Newsletters
| Newsletters are published in Adobe Acrobat format. You may obtain the latest copy of Acrobat Reader by clicking on the Acobat icon below. |
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Topic
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Date Issued
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| Budget Tax Summary |
12th May 2009
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| Investment Allowance |
9th March 2009
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| Superannuation Pension Changes |
9th March 2009
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As a service to our clients we have included extracts from past newsletters below.
New Tax Rates
The 2006/2007 income tax rates for individuals were changed in the budget in May. The new rates excluding the medicare levy are as follows:
|
Taxable Income |
Tax Payable 2006/2007 |
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$0 - $6,000 |
Nil |
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$6,001 - $25,000 |
Nil + 15% |
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$25,001 - $75,000 |
$2,850 + 30% |
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$75,001 - $150,000 |
$17,850 + 40% |
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$150,000+ |
$47,850 + 45% |
Proposed Superannuation Changes
The May 2006 federal budget outlined significant changes to the superannuation system. We cannot stress enough at this point that this is only a discussion paper put forward by the government and no legislation has been drafted at this stage. The changes if introduced will in general only apply from 1 July 2007. We have outlined the basic points of the proposals below but these may change.
- People aged over 60 would not pay tax on their superannuation benefits from 1 July 2007
- The reasonable benefits limits would be abolished. This limit is the amount you are allowed to accumulate in superannuation before penalty rates of tax apply to your benefit payments once retired.
- The current age based limits on the amount you can claim as a tax deduction for superannuation contributions would be abolished and replaced with a single deductible amount of $50000 per year.
- For people aged over 50 during a transitional period to 2011/2012 deductions of up to $100000 may be claimed as a tax deduction.
- Contributions to which no tax deduction will apply will be limited to $150000 per annum. This part of the measures will be back dated to 9 May 2006 if legislation is introduced.
- If more than the above amounts are contributed the fund will have to pay tax on the excess at the 45% tax rate.
- People aged up to 75 will be able to make tax deductible contributions if they are employees or are self employed.
- Deductions for self employed will be treated in the same way as employer deductions and the 75% deductible amount will be abolished
- A superannuation fund that is paying "approved" pensions will be exempt from income tax on its earnings.
- Current allocated pensions and term allocated pensions will be deemed to meet the new "approved" pension requirements for the fund to be tax exempt.
Service Entities for Professional Practices
For those clients that use these entities you will by now be aware of the significant changes the Taxation Office introduced in April 2006 from your professional associations and the like. The Taxation Office has advised via its ruling and booklet that practices have until April 2007 to review their current arrangements to ensure they comply with the new ruling. This area is too complicated to be addressed in this format so we will be discussing these issues with you if necessary over the next few months. Each case has to be treated individually and many changes will have to be made to current arrangements including significant amounts of documentation. The purpose of this item is to make you aware of the change only.
Capital Gains Tax Small Business Concessions
We have found in recent months that many clients are not aware of such concessions. Although they are involved and complicated in their simplest form it is possible for most small business owners to pay no capital gains tax on the sale of their businesses. There are many criteria that must be met with the first one being the that you must have less than $6million in assets - increased from $5million in the May 2006 federal budget. There are many planning opportunities to ensure that these concessions can be accessed and we ask that you contact us whenever you are contemplating selling your business well in advance of the sale. In some cases things have to be put in place up to 2 years in advance of the sale so advance warning is very important.
NSW Land Tax Changes for 2007 (Land Owned at 31 December 2006)
Following the 2005 "fiasco" when the NSW state government abolished the land tax threshold for all land holders a further complication has been introduced for the 2006 year and then abolished for the 2007 year. Also changes to the way land is valued and assessments calculated have been introduced. A summary of the changes are as follows:
- For the 2006 land tax year land owned in unit trusts will be treated as a "special trust" investment in land and will not gain the advantage of the land tax threshold below which no land tax is payable. Thus if you have any land subject to unit trust investments land tax will be payable for the 2006 year. We are currently contacting those clients to which this new rule relates if we have not already done so. For 2007 however if the units in the unit trust are owned 95% by the same family and the land value is less than $1million the unit trust will be able to claim the tax free threshold.
- Land tax in 2007 will also be calculated based on an averaging system. Land values will still be determined by the Valuer General for land tax purposes but these will be averaged over a three (3) year period to determine the actual value for assessment purposes. Thus the value in 2007 on which your assessment is based will be the average value between the 2005, 2006 and 2007 years.
