Skip to main content Skip to search
Suite202, No 8 Thomas St., Chatswood NSW 2067
Mon - Fri: 09:00AM - 05:00PM
(02) 9411 1134
info@cantoraccounting.com.au

Articles

Taxwise Business News – Jun 2009

IN THIS ISSUE

Some business related Budget measures that may be of interest to small and medium businesses are outlined below.

Australians working overseas

The Government has announced that it will remove the income tax exemption for foreign employment income, with effect from 1 July 2009. A limited exemption will remain for certain specified aid, charity and government workers.

Currently, foreign employment income earned by Australians working overseas for a continuous period of 91 days or more is exempt from income tax.

Australians working overseas will need to consider the following issues:

  • Are they still Australian “tax” residents;
  • Will their foreign income now be taxable in Australia;
  • Will they be entitled to foreign tax offsets for any tax paid overseas; and
  • Will there be any fringe benefits tax or PAYG implications?

Tip!Employers should consider the impact of this proposed amendment in relation to their PAYG and FBT obligations.

Use of private company assets

The Government has announced its intention to tighten the rules relating to the taxation of benefits provided by a private company to its shareholders or their associates.

It is intended that this measure will be implemented by extending the deemed dividend rules for private companies.

The measure removes the scope for private companies to allow company assets – such as real estate, cars and boats – to be used for free, or at less than their arm’s length value without paying tax.

A question to ask!Are your shareholders using company cars, houses or boats?

These changes could apply where a farm is held by a company and the farmer/shareholder of the company is living in a house on the farm…

Entrepreneurs tax offset

The entrepreneurs tax offset (ETO) currently provides a 25% tax offset for eligible small businesses with an annual turnover of $75,000 or less (the offset phases out where this turnover is between $50,000 and $75,000).

The Government announced that it will defer the application of the income test for the ETO which was announced in the 2008-09 Budget for 12 months.

Employee Share Schemes

The Government has announced its intention to amend the employee share scheme provisions. The new measures, if implemented, will apply to shares and options acquired after 12 May 2009.

Under the proposed changes, any discounts provided on shares or rights will be taxable in the income year the shares or rights are acquired (i.e. the option for tax deferral will be removed).

Following its announcement, the Government has agreed to further consultation before amending these rules. This consultation process is currently underway.

As part of the Budget, the Government has announced the extension of the small business tax break (also known as the investment allowance). The tax break was designed to encourage capital investment by Australian businesses.

Despite the Budget extension, time is running out for you to take advantage of the tax break.

It’s important to get advice now about whether you should be taking advantage of this one-off incentive. The main features of the tax break are recapped below.

The deduction percentage

  • Under the Budget announcement, small businesses will now be able to claim a bonus tax deduction of 50 per cent – up from 30 per cent previously – of the cost of eligible assets acquired between 13 December 2008 and 31 December 2009, and installed by 31 December 2010.
  • All other businesses will be able to claim a bonus deduction of:
    • 30% on expenditure for eligible assets acquired between 13 December 2008 and 30 June 2009 and installed ready for use before 30 June 2010; and
    • 10% on expenditure for eligible assets acquired between 13 December 2008 and 30 June 2009 or 1 July 2009 and 31 December 2009 and installed ready for use before 31 December 2010.

Spending thresholds

  • There are different eligibility spending thresholds for small businesses (one that has a turnover of $2 million per year or less) and other businesses.
  • Small businesses will only need to spend a minimum of $1,000 per eligible asset in order to qualify for this special deduction. Other businesses will be entitled to the same deductions if they spend a minimum of $10,000 per eligible asset.
  • Assets eligible for this allowance are new tangible depreciating assets and new expenditure on existing assets used in carrying on your business and for which you can claim a capital allowance deduction.
  • This bonus deduction is on top of the usual capital allowance (depreciation) deduction that you can claim for eligible assets.

Tip!To claim the tax break the asset must be a “new”asset not only to the person claiming the deduction but generally. Therefore, the purchase of a demonstration model car may not qualify. If in doubt, seek advice!

Getting ready for your tax return

Before looking at some key tax-time issues for you to consider when preparing your 2009-10 return, it’s important to recap briefly on some important basics for your tax return preparation.

Tax planning basics

Tax planning is something you should be looking at regularly throughout the year. The reality, however, is that most of us tend only to look at it about now. Whilst there is no magic formula for the ‘best’ tax planning strategies, good planning practice aims to:

  • Cover the basics – such as including all your assessable income and maximising all the tax deductions to which you are entitled; and
  • Look at opportunities to improve your tax situation – this depends on your particular circumstances but may include things like ensuring any capital gains are offset with any available capital losses or maximising your superannuation contributions for the year.

