1. Use a Trust to distribute income to lowest tax payer
Ed: The very first one I thought of was to use a trust as often as you can. A trust is a really flexible structure to use and there’s lots of different types of trusts that you can use. However the one that’s most common to small businesses is a discretionary trust. Sometimes they call it a family trust because mostly families use it. And the reason why it’s advantageous is because you can distribute your income to anybody that you decide that’s in your family. So if someone’s on a lower tax bracket, you can distribute more to that person and obviously if someone’s on a higher tax bracket, you can have the discretion not to distribute to them.
Dale: So Ed, can I just quickly ask, when is the right time to set up a trust? We’ve got a number of well established business owners so it’s probably the right time for them now but there’s a few start-ups as well so when is the right time and roughly how much does it cost?
Ed: Yes, it’s always best to start it up correctly from the start because if you try to change something after you’ve started, it does cost more money. It can be done but it’s just a question of costs and it will cost you more. Getting the right advice from the beginning, setting up correctly will save you a lot of time and frustration but having said that, you can fix things if you got the wrong entity, it will just cost you some money, that’s all. We’re at the beginning.
Dale: And when with regard to the trust, basically, once you set up a trust, the company is actually owned by the trust, right? Rather than the shares in your company, being in your personal name, it’s your trust that actually, in a way, owns the company and has the shares. Is that correct?
Ed: That’s one way to do it. Typically, clients will go on to their accountant and say to their accountant, “I’m gonna buy this business or I’m gonna start up a business and the accountant will generally either set them up in a company and they will go in as director of the company and they will go in also as shareholders. If they were to set you up as a company, it’s always best to have the shares in that company held by a trust and not by yourself and the reason for that is that one day when that company or business becomes very very valuable, then that share in your name becomes a very valuable asset and then typically you’ll be the director of the company and as a director, you can get sued and if your business grew from zero to 2 million dollars, you hold the share and that share is worth 2 million dollars and if you’re the director of your company, then you can technically be sued and you got 2 million dollars accessible to a creditor or someone who’s taking action against you. So that’s one way that you can set it up.
The other way that you can set it up is having the trust own the business outright. You have to form a company as a trustee, so a company that is a trustee is different from a company that trades on its own, so that’s called a trading company. The company that acts as the trustee doesn’t trade on its own, it actually trades on behalf of the trust. The second way that you can do is you can set up a trust to run the business and from that trust, you can then distribute income to your family members.
Dale: We’re at the point where we can’t label them for too long. The whole benefit of this is that you can distribute income to other parties, to potentially lower your income tax and also it provides asset protection as well in case of a legal case. Are these the two biggest advantages?
Ed: Yes, and very quickly, as an example if you’ve got some children who may be at a university, they’re entitled, when I say adult – 18 years of age, they’re entitled to the $18,200 income tax threshold. Before you pay any tax, so you can actually utilise their tax free threshold to help you minimise your tax.
Dale: And if some people say if I don’t have any kids and my kids are too young, can I rent some kids?
Ed: Yes, as long as they’re related to you in some way or they fall within the trust deeds trustees rules, then you can utilise them as well.
Dale: Okay. Fantastic. If they’re getting this income distributed, someone’s asked a question, do they have to list this income on their tax return, like is it actually income to them?
Ed: Yes, it is income to them so they have to declare that income. But as i’ve said, if you’re a student and you may be earning a little bit of part time income, then you’ve got a threshold of $18,000 you can use up to and if you’re earning a bit more than that, then you can give them sufficient distribution from the trust so that they don’t pay more tax than you do, so you can manage your tax liability that way.