- The averaging system will also be applied to the tax free threshold. The threshold for 2007 used for assessment calculations will be the average of the 2005 (deemed to be $342000), 2006 ($352000) and 2007 (yet to be determined) years. The threshold will be taken to the nearest thousand dollar amount.
Hire of Goods Duty
Although not many of our clients have to charge this duty it is important to note that this duty will be abolished from 1 July 2007. This is the start of the state taxes that are to be abolished because of the introduction of GST with others to be abolished over the next five years.
Work Choices Legislation
Although this is an area better discussed with your legal advisors and employer/employee associations we thought it important enough to raise it in this newsletter. The thrust of the legislation is to abolish the award systems currently operating in Australia to be replaced by individual workplace agreements that can be negotiated between employees and employers. As the awards are abolished employers will be required to enter into Australian Workplace Agreements (AWA's) with their employees. We suggest you follow the media and your industry associations information for details of when you are required to undertake these changes.
As part of this legislation the unfair dismissal requirements were also abolished for employers employing less than 100 people but the employer must be an incorporated body - this exemption does not relate to partnerships and sole traders.
Employee Superannuation Choice Starts from 1 July 2005
Superannuation choice for Australian workers finally commences on 1 July 2005 after over nine years in the making. As an employer you have obligations in relation to the superannuation of your employees and there are severe penalties for not complying with the legislation requirements.
Between April and June the Taxation Office will be supplying material to all employers to outline their obligations. We have not provided full details here as you will be provided this from the ATO. Suffice it to say you must give all your employees a Superannuation Choice Form (Click here for sample) before 29 July 2005 and then within 28 days of a new employee commencement date.
It is then up to the employee to return the form to you should they wish to choose their own fund. There is no restriction on the fund they can choose as long as it is a complying superannuation fund under the law.
In addition you must choose a Default Superannuation Fund for employees that do not make a choice for themselves. The default fund must be a fund that offers the members a minimum amount of life insurance in accordance with the legislation. You will need to enquire from the fund that it meets these requirements. If the employee chooses a fund for themselves that fund does not need to comply with the insurance requirements.
There are some special requirements under certain federal awards but is unlikely that these will apply to the majority of our clients. If you think you have special award requirements in regard to superannuation you should check with your industrial relations advisor or industry association.
If you need more information or wish to discuss your requirements with us please do not hesitate to contact your client contact at the firm.
Occupational Health & Safety
Although this is not an area normally serviced by accountants we can see many of our clients not being aware of the changes that are about to happen in this area and possibly putting their whole business and other assets at risk. Thus we have put together some brief notes extracted from the Workcover New South Wales web site at www.workcover.nsw.gov.au . There is a link to this site on our Interesting Links page on www.gpb.com.au . We have not set out full details of the requirements but strongly recommend our clients investigate this issue further with their industry association or insurers. Some items from the Workcover legislation are as follows:
Areas covered by the new OHS Regulation
The Regulation provides broad coverage for all workplaces along with specified control measures for particular hazards and industry activities. These include:
- Identification of all workplace hazards;
- Assessment of risks arising from those hazards;
- Implementation of measures to control those risks;
- Provision of training, instruction and supervision;
- Workplace consultation between employers and employees. (WorkCover has produced the Code of Practice for OHS Consultation for this purpose);
- The control of specific high risk hazards such as plant, hazardous substances and hazardous processes;
- Construction work;
- Requirements for:
- Certification of operators of equipment;
- Licensing of certain businesses; and
- Notifications to WorkCover.
Transitional period
While the new Act and Regulation took effect from 1 September 2001, there will be a transitional period of 12 months to implement the new provisions of the Regulation for all businesses. Small employers (with no more than 20 employees) have a two-year period to implement the risk management requirements of the Regulation.
We believe that many of our clients will not be aware of their obligations under the legislation and it applies to all work places after 1 September 2003. A summary of the requirements is set out by Workcover at www.workcover.nsw.gov.au/pdf/WORK_00023_Sumry_OHS_Reg.pdf Should the business not comply with the legislation Workcover have the power to impose penalties up to $55,000 for individuals and $550,000 for corporations for a first time offence. The most obvious time that this will occur will be when an accident has happened and the paperwork for the business is reviewed by Workcover.
Self Managed Superannuation Funds (SMSF)
We are regularly asked to set up SMSF and have investments transferred from a managed fund so that the members can control their own investments towards retirement. We thought it timely therefore to set out some basic facts about an SMSF for your information.