Caution!Be wary – you don’t want to breach the general anti-avoidance provisions! For example, “wash”arrangements (ie the sale and purchase of the same assets, or substantially the same asset, within a short period of time) which are designed to give rise to losses to offset gains or other assessable income may fall foul of the general anti-avoidance provisions.

Keeping proper records

It goes without saying that this is essential and is where a lot of problems start if not done properly. To get motivated, some people find it helpful to approach record keeping as if your business could be audited by the ATO at any time. Here are some tips to help you:

  • Generally you should keep your records for five years.

Warning!Some records need to be kept for longer than 5 years.

For example, if a capital asset is sold – records should be kept for 5 years after the sale.

Similarly, if depreciation deductions are being claimed in respect of an asset, records should be kept until 5 years after the last claim for depreciation deductions.

  • You will need records like bank statements, cheque butts, deposit slips, cashbooks, and accounting records (e.g. your general ledger, trial balance, and preliminary profit and loss statement and balance sheet).
  • Watch out for some types of expenses that need particular records (e.g. motor vehicle log books, diaries for travel expenses).

Tip!It makes things a lot easier if you can keep an up-to-date business assets’ register that lists all plant, equipment, furniture, fittings, other assets, including all items bought, sold & disposed of during the year.

Key tax-time issues

Maximise your deductions now

One of the more popular strategies to legitimately maximise your deductions is by prepaying some items of your business expenditure before 30 June.

Before you prepay any business expenses, you should be aware that there are some rules that may affect your entitlement to claim a deduction for prepaid business expenses (eg, you may have to apportion your deduction over more than one tax year).

Common Prepayments!Commonly prepaid business items include rent, lease payments, interest, audit and accounting fees, repairs and maintenance, and business related subscriptions.

Check your bad debts now

This is a real issue in the current economic climate and one that the ATO always takes a close look at.

If your business has a debt that has already been brought to account as assessable income and you can’t collect that debt, you want to make sure you don’t end up paying tax on income you can’t collect.

The way you do this is to claim a deduction for this debt, where such a debt is ‘bad’ and is written off in your accounts before 30 June.

Tip!A debt is likely to be considered as ‘bad’ when you have made an effort to collect it, there is littlelikelihood that you will ever be successful in collecting it and you have abandoned any debt recovery action.

Keep an eye on your business losses

Has your business received income from more than one activity during the year and one (or more) of these activities made a loss?

This is another area that increases in importance in an economic downturn.

You may be able to reduce your overall taxable income by offsetting this loss (or losses) against profits from your other business activities during this year.

You should be aware that if you carry on business alone or in partnership, there are some special “commerciality tests” that your business will need to satisfy so you can do this.

Tip!If you have started up a new business venture during the year which has made a loss, not uncommon in the early stages of a new venture, you will need to find out whether these rules let you claim this loss against your other income.

Watch out for GST traps

It’s not hard to make a mistake keeping track of and working out your business GST reporting obligations, payments and refunds.

Here are some common traps to avoid.

  • Be careful not to understate the total value of goods and services supplied.
  • Make sure you are not overstating your entitlement to input tax credits.
  • Make sure you report supplies and purchases in the correct period.
  • Classify your supplies correctly – be particularly careful if you think a supply is GST-free.

Value your trading stock at 30 June

You’ll need to value your closing stock on hand and work-in-progress at 30 June. Resist the temptation to guess – this is a common mistake that businesses make!

When you value your trading stock, clearly identify which valuation method you use –cost, replacement, market value (or less if the stock is obsolete).

Issue employees payment summaries

As a general rule, you are required to give your employees their payment summaries (“group certificates” in the old language) on or before 14 July 2009.

Tip!Where the total taxable value of reportable fringe benefits for an employee is more than $2,000 for the current FBT year, you will have to disclose this value (grossed-up) on the employee’s payment summary.

I am text block. Click edit button to change this text. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo.

DISCLAIMERTaxwise® News is distributed quarterly by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

Read more

Taxwise Individual News – Jun 2009

IN THIS ISSUE

Personal tax rates

The following changes have been made to the individual tax rates (the changes are in bold):

Current

Taxable income ($)Rate (%)
0 – 6000 0
6,001 – 34,00015
34,001 – 80,00030
80,001 – 180,00040
180,001 +45

From 1 July 2009

Taxable income ($)Rate (%)
0 – 6000 0
6,001 – 35,00015
35,001 – 80,00030
80,001 – 180,00038
180,001 +45

More for low income earners

From 1 July 2009: LITO will be increased from $1,200 to $1,350. If you’re eligible for the full LITO, you will not pay tax until your taxable income exceeds $15,000.