2. Use Statutory Method and not cost method for calculating your FBT on your car and reimburse the private portion.
Ed: The second one I thought of was to do with using your car, everybody uses their cars and there are different ways that you can claim it as a tax deduction. I’ll break it into two: the first one is if you’re an employee of a company, not your own company but you’re working for someone, and you’ve been given a company car, the common way to do that with fringe benefits tax is on a statutory method. I’ll just explain the fringe benefits tax. When you’re using a car and there’s private usage of that car, then you have to pay your tax called the fringe benefits tax. If you’re using it for business purposes, there’s no fringe benefits tax. So FBT is only on the private usage of your car, so you can be either working for somebody and be provided with a company car and there’s going to be a fringe benefits tax calculating on it. Most companies now use a statutory method, especially when your kilometres are high and the percentage of your business usage is low. They’ll just do a statutory method.
Now the second part of that is when you’re working for yourself and your business is run either through a trust or company and that business provides you with a car. You’re required also to lodge a fringe benefits tax. However, what we do is we simply calculate the private usage of that car and there are different methods of doing that, either by logbook or some sort of record to prove what is business and what is private and the private portion is subject to fringe benefits tax. However, we reimburse the company with a personal reimbursement. We do by journal entries and it gets rid of the fringe benefits tax on paper, it’s like I’m making this figure up, there’s a thousand dollar fringe benefits tax, a fringe benefits liability and by journal if the company owes the shareholders some money, you can offset what they owe or the shareholder or the employee actually physically puts some cash back into the company to eliminate the fringe benefits tax. The reason why we do that is because when you reimburse it, the tax rate is only 27.5% whereas the fringe benefits tax is over 48%.
3. Use a company at a 27.5% tax bracket
Ed: The tax rates for individuals range from zero to $18,200 – zero tax, from $18,200 to $37,000, there’s 21% tax, that includes a 2% levy. From $37,000 to $87,000, it’s 34.5% including lexy, from $87,000 to $180,000, it’s 39% and above $180,000 it’s 47%. As you can see the company tax is at 27.5% so from a sensible tax planning point of view and this is all legitimate, legal and everything, you can pay yourself sufficiently to keep you under those thresholds. You can keep yourself at around 34% up to 87,000 and between husband and wife, that’s double that, that’s a $160,000 and then the rest of it if you left it in the company, then you can pay tax at 27.5%. Now the rules changed recently and they reduced the tax rate for businesses or companies that run businesses from 30% to 27.5% but if your company is an investment company, just investing in shares or stock market or buying some property, and it’s purely investment then the tax rate is still 30% but for businesses it’s down to 27.5%.
Dale: So Ed, what should we do if we start paying ourselves with 80 something or husband and wife or partners, and another 80 and it’s now 160,000 income we’re paying a lot of personal expenses with that money that stays in the company obviously we pay our tax on it then it stays in the company. What do we do, what if that money keeps on piling up, what a good problem to have, then we want to kind of keep investing in our business then when we start making profit, do we then take it out and have to pay an additional tax once it comes out of the business or should we be trying to invest it back in to buying a commercial property and leave it in the company and start building up assets within the company?
Ed: Great question. I’ll answer in two ways. The first one is if it allows you to manage your tax liabilities because even though you may pay 27.5% tax in a company, that tax, unlike the tax you pay in your own name is gone, but the tax you pay in a company is not gone. It sits there in a franking account. It sits there as a credit so somewhere down the track and you retire, and your tax rate is less than 27.5%, you can take that money out as a dividend and pay no tax on it as long as your personal tax rate is the same as the company tax rate. If it’s more than the company tax rate, you pay what’s called the top-up tax up to the rate of tax that you pay personally. If your tax rate is less than 27.5%, you actually get a refund back. So it’s a fantastic vehicle to have for tax planning because it allows you to determine what level of tax you want to pay unlike your personal tax rate, once you pay it, it’s gone. There’s no credit, there’s no franking credit, there’s nothing. It’s actually gone, completely gone away. Tax in a company is a good place to pay. That’s the first thing.
The second thing is as you accumulate more and more money in the company, it’s a really good idea to invest it. You can invest it through the company if your company isn’t litigious in the things that they do. Or you can set up various entities where the company can, for example you can buy your own premises and then pay your rent from a company to say, super fund that may own the premises and I’m gonna touch that on another slide down the track. You can invest the money from the company and you just gotta make sure that there’s asset protection and that structures are in place because if the company gets sued, those assets that you’ve invested in can potentially get lost in the litigation so you have to look at what it is that you wanna invest in and how best to do it absolutely the company can do that as long as the income comes back to the company, it’s taxed at only 27.5%.
