lender (eg. on-lending to a friend or relative at a discounted rate), then deductions are limited to the amount of income actually produced. See generally 8.130, 8.190.
19.250 Linked and split loans
These are, in general, loans connected with other loans where payments may be made to different loan accounts on a combined basis. Often, one loan account relates to private uses (eg. a private residence) and the other to commercial or income-producing use. Care should be used with such arrangements because in some instances a tax benefit will be cancelled: eg. where the arrangement is to pay the private use portion down first, and allow the interest merely to accumulate on the income-producing portion whilst attempting to continue claiming the interest deduction. See 8.190.
19.255 Losses: overseas
Some Australian taxpayers may have overseas tax losses. There are some special rules dealing with these - see 14.460 and 14.470.
19.260 Managed investment schemes
Managed investment schemes (eg. agriculture, forestry) can provide deductions for certain payments of fees. See 6.990.
19.265 Negative gearing
Where interest on investment borrowing exceeds investment income. See 8.190.
19.270 Phone expenses
Telephone expenses may be claimed as a deduction whee they relate to producing assessable income. However, costs of installing telephone connections are capital and not deductible.
19.275 Records
Taxpayers are required to keep records for taxation purposes. These include receipts, accounts, property records and other documents which relate to assessable income (eg. payment summaries, interest and dividend statements), capital gains (eg. real estate and share records) and deductions. For time periods see 3.700.
19.280 Repairs
Taxpayers are able to claim deductions under the normal deduction provisions for certain repairs (eg. fixing damage or normal wear) to income-producing assets. This does not relate to assets used only for private purposes (eg. private motor vehicles).
The repairs must be needed because of the income-producing use (eg. immediate repairs to a newly-acquired rental property are not deductible but repairs resulting from rental use are). Structural work is not a repair, but there may be a deduction under other provisions (eg. capital or building allowance) and the cost of structural work may in some instances be added to the 'cost base' for CGT purposes. See 4.500, 7.000, 8.150.
19.285 Stamp duty
This is a State tax on certain transactions such as real estate and motor vehicle transfers. See 22.000.
Stamp duty is deductible in certain instances (eg. stamping leases on income-producing property). Where not deductible it may in some cases be added to the cost base of CGT assets (see 5.094).
19.290 Substantiation of expenses
This area of the law deals with what records are needed for tax purposes. See 'Records' above and 3.700, 6.100.
19.295 Tax expenses
A deduction may be claimed for items such as the fees of recognised tax advisors (and the costs of travel, meals and accommodation to obtain such tax services).
19.297 Telephone, computer, internet expenses
Some of these items may be claimed where associated with the production of assessable income. Connection costs (eg. putting in a telephone line) are capital and not able to be claimed.See 6.155.
19.300 Capital gains tax
Capital gains tax (CGT) is essentially a tax on the realisation of certain assets acquired after 19 September 1985, where the realisation is not in the course of carrying on a business. The assets to which CGT applies are indicated at 5.050 – 5.062 and would include shares, units in a unit trust, rights, options, investment properties, and business goodwill.
The capital gain is generally the sale proceeds (or deemed market value in certain related party transactions) less the 'cost base' (see 5.092). There are certain concessions such as a 50% discount in some cases (5.165), and concessions for certain active business assets (the latter not usually including rental properties) (5.525). There are certain exemptions such as main residence, many motor vehicles, some types of collectable, personal use assets, and compensation payments for certain forms of personal injury. It should be noted that some types of transaction involving assets which might otherwise be covered by CGT may be covered by income tax instead (eg. property bought and sold in a development business or profit-making scheme). See from 5.000.
19.305 Managed funds and unit trust investments
Many managed funds and unit trusts hold CGT assets. During a tax year a CGT event(s) may happen in relation to those assets resulting in a capital gain. Where this event occurs a unit holder is likely to receive a proportionate share of that capital gain and this will be shown on the unit holder's trust tax statement issued by the unit trust. The tax treatment on such items as discounted gains, other gains, indexed gains, CGT concession amount, and tax deferred amount is outlined at 5.605 along with the cost base reduction rules for the distribution of a non-assessable amount.