- An SMSF is a fund regulated by the Australian Taxation Office.
- It requires an annual audit on the financial statements and compliance with the superannuation regulations.
- It must have four (4) or less members.
- All members must be trustees (those that make decisions in regard to the SMSF management).
- It cannot transact with members except that it may purchase listed stock exchange shares from members and it may purchase the property from which the members business is transacted and receive rent from the members/employer.
- It must invest in appropriate investments to provide for the members' retirement incomes. Thus it is not allowed to run a business or invest in particularly risky ventures.
- It costs $45 per year to file the tax return with the Taxation Office.
- It costs approximately $500 to set up your own SMSF.
- Our accountancy fees vary depending upon the size of the fund but there is a minimum charge per year of $750 for accounting and audit fees.
- The fund can buy property and lease it to non related tenants.
- The fund cannot borrow for any purpose.
- The fund must maintain its own bank account and transact for itself. You cannot pay amounts on behalf of the fund.
- You must treat the fund as if the money belonged to someone else and you were looking after it for them. Thus the fund needs to keep minutes of decisions and make sure that everything within the fund can be accounted for.
- The assets can be invested collectively but each member's share of those investments needs to be accounted for individually.
- The tax rate on earnings in the fund is 15%.
- Contributions are taxed at 15% also and high income earning members may have additional contributions surcharge (up to a further 13.5%) payable on their contributions.
- For high income earners thresholds go to the Figures and Figures page of our web site.
This may make running a SMSF sound complicated but with common sense prevailing and our professional assistance the task can be both profitable and rewarding. We currently assist over 100 funds with their requirements. We do not offer financial advice and investment assistance in relation to the funds investments although we are happy to work with your financial planner.
Negative Gearing
Another area we are constantly asked about is that of negative gearing with property investment. This has been particularly so with the increasing values in real estate especially in our local area on the Mid North Coast of New South Wales. Negative gearing is a technical term to describe an investment which involves more expenses than income and funds have been borrowed to purchase the property. The resultant losses from the investment are then used to offset other income in your tax return. The term negative gearing can be equally used with any type of investment including shares. We have extracted details below of some of the issues involved with a property investment and the Australian Taxation Office current views. Much of this information has been provided from an article in the July 2003 issue of Charter magazine (page 62) written by Johanna Lowry Tax Manager at the Institute of Accountants & Business Advisors. You can access the Institute web site for other information at www.icaa.org.au
The Australian Taxation Office has recently issued a warning that property owners could come under their microscope in relation to over claiming of expenses and declaring capital gains. Below are some of the relevant issues:
Joint Ownership
Where two or more people own a rental property tax law deems them to be in partnership and the net income or loss must be split in proportion to their legal interest in the property. For example if two people own the property 50/50 then they each claim 50% of the income and expenses. This is irrespective of who actually receives the rent or pays the expenses. If a property is owned on the basis of joint tenants then tax law will generally deem that the property is owned 50/50.
Mortgage redraw Facility
If you borrowed for the property on a redraw loan and you choose to redraw against that loan for private expenses then be very careful as you will create an administrative nightmare. After the redraw every interest and capital payment must be split between private and business portions. This will mean that to work out the correct claim for interest against the rent a separate calculation will have to be made every time there is a payment to the loan.
The Holiday House
These will only be accepted as valid negatively geared investments if they are treated in a totally commercial way. Thus expenses will only be deductible on the basis of the number of days the property is available for rent. If you use it privately any costs associated with that usage will be disallowed. Likewise if you specifically book the property over the peak holiday period there is a risk that the Taxation Office will only allow the expenses to the extent they offset the rent received and you will receive no tax benefit of offsetting the losses against other income.
Repairs
The term repairs reflect normal wear and tear or other damage caused while the property is rented or available for rent. The Taxation Office does not allow expenses to a newly purchased property to bring it up to a standard for renting as a tax deduction. Usually these costs will be added to the cost of the property and will become deductible against any capital gain when the property is sold.
It is also important to distinguish between a repair to something and the total replacement of that thing. For example replacing a fence will be capital and not deductible in the year of payment.
Assets and Furniture etc
These are normally depreciated and the depreciation is claimed each year against the rent generated from the property. Many changes have occurred to the deprecation rules in recent years and different taxpayers will have different depreciation rules applied to them. Below we have assumed the property is owned by individual taxpayers.
- Items costing less than $300 are claimed in the year of purchase. Like items or items making up a set are totalled to see if they add to more than $300 and are then depreciated.