4. Use an SMSF where you can claim super contributions at 27.5% and Super is taxed at 15% plus income becomes tax free at Pension phase
Ed: The great thing about in the company is that you can set up a self-managed super fund and you can put a contract a contribution into a super contribution into that superannuation fund. It’s tax deductible in a company at 27.5% tax but when it goes into the self-managed super fund, it is only taxed at 15% so you can see that there’s a differential in savings. Once it gets into the super fund, you can then buy property or you can buy your own office or factory or your business premises through that and there’s a special way that you do it but I don’t have the time to explain all that. I’m just takling about that in a very broad point of view. So the benefit is that you can then pay your rent to the self-managed super fund for the use of the office and actually the rent is tax deductible in a business at a rate of 27.5%. So you’re saving tax at 27.5% and when the rent goes into the super fund, it’s taxed at 15% and of course, when you retire later on, and you draw out pension out of your self-managed super fund, all that income in that super fund is all tax free. They are subject to some conditions, you can’t be more than $1.6 million per member, there’s a whole lot more of these conditions but we don’t have time tonight to cover that off. Just from a very high level, the super fund is a very good way to minimise your tax and to be able to tax plan effectively around your businesses and you can utilise your business premises where if you’re throwing good money to your landlord, you can actually own it and make it very very tax effective.
Dale: Okay, great. And the question that some of you maybe asking that haven’t set it up is when is the right time it should be based on getting to a certain age or having a certain amount of money kind of like sitting in your company, you may say the sooner the better but when is the right time to do it?
Ed: Two answers to that. I’ll answer in two ways. One is that if you’re paying a lot of rent and you don’t want to pay rent to someone, you want to own the premises and you’ve got the ability to borrow money because you’ve come up with a deposit, that’s one time and the other time is that instead of sending your money out to a public fund, you can then set it up to your own self-managed super fund. Generally, for the second point, if you have around $200,000 in there, it would make it cost-effective. Below that it may not be as cost-effective because there is a cost to running a self-managed super fund and at that level it will make it cost-effective. However, if it is because you want to own your own business premises, then you can do it sooner.
5. Buy your business premises in an SMSF via a bare Trust
Ed: The way it’s set up is through a bare trust. So the bare trust owns the property and once the debt is paid off, the property then goes into the self-managed super fund.
Dale: And why is it in a bare trust to start as opposed to being in a self-managed super fund from the start?
Ed: Because the law states that the super fund can’t borrow money unless it’s through an installment warrant? And the bare trust is an installment warrant. It’s just the super fund rules that require the installment warrant which the bare trust is, if there’s debt attached to the super fund.
Dale: So anyone who’s looking to buy premises and have rent paid back. Can you actually pay an over-inflated rent? Is that possible or does it have to be market rate?
Ed: It can’t be over. It has to be market rate. Everything has to be done at arm’s length and they’re quite strict on that so there’s not much flexibility there.
Dale: Okay, great. So anyone who’s looking to self manage their super fund, you see the benefits in a commercial space and bare trust is the keyword there to talk to your accountant about or chat to Chan & Naylor further.
6. Claim home office as business premises and a portion of utilities are tax deductible. But must meet certain rules
Ed: Claiming your home office and business premises and a portion of utilities are tax deductible. There are two parts to that. There’s a home office and a business office. For the home office part, if you’re working for somebody else and you do a lot of work from home, so you must spend a few days a week at home, there are things that you can claim using your home as an office. The tax department has broken that up into two areas. They call it occupancy expenses and running expenses. So i’ll just cover off occupancy expenses, which are things like insurance rates, the loan on your home, your home mortgage, those are all an occupancy expense, and you can claim those but you claim them on the basis of the floor area, so you can use up to 15% of the floor area for your home office. You can claim that. However, when you come to sell the house, 15% of the house is then subject to capital gains tax. The second part of it is the running expenses, which are electricity, depreciation, cleaning, repair, those kinds of things. Again, it’s on a proportion basis. You can claim those as an expense as a trigger a capital gains tax event when you sell your home, it’s only the occupancy expenses that triggers a portion for capital gains tax when you sell your home.