19.310 Rights issues
These may lead to a capital gain in certain instances. See 4.250, 5.800, 5.805 and 5.815.
19.315 Sale of property
This may lead to a capital gain, or to assessable income if on revenue account in certain instances. See 4.000 and 5.000.
19.320 Sale of shares
This may lead to a capital gain in certain instances. See 4.000, 5.800 – 5.826.
19.325 Share rights issues
These may lead to a capital gain, in certain instances. See 4.250, 5.800, 5.805 and 5.815.
19.330 Share buy-back
This summary of the income tax implications of participating in buy-back is limited to shareholders who hold their shares on capital account and therefore will be assessed for tax under the CGT provisions on shares bought back by a company.
NOTE: Shareholders, who carry on a business in dealing with shares, may be assessed on their dealings in shares as being on revenue account rather than under the CGT provisions. The tax consequences for those shareholders vary significantly from the tax implications noted below.
Most buy-back will constitute an 'off-market' buy-back for tax purposes. 'Off-market' buy-back is where the company buys back shares directly from the shareholder rather than buying them through the Australian Stock Exchange. A shareholder participating in the buy-back will be taken, for CGT purposes, to have disposed of their shares when the company accepts their application. For tax purposes, shareholders will be treated as disposing of their shares for capital component plus the amount (if any) by which the tax value(see below) exceeds the buy-back price. The tax value is calculated according to an ATO pre-approved methodology.
Tax implications for resident individual
The buy-back price usually consists of capital component and a fully franked dividend. A resident individual participating in the buy-back will be deemed to have received a fully franked dividend equal to the excess of the buy-back price over the capital component for each share bought back. The deemed dividend will be included in the individual's assessable income. If a shareholder, whose shares are bought back, is entitled to the benefit of franking credits on the deemed dividend the shareholder will also –
· include the franking credit on the deemed dividend in their assessable income; and
· be entitled to a tax offset equal to the franking credit.
The tax offset may reduce the total tax payable by the shareholder on their taxable income. If the shareholder's total tax offsets exceed the total tax payable on his or her taxable income, the shareholder may be entitled to a cash refund of that excess.
Capital gains implications for the disposal of Shares (acquired after 19 September 1985)
A resident individual participating in the buy-back will be deemed for CGT purposes to have disposed of each share for the capital proceeds component of the buyback price plus the amount (if any) by which the tax value exceeds the buy-back price. The calculation of any capital gain in respect of shares bought back will depend on when the shares were bought. If a shareholder has held their shares for less than 12 months, any capital gain will be calculated as the excess of the deemed capital proceeds over the CGT cost base of the share.
However, where the individual has held their shares for at least 12 months, then –
· if the share was acquired at or before 11.45am (ACT time) on 21 September 1999, the shareholder may choose whether to index the cost base to 30 September 1999 or to apply the CGT discount (which reduces the gain, net of any capital losses, by 50%); and
· if the shares were acquired after 11.45am (ACT time) on 21 September 1999 apply the CGT discount in calculating any capital gain on disposal.
Generally, the CGT cost base for a share will be the amount the shareholder paid to acquire the share together with certain incidental costs of acquisition, for example stamp duty and brokerage, and certain incidental costs of disposal.
A capital loss for a share disposed of under the buy-back will be the excess of the CGT cost base of the share over the deemed capital proceeds. No allowance for indexation or non-capital costs is made in determining the cost base of the share for this purpose.
The capital loss which arises under the buy-back may be greater than the capital loss which may have arisen under an equivalent sale of the shares on-market. This is because the capital proceeds under the buy-back are limited to the capital component of the buy back price plus the amount (if any) by which the tax value exceeds the buy-back price, rather than the price at which the shareholder would have sold their shares on-market. The lower deemed capital proceeds also means that any capital gain which may otherwise have arisen on disposal of the shares is reduced or eliminated.