- Items costing between $300 and $1000 are "pooled" together and all depreciated at 37.5% per year.
- Items costing more than $1000 are depreciated individually at rates specified by the Taxation Office.
Travel to Inspect
You can claim a deduction for the cost of travel and accommodation incurred to inspect your property. However, if there is also a private purpose for the trip, eg a holiday or visit to relatives, you can only deduct the business portion of the trip. If inspecting the property was merely incidental then you only get a deduction for the direct costs of inspection. If the travel is by car the Taxation Office sets out rates per kilometre you can claim.
Body Corporate Fees
These are generally deductible but if some fees are channelled to a special sinking fund then these may be capital and not deductible. For example a sinking fund set up to fund a pool in the grounds of a block of units.
Capital Gains Tax
The sale of the property will be subject to capital gains tax when it is sold. However if it is owned for more than 12 months then the 50% discount will apply. Capital Gains Tax is complex but has many planning opportunities and we request clients to contact us prior to the sale decision so that proper planning can be done in this regard.
Profit Making Schemes
These relate to transactions that entered into for the purpose of sale at a profit. This could be so if you were regularly buying and selling property even though the properties may be rented during the ownership time. The Taxation Office could view these as profit making schemes and thus all profit will be fully taxable as it will not receive the capital gains tax concessions.
Goods & Services Tax (GST)
Residential rental properties are not generally subject to GST and the GST cannot be claimed back as an 'input tax credit'. Rather the total of the expense including GST is claimed against the rental income in the yearly tax return. The ownership of a residential rental property will not require the owners to register for GST. If the property is a commercial property however, registration will be required if the rental income is more than $50000 per year. In all circumstances with commercial properties it would be advisable to obtain an Australian Business Number (ABN) to avoid tax being withheld by the tenant.
"Super" Important Issue
By now you may have received notification from the taxation office that from 1 July 2003 superannuation contributions for employees must be made on a quarterly basis and reported to the employees when the payment has been made. The important issue is the penalties for not reporting the amounts to the employees. We have set out below details of the new requirements. We cannot stress strongly enough the importance of this reporting requirement.
The Rules
Pay the contributions each quarter and report to the employees by the following dates:
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Quarter
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Payment due
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Report to Employees
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1 July - 30 September
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28 October
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30 days after final contrib.
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1 October - 31 December
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28 January
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30 days after final contrib.
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1 January - 31 March
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28 April
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30 days after final contrib.
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1 April - 30 June
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28 July
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30 days after final contrib.
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Keep a record of all the contributions made.
Keep a record of when, what and how you reported to the employees (you can report via email).
Be sure to include the owners superannuation in the details as the rules apply equally to their contributions. You can no longer leave the owners contributions until June each year for the superannuation guarantee (9%) amount, these must be paid quarterly.
The Report
It must be written and include:
- The amount of the contributions.
- The name of the superannuation fund.
- The superannuation funds telephone number if known.
- The employees superannuation account or membership number if known.
The Penalties
These are particularly severe and should be a deterrent for not complying with the new requirements. If you do not pay the amounts for superannuation the "penalty" is that the superannuation guarantee charge will have to be paid to the taxation office as has always been the case. This amount is the superannuation due plus nominal interest of 10% plus an admin fee of $20 per employee. The total of these amounts is not tax deductible.
Worse than this penalty is the penalty for not reporting the amount to the employee. This is a flat penalty of $3300 per employee for each quarterly report not provided to the employee.
For example: If you have 5 employees and pay an average of $675 per quarter for each employee the penalty for not reporting to the employees would be $16500 for each quarter not reported. If the superannuation was not paid by the due date then the superannuation guarantee charge would be an additional $3615 bringing the total "penalty" to $20115 which is all non tax deductible. All for not paying and reporting a total amount of superannuation of $3375 by the due dates.
Sample Report for Employee
| Employee Name | |
| Quarter Ended | |
| Date of last payment for quarter | |
| Total superannuation paid for quarter | |
| Superannuation Fund Name | |
| Superannuation Fund Telephone Number | |
| Employee Fund Membership Reference | |
| Date Report Given to Employee |
Should you wish to discuss these new measures with us please do not hesitate to ring your contact at the practice.
GST with two years hindsight
The 2002 financial year has now been completed and we are past the second birthday of GST. Although every business is now doing more work collecting tax then ever before the positive is that we now have more financially aware business people. Our clients have confirmed that completing their own accounting records using a computerised accounting package has made the GST experience tolerable and has its benefits when up to date financial information is required by banks and the like.