Dale: I think majority of the people listening to this webinar will be working for themselves and their own business. Some are running their business from home so does everything that you say stand up?
Ed: No, the business premises is just the second part of the slide. For example, a doctor working from his home, and if he is pretty much home the whole time, it is subject to capital gains tax except for a portion that might make up as his home. Again, you got to make sure that you know your floor space is and so forth.
Dale: And if you’re working from or go to an office, like I do, I lease from myself which is good but when I get home I work from home as well so that’s what you’re saying about the percentage of the utilities, the home office.
Ed: You have to then claim it under the home office category.
7. Write off obsolete stock and Debtors
Ed: This is really a basic one but lots of people don’t pay attention to it. You may have some stock that are sitting on the shelves that’s obsolete, if it’s sitting there then it’s part of your closing stock, the higher your closing stock is, the higher your profits are going to be. So if the stock isn’t being used and it’s actually obsolete, if you write that off then you reduce the stock that you have on the shelves or on paper and that reduces your profit and that therefore reduces your tax. Also sometimes, the debtors are sitting in your accounts and you’re trying to chase a bad debtor, someone that’s not gonna pay you or very doubtful of paying you, writing it off would reduce your tax and reduce your income and therefore your tax and if they did pay you later on, if they happen to pay you later on, you just bring it as income and pay the tax there at that point.
Dale: Okay, now does this apply to service based businesses as well? They may have some stock selling or they might have materials of certain kind that might become obsolete? Does this apply to a service based business?
Ed: Yes, it does. Whatever stock they have in general, service in business even if it’s a cleaning kind of business, the stock that they use or the material that they use is quite low, it’s not a significant part of their business but the same rules apply. But more significant to a service type business are debtors. Sometimes there are many. It’s taking a long time to click but if it’s doubtful you can just actually write it off.
Dale: Okay, but it’s not to say that you’re gonna give up on chasing that money. You will still try to get it in.
Ed: That’s right.
8. Buy a negatively geared property in a Property Investors Trust (PIT) and distribute income from Family Trust to soak up the losses in the PIT
Ed: You can buy a negatively geared property in a Property Investors Trust (PIT) and distribute your income from your family trust to soak up the losses in the Property Investors Trust. A negatively geared property is where the interests and expenses of the property is higher than the rent they collect so it’s effectively making a loss, and that loss can be claimed as a tax deduction as long as you do it in a right way then you can claim it. If you don’t do it in a right way, for example, if you held a family trust, held a property and the loss is in the family trust, but you’re a salary worker then you want to offset your salary against those losses which is going to get trapped inside the family trust. However, if your business is also a family trust, and you held your negatively geared property in another family trust, you can actually distribute the income from the first family trust to the loss family trust, the one that’s making a loss and soak up the negative gearing that way. The reason why I put up the Property Investors Trust is it is something that Chan & Naylor developed and we’ve got a product ruling from the ATO but we designed this specifically for property. And I won’t get in to it tonight because the discussion is not about property and that will be for another night, but the theory is still the same, if you bought a property in a family trust or a unit trust (both commercial and building), if you held your business income in a trust, you can actually distribute that to that trust that’s making a loss.
Dale: And how’s that different to bare trust that you spoke about before for a commercial property?
Ed: A bare trust is a trust that effectively holds it in behalf of somebody else. Whereas a family trust or a Property Investors Trust holds the property for themselves. A bare trust doesn’t hold a property in their behalf, it holds the property on somebody else’s behalf. For example, if you want to buy a property but you didn’t want it in your name, the legal title you can hold in the bare trust but the beneficial title to that property belongs to you because the bare trust, whilst the property is in its name is not holding it in its behalf, it’s actually holding it on your behalf. Whereas in a PIT or family trust, it’s holding the property in its own behalf.