A capital loss that arises from the buy-back can only be used to offset capital gains made by the individual shareholder.
Capital losses that are not used in the income year in which they arise may be carried forward and used to offset capital gains made in later income years.
Any capital loss arising from the buy-back cannot be offset against the deemed dividend or any franking credit included in the shareholder's assessable income.
The potential tax consequences for a resident individual disposing of their shares under the buy-back will depend on the buy-back price, the tax value, the individual's applicable marginal tax rate and their CGT cost base for the shares.
NOTE: As these components will vary for each individual, the tax implications will be unique to each participant in the buy back.
Complying superannuation fund – not in pension mode (tax paying fund)
Income tax
A complying superannuation fund participating in the buy-back will be deemed to have received a fully franked dividend equal to the excess of the buy-back price over the capital component for each share bought back. The superfund will be required to include in its assessable income the amount of the deemed dividend.
If the superfund is entitled to the benefit of franking credits on the deemed dividend, the superfund will also:
· include the franking credit on the deemed dividend in its assessable income; and
· be entitled to a tax offset equal to the franking credit.
The tax offset reduces the total tax payable by the superfund on its taxable income. If the fund's total tax offsets exceed the total tax payable on its taxable income, the fund may be entitled to a cash refund of that excess.
Capital gains tax – Disposal of shares (including shares) acquired on or before 19 September 1985)
A complying superannuation fund participating in the buy-back will be deemed for CGT purposes to have disposed of each share for capital proceeds plus the amount (if any) by which the tax value exceeds the buy-back price. If a superfund has held their shares for less than 12 months, any capital gain will be the excess of the capital proceeds over the CGT cost base of the shares.
However, where the superfund has held the shares for at least 12 months –
· If the share was acquired at or before 11.45am (ACT time) on 21 September 1999, the superfund may choose whether to index the cost base to 30 September 1999 or apply a one-third CGT discount (which reduces the gain, net of any capital losses, by one-third);
· if the shares were acquired after 11.45am (ACT time) on 21 September 1999 apply the one-third CGT discount.
Generally, the CGT cost base for a share will be the amount the superfund paid to acquire the share together with certain incidental costs of acquisition, for example stamp duty and brokerage, and certain incidental costs of disposal.
It should be noted that if the shares were acquired by the superannuation fund before 1 July 1988, the CGT cost base may be adjusted to the market value of the shares on 30th June 1988.
A capital loss for a share disposed of under the buy-back will arise to the extent that the CGT cost base of the share exceeds the deemed capital proceeds. No allowance for indexation or non-capital costs is made in determining the cost base for the shares for this purpose.
A capital loss that arises from the buy-back can only be used to offset capital gains. Capital losses that are not used in the income year in which they arise may be carried forward and used to offset capital gains made in later income years.
Any capital loss arising from the buy-back cannot be offset against the deemed dividend and franking credit included in the shareholder's assessable income.
Calculation of the tax value
The Tax Office released Taxation Determination TD 2004/22,which sets out the Tax Office's methodology in determining the tax value of shares bought back off-market. TD 2004/22 provides that the tax value should be determined as the volume weighted average price of the shares over the last five trading days before the first announcement of the buy-back, adjusted for the movement in the S&P/ASX 200 Index. Irrespective of the actual buy-back price received by shareholders, for CGT purposes shareholders are deemed to have received an extra capital amount if the tax value exceeds the buy back price. This amount if any is added to the capital component of the buy back price for CGT purposes.
Limits on availability of franking credits and tax
There are a number of income tax rules which may prevent shareholders participating in the buy-back from claiming the benefit of franking credits on the deemed dividend component of the buy-back price.
These rules are designed to, amongst other things, discourage trading in franking credits. These rules may deny the benefit of franking credits to shareholders generally, or because of their particular circumstances.
However, the particular circumstances of each participating shareholder will also be relevant in determining whether the rules deny the benefit of the tax offset or franking credit. For example, the period during which the shareholder holds the shares will be important. Generally, resident shareholders should have regard to the operation of the holding period rule ('the 45-day rule') in relation to their participation in the buy-back. Shareholders who are individuals and whose total franking credit entitlement for the income year does not exceed $5,000 are not subject to the 45-day rule.
