Most business owners know that they can claim a deduction for paying a registered tax agent to prepare and lodge their tax return. However many may not know that the regulations that provide for this deduction operate in a different way compared with other tax rules that allow expenses.
Why should taxpayers care which particular rule allows them to get a deduction for paying their accountant? Because in this case the specific regulations create unique opportunities for business owners, especially where their affairs involve multiple taxpayers.
What are the basics?
Before discussing how to use this rule to your advantage, let’s look at the basics. If your tax agent issues you an invoice for a) managing a taxpayer’s tax affairs, or b) complying with an obligation imposed on another taxpayer by a Commonwealth law (insofar as that obligation relates to the tax affairs of that entity), then, as long as the accountant is a registered tax or BAS agent (or legal practitioner) a deduction can generally be claimed by the person on the invoice. This rule is subject to a number of conditions (most of which are common sense, but more specific details on these conditions can be obtained from this office).
Don’t I need to earn assessable income?
No — unlike most expenses that require a taxpayer to earn assessable income before they are able to make a claim, this type of expense can be claimed even where a taxpayer earns absolutely no assessable income. In
other words, this type of expense can create a carried forward tax loss for an entity that can be offset against income from future financial years.
Tax affairs of another entity can be claimed?
That’s right — where a taxpayer incurs an expense (that is invoiced) for the preparation and lodgement of a tax return or for managing the tax affairs of someone else, they can claim a deduction under this rule.
This might be useful where a spouse in a couple earns much more than the other spouse (and therefore is subject to a higher tax rate) because the higher income spouse can claim a deduction. This also becomes useful when an accountant invoices an individual taxpayer in relation to a business run within a company or trust. However, be wary that a super fund should not pay accounting fees for an individual because of the interaction with super regulations.
The bottom line is that a taxpayer is able to be flexible in terms of which entity in their group – be it an individual, trust, company or other taxpaying entity — is invoiced for managing the tax affairs of the group, and therefore which entity can claim a deduction for this type of expense. Talk to this office should you wish to pursue this potentially valuable strategy.
Welcome to the InterActive Tax Consultants’ news – part of our personal and easy to understand approach to taxation. We are committed to working with you to achieve the best results for your business. If you have any question or would like more information on any of the articles please contact us.