Dale: Alright. Makes sense. But I’m sure we’ve kinda lost some people here. Even sometimes to me these stuff can be kinda like confusing so what situation should someone be in to come to talk to you about this issue specifically?
Ed: Especially before they buy a property, not after they bought a property is very very important. You don’t go to the auction and bid on a property and they go “sold.” As soon as they go sold, they want the name to go on the contract sale, and you need to be prepared before you go to an auction. It’s best to go see your accountant and say to your accountant I’m going to bid on this property on Saturday and i’d like to know what name to put it on because as soon as the auctioneer gives you a new one property on the day, you’ll need to complete the contract sale and you need to know what name to put on that contract and once you put that name on the contract, if you wanna change it, it’s very very difficult. Generally a service type business, once they got you, they don’t want anything to jeopardise it by putting on a different name or whatever. It’s always best, as the saying goes, an ounce of prevention is better than a pound of cure go see your accountant before doing anything, not after you’ve done it.
Dale: And that could be for a home residency or could be for investment property or it could be for commercial property. Either way.
Ed: Correct. However, it’s more important if it’s to do with business. If it’s your home, it’s important to know because if you’re in a business, that’s highly litigious, you may not want the property to be in your name because if someone sued you, you could be a doctor or you’re in business you’re a director of your company, then you don’t want any assets in your name. Having a home in your name exposes the home to litigation and you may lose your home.
9. Pay a Franked dividend instead of wages if you have tax losses in your company
Ed: I’ve touched a little bit on this earlier about franked dividend. Sometimes, you might have a company and you’re running a business through a company, and it has made a loss, and part of the loss that is made is because you’ve paid yourself wages and the more wages you pay yourself, the wages that are tax deductible, the more wages you pay yourself, the higher that loss is. In this situation, if your company is making a loss and you’re paying yourself a wage, and you’re actually paying tax on that wage you pay yourself, and the company has made a loss, and it doesn’t pay any tax, but you’re paying tax on your own hands, it’s better to pay a dividend rather than a wage. Because a dividend is not tax deductible and you still get the cash and because it’s not tax deductible, you’re not increasing the loss in the company. So you’re making sure you’re paying the least amount of taxes as possible.
Dale: Okay. So pay a franked dividend instead of wages if you have tax losses in your company. Anything else before we move on?
Ed: You need to do the tax planning before the end of the year so the good time is around April to May to go see your accountant, have a look to see your accounts, see how they’re traveling, if it looks like you’re at a loss situation, you can stop any more wages, and turn the wages you paid yourself into a dividend. So the tax planning is before the end of the year, not after the end of the year so do all your tax planning then because once June comes and goes it’s too late. You don’t wanna do tax planning after that.
Dale: You really just wanna make sure that they get one thing from this webinar. Book a meeting with your accountant in May every single year and make sure you sit down and go how can you help me.
Ed: Absolutely. We do that with our clients so we do some intra accounts with them, we do the tax planning in that part of the year, so we sit down and do all the tax planning around April / May so we know what to do between April / May to June and we make sure that they all get done before the 30th of June comes and goes.
10. Don’t own the shares in your company in your own name but in a Family Trust
Ed: Don’t own the shares in your company in your own name. Unfortunately, many clients go to accountants and they might have just started their business and it’s not worth anything when they first started so the accountants say let’s start a company for you, we’ll put shares in your name and your wife’s name and you know, it’s a $2 company, 10 years later that business is worth $4 million. Those two shares are now worth $2 million each. They also happen to be a director in their own company and as a director you can get sued, and if you get sued you got a share that’s worth $2 million and some have their own homes in their own name. That’s not good either. It’s very costly to fix that up so do all the planning upfront. Make sure you set up correctly right in the beginning to minimise a whole lot of costs and taxes in trying to fix that up because to try and move those shares that are in mom and dad name into a trust it triggers capital gains tax and a whole other legal costs so it’s a very costly exercise. You can fix it but it’s very costly.