In simple terms, the 45-day rule requires a resident shareholder to have held their shares 'at risk' for a specified period in order to qualify for the franking credit on the deemed dividend.
The 45-day rule requires that shareholders must hold their Shares at risk for a period of 45 days (excluding the days of acquisition and disposal) within a period beginning on the day after those shares were acquired.
The 45-day rule also operates on a last-in-first-out basis so that a shareholder will be deemed, for the purpose of applying the 45-day rule, to have disposed of their most recently acquired shares under the
buy-back.
***********************
Making the most of your tax return
·Reporter:
Marguerite McKinnon
·Broadcast
Date: July 01, 2008
They're not your most exciting blokes on the planet, but
around this time every year, Tax Accountants and Agents certainly become some
of the most popular.
It's a jungle out there and without the right advice, you
may be missing out on valuable tax deductions.
But what can you do to maximise your tax return? We asked
some of the top industry players to take part in a tax return challenge.
Chartered
Accountant, Robert Barbariol.
Their mission was simple: to get the best tax return for
Terry Thomas, played by actor Michael Bongiorno.
Terry Thomas is your typical tax payer. Terry's job is
teaching children with special needs. We've prepared a financial profile
Michael has memorised, but can refer to. He brings it to each meeting. How much
they pry out of Michael about Terry is up to our accountants and agents.
All they know is that he earns $75,000 a year has a travel
allowance of $250 and last year had tax withheld of $19,750. That's all these
agents know. How much can our money men find for Terry?
First stop, ITP. Area manager, Scott Bailey runs through a
series of questions from the ITP questionnaire. And the final result: $1731.44.
Next, H & R Block. Geoff Sampbells starts probing
Terry's particulars. Printer cartridges weren't factored into the return
prepared by ITP which could add some precious dollars to Terry's return. Given
that Terry's return through Geoff is a little more than Scott's - $1930.46.
We then sent Terry to chartered accountant of 20 years,
Robert Barbariol. Robert has noticed a saving Terry could consider for next
year.
"Had you salary sacrificed into super, you would have
saved $3150 in income tax, would have ended up benefiting $650 in tax saved
overall - $10,000, you would have paid less income tax to the tune of
$3150," says Robert.
His total was $2023.76.
Would the tax return be any different if we sent Terry to
the top end of town, Chan and Naylor, voted BRW's top emerging accounting firm
in 2007. Could they do any better?
Sal Arcuri from the firm, was assigned the task and he found
some deductions, the others didn't.
"So Terry, you have a home office - we can depreciate
your desk, your chair, your cupboards, your curtains, the carpets, all your
electronics."
Terry's home office presented a wealth of untapped
deductions our challengers didn't raise with Terry.
$2504.10 - this was the biggest tax return Terry received.
But offsetting that result was the fee. Chan and Naylor charged Terry $220 for
the consultation. But given this, Terry is still on top.
Why was there such a difference, $700 in fact, in the tax
returns Terry was receiving?
Finance expert and author, Ed Chan, explains: "If you
ask the right questions, you get the right answer out of people. The clients
don't know what to ask - if you can ask the right questions, you can get the
right answers out of clients so, yes, it comes back to the skill of interviewer
and accountant."
Terry also attempted to do his own tax return online. Two
hours later, with mixed results, Terry gave up.
We asked each of our participants for the best piece of
advice for those preparing their tax returns.
"One of the important things is rather than concentrate
on the battle of expenses each year, is to get advice, work in advance, plan
ahead and get a professional," says Scott Bailey from ITP.
"Even if you're not quite sure whether its not
claimable for tax or not, keep the receipt anyway. Keep better records, try and
keep receipts," suggests Geoff Sambells from H & R Block.
"It's about planning from the 1st July, not the 30th
June," advises Ed Chan.
And how can you avoid being audited? First tip - be on time.
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