The government and tax office have not been idle since GST was introduced and have made many changes to other facets of tax legislation some of which are outlined later in this newsletter. A letter such as this cannot give you sufficient detail on which to make decisions and we urge you to discuss matters with us if you are unsure of the consequences of an impending transaction. The purpose of this letter is to advise you of the areas of change and not give detailed explanations of the legislation.
As expected the main issues causing problems for our clients with respect to transactions and GST are those out of the ordinary transactions rather than the everyday sales and costs relating to the business. We have always encouraged our clients to discuss matters with us as they are happening and this is now especially the case for GST matters. The main items that cause problems are as follows:
- Sale of Business and the "Going Concern GST Concession".
- Sale of Real Property and the "Margin Scheme".
- Definition of "New Residential Property" which is subject to GST.
- Ensuring GST is not claimed on items relating to residential property expenses where the transactions are included in the business records.
- Not claiming GST on Compulsory Third Party Insurance on vehicles until 1 July 2003.
- Making sure that tax invoices are available for all items on which GST is claimed.
- Sale/Trade In of business vehicles and the payment of GST on the sale.
Log Book Reminder
We again remind you to ensure that your log book is up to date. The Tax Office requires a log book to be done every 5 years to ensure a valid vehicle claim is being made.
Non Commercial Business Losses
This measure has been designed to ensure that only losses from "genuine" businesses are claimed for tax purposes. To be able to claim such losses the business must pass one of 4 tests. If a test isn't passed then the losses are carried forward to a future year until one of the tests is passed. The tests are:
1) Sales/turnover has to be above $20000.
2) Depreciable assets and stock must have a tax written down value of greater than $100000
3) Land & buildings used for the business must be valued at more than $500000
4) Profits must have been made in 3 from the last 5 years
In addition if the losses are from a business of primary production a claim can be made if the other income (off farm) is less than $40000.
Personal Services Income (PSI)
These are new measures to ensure that income from an individuals personal efforts are taxed to that individual. As from 1 July 2002 these measures now apply to all individuals that meet the definitions of personal services income including those people that were previously subject to the PPS system. Even though you may earn PSI you can be exempted from the measures if you satisfy one of the tests for exemption. If you are assessed as having PSI then your claims are limited and all income must be taxed to you individually and not be taxed in a company or other entity structure. The tests for exemption are:
1) The "results" test allows exemption if, for at least 75% of work, you are paid on a result basis, you are required to supply plant & equipment or tools of trade and you are liable to rectify any defect in the work performed at your cost. We suggest that this be evidenced in writing by the use of a work contract or similar.
2) Less than "80% of income" comes from one entity (client). Related entities are treated as one for this test.
3) The "unrelated clients" test means that if income is derived from two or more unrelated clients and the services result from invitations to the public.
4) The "employment test" allows for more than 20% of the principals work to be done by others engaged by the individual. This will allow for exemption from the PSI measures.
5) If "business premises" are maintained for the exclusive use of the individual, for example a shop in the business district but not a room in your house.
Prepayments and Depreciation Changes
Prepayments are no longer claimable when paid except in limited circumstances. As an example this means that if you have general insurance for your business and it costs more than $1000 then the amount cannot be claimed when paid but must be apportioned over the term of the insurance. If you paid on 30 June then you would only get the equivalent of one days insurance as a tax deduction. The depreciation methods have been "simplified" and we can no longer claim fully items that cost less than $300. These must all be depreciated although any equipment costing less than $1000 can be depreciated as part of a "pool" of assets and so no separate items will appear on depreciation schedules. In addition the gains made on equipment has been removed from the Capital Gains Tax regime and is now subject to ordinary income tax as with other forms of income. This means that all amounts received for equipment above the written down value at the time of sale will be subject to income tax. You may be wise to check the tax affect of sale before you make the decision to sell or trade in an item of equipment as the sale could place you in a higher tax bracket.
Technology Use
We are still committed to our use of technology to deliver you, our clients, the most up to date information available. We continue to develop our web site, www.gpb.com.au, with important links to other sites to allow you to keep up to date on all areas of finance and wealth creation. To those of you that use our individual email contacts we extend our thanks as this method of communication allows us to deliver advice in an efficient and timely manner. We have attached a table showing the new hourly rates for the staff with their email addresses for your convenience. If you wish us to add something to our web site for your convenience please let us know and we will endeavour to do so for you.