Dale: Okay. So someone asked the question like I did. In the beginning I made this mistake until you helped me fix it, putting the shares in my own name. Now I own no shares in my own company. But my trust does. How do you fix it, when should you fix it?
Ed: You should fix it as soon as you can because the longer you leave it, the worse it will get. How do you fix it? It just depends on the circumstances of the client and I couldn’t tell you because everybody’s circumstances are completely different. You need to go to accountants who know what they’re doing and sit down to go through your situation and work out a way to do it. There are various ways to do it subject to the client’s situation. It will determine how they do it.
Dale: Okay. With regards to the costs of setting up a family trust, is it a couple of thousand dollars to do or a few hundred?
Ed: Yes. To set up a trust, you have the company as a trustee, so that’s around $12 – 14 hundred or around that kind of figure. And then the trust range is between $500 and $12 hundred. Depending on what state you’re in, so in New South Wales there’s a $500 stamp duty, so it adds significantly to the cost of the trust but in South Australia, there’s no stamp duty. It just depends on what state you’re in as to the actual cost of the trust.
Dale: I just realised we have a few Kiwis listening as well, I’m guessing some of the same principles will apply with regards to not having shares in your own name or about your business buying a commercial property, etc. so I probably have mentioned that upfront that even though there might be specific things that apply to just Australia or just to the percentages but the principles, they’re going to be pretty sound across Australia and New Zealand, is that right?
Ed: Yes, the principles are basically the same. There are differences between the two countries. For example, the GST in New Zealand is a lot simpler than ours. They also have a trust that is taxed, I believe. So there are just minor sort of things that are a little bit different but the principles are the same, yes.
Dale: So probably you may be looking at some sort of 3 grand as a sort of starting point to do the whole family trust set up but obviously, that is kind of like an expense but if you’re having a business, in the future you do hope you’ll be worth hundreds or thousands or millions of dollars. It’s a small price to pay now, compared to when your company is actually worth a lot of money.
Ed: If labor gets in, they talk about taxing trust like a company so the benefits of a trust may disappear if the labor government gets in.
11. Use your adult children as beneficiaries in your Family Trust
Ed: Use your adult children beneficiaries in your family trust because they have a threshold but if they’re under 18, they’re only allowed to get $416 before the tax rate jumps to 66 cent to a dollar. It’s their way of stopping families from distributing to minors and once upon a time in this industry, you can distribute to your kids and it didn’t matter what age they were or whatever, we used to get four kids and you distribute to the four kids and pretty much wipe up your tax and then they brought in this law that said that if you’re under 18, then it’s a 66% tax bracket income over $416 so you have to be careful not to give it to them if they are too young or you can give them $416 and of course it just makes you tax plan a little bit more carefully, that’s all. You can still utilise the laws to your advantage.
Dale: And you said they don’t even have to be your own kids, is that right?
Ed: No, it’s best that they are your own kids but yes, if they’re in the trust deed, they’re mentioned or they’re a part of the family then you can take advantage of that.
12. Claim traveling allowances permitted by the ATO
Ed: Okay, the very last one is traveling allowances.
Dale: Yay, for this it could be coming to like our conferences if you’re from interstate or it could be going overseas we’ve got a conference coming up in Thailand in April and of course many people would be going on a family holiday a couple of times a year so I’m very keen to know about this one.
Ed: Yes, it’s called a reasonable travel allowance and the tax department has tables where if you go to a certain city or country, they allow you a certain amount where you can claim without having to justify. So for example, you can go to the ATO website called TD2O17/19. If you go in there, you can look at the table and all the numbers are there. But basically, just to explain how it works, so if you are to go to Adelaide for example, you can claim $285.70 as a daily allowance. Now let’s say your employer gave you $200 to go there per day, you have to show that as an income but then you can claim $285.70 as a tax deduction. If you were there for 10 days, and you got $2,000 travel allowance, you can actually claim more than that up to the allowance that the ATO has stipulated. So I’m just reading some of the states, Darwin is $344.70, Melbourne is $301.70, Sydney is $313.70 and that’s if you’re earning an income of up to $120,000. If you earn more than $120,000 up to $212,000, that rate goes up.
Dale: Okay. So if people coming to Sydney four times a year for our conferences, some people are coming for five days at a time with a travel day on the side, that could be 20 days of the year. So that kinda adds up right?
Ed: Yes it does. But there is a condition that it has to be for work. For conferences, if it’s to do with your work, then they look at it separately. It’s a little bit complicated but make sure they get some advice from their accountant before they claim it.
Dale: While they’re coming to our conferences, they’re also networking and telling people about their business and they’re handing out their business cards, they’re doing prospecting and marketing for their business right? Can you claim it that way?
Ed: Yes you can as a business expense, so you wouldn’t claim it under traveling. You would claim under business expenses.
Dale: Nice. What about if some of your staff go on a family holiday. Is that absolutely a no go or is there a way that you know you could make it into having a business reason to travel?
Ed: They’re pretty strict on it now. Even with rental properties now, they’ve not cut a lot of that. The new rules cut out incidental business trips that are claimed when a predominant purpose is private. They won’t allow that now so again it all comes back to your paper work so if your paper work is good then it’s a matter of sitting with your accountant and making sure that your paper work complies and won’t get you in trouble.
Dale: Good. And then someone’s asked a question, how much can we claim for overseas business travel?
Ed: When it comes to the cost of the travel, like your airfares and so forth, they’re all tax deductible. As long as they’re related to business, if it’s all related to business then you’ve got a diary that shows that then the cost of that is all deductible to you but you have to justify that this is business related.
Dale: Keeping a diary and making sure that you are collecting business cards from people and taking photos of their business activities that you’re doing is all about being able to prove that what your intention is around that travel.
Ed: That’s right. Exactly.
Dale: Okay. There’s a couple of questions here, what is the case if you and your partner are both directors and you have to take your children with you?
Ed: The children is not tax deductible even though you can’t leave them at home, they’re still not tax deductible. Even suits, sometimes like me I’ve got to wear a suit for work. That’s not tax deductible. The upper wear suit for work is not deductible. So unfortunately, that’s not tax deductible.
Dale: What if you put a logo on the suit?
Ed: Yes, if you put the logo on the suit, you can claim the cleaning and all that. In fact that’s the why we have a logo on our suit. As long as there is, the theory is if you can wear it outside, it waters down your claim but if you can’t wear it outside with a company logo on it then it is business.
Dale: So just having initials on the sleeve probably doesn’t count.
Ed: No. Including a tattoo, you can’t tattoo your arm and claim all your food that you feed yourself.
Dale: That will be fun. With overseas, if the conference is a two-day conference, say you’re going to America and the conference is two days but you need a couple of days before to get over from jetlag and maybe a couple of days after to network with people you’ve met from the conference, how many days can you turn that into if the conference is two days?
Ed: The predominant trip has to be business. Now if the predominant trip was private, and the business side was just incidental then you won’t get it as a deduction, if the business trip is the predominant reason for going there, then you’ll get the business portion as a deduction. And then there will be a private portion as well for the days that, but if you’re going there and it’s taking you two days to get there but the whole trip was to do with business, then the whole thing is deductible. It doesn’t matter how long it takes to get there but if the whole trip is to do with business then the whole thing is deductible.
Dale: So if you have a day or two of layover because there are no flights available then you might be able to make it work.
Ed: Yes, that’s correct. If you did a lot of private things, then that’s questionable.
Chan & Naylor Group has nationwide offices in Brisbane and Capalaba in Queensland, Melbourne and Moonee Ponds in Victoria, East Perth in Western Australia, and South West Sydney, Parramatta, Pymble, North Sydney, and Sydney in New South Wales.