Medicare levy threshold

With effect from 1 July 2008 (ie for the 2008/09 income tax year), the Medicare levy low income thresholds have been increased to:

  • $17,794 for individuals;
  • $30,025 for individuals in families; and
  • $25,299 for pensioners below Age Pension age

In addition to the key changes outlined above, the following changes were also announced as part of the Budget.

Superannuation – concessional contributions caps

A super contributions cap is the maximum amount you can contribute to super without being liable to excess contributions tax.

Concessional contributions are sometimes known as “before-tax” contributions and include:

  • Contributions made by an employer for an employee, including contributions made under a salary sacrifice arrangement; and
  • Personal contributions that are claimed as a tax deduction (where the person is eligible to claim).

The Government has announced that it will reduce the concessional contributions cap to $25,000 per annum (indexed) reduced from $50,000, with effect from the 2009-10 financial year.

The transitional concessional contributions cap (applicable to individuals aged 50 and over for the 2009-10, 2010-11 and 2011-12 financial years) will be reduced to $50,000 per annum from $100,000.

Top!Top up your super before these changes kick in on 1 July 2009.

Australians working overseas

The Government has announced its intention to remove the income tax exemption for foreign employment income, with effect from 1 July 2009. A limited exemption will remain for certain specified aid, charity and government workers.

Currently, foreign employment income earned by Australians working overseas for a continuous period of 91 days or more is exempt from income tax.

Australians working overseas will need to consider the following issues:

  • Are they still Australian “tax” residents;
  • Will their foreign income now be taxable in Australia;
  • Will they be entitled to foreign tax offsets for any tax paid overseas; and
  • Will there be any fringe benefits tax or PAYG implications?

Tip!If you are an Australian resident working overseas,you should seek advice regarding whether these changes will affect you!

Private Health Insurance Rebate

From 1 July 2010, the Government intends to introduce three new tiers for the private health insurance rebate (PHI rebate). The following table shows the projected PHI rebate and Medicare levy surcharge.

Tier 1Tier 2Tier 3
Singles$75,001 – $90,000$90,001 – $120,000$120,001+
Families$150,001 – $180,000$180,001 – $240,000$240,001+
Medicare levy surcharge1.00%1.25%1.50%
PHI rebate
< 65 years20%10%nil
65 to 69 years25%15%nil
≥ 70 years30%20%nil

Tightening access to non commercial business losses

The Government has announced that it will tighten the application of the rules on the use of non commercial losses to prevent high income individuals from offsetting excess deductions from non commercial business activities against salary and other income.

The new rules will only apply to taxpayers with an adjusted taxable income of over $250,000.

A question to ask!Do you have losses from a non commercial business activity (e.g. a hobby farm)? If so, these amendments could affect you!

Employee Share Schemes

The Government has announced its intention to amend the employee share scheme provisions. The new measures, if implemented, will apply to shares and options acquired after 12 May 2009.

Under the proposed changes, any discounts provided on shares or rights will be taxable in the income year the shares or rights are acquired (i.e. the option for tax deferral will be removed).

Following its announcement, the Government has agreed to further consultation before amending these rules. This consultation process is currently underway.

Tip!If you are going to receive shares or options underan employee share scheme, you should seek advice regarding the possible changes to the employee share scheme rules.

The 2008-09 year (1 July 2008 to 30 June 2009) is the first year you may be entitled to claim the Education Tax Refund (ETR).

You may be able to claim the ETR for eligible education expenses you incur while your child attends primary or secondary school.

It is also possible for independent students to claim the ETR to help them meet the cost of primary and secondary school education.

Who's eligible?

Families, independent students and approved care organisations can claim 50% of their eligible educational expenses if:

  • They received family tax benefit (FTB) Part A for the child; or
  • A payment was made for the child that stopped them from receiving FTB Part A for that child.

What can I claim?

The maximum you can claim is 50% of eligible expenses up to:

  • $750 for each eligible child in primary school – that is, a refund of up to $375.
  • $1,500 for each eligible child in secondary school – that is, a refund of up to $750.

If your expenses exceed your refund limit for the year, any excess can go towards your following year’s refund claim, as long as you are still eligible.

What’s an eligible education expense?

Eligible expenses include the purchase, lease, hire or hire-purchase costs, repairs and running costs of:

  • Laptops, home computers and associated costs
  • Computer-related equipment such as printers, USB flash drives, as well as disability aids to assist in the use of computer equipment for students with special needs
  • Home internet connections, including the costs of establishing and maintaining them
  • Computer software for educational use
  • Word processing, spreadsheet, database and presentation software, internet filters and antivirus software
  • School textbooks and other paper-based school learning material, including prescribed textbooks, associated learning materials, study guides and stationery
  • Prescribed trade tools – for example, tools required to complete a school-based apprenticeship.

Education expenses that are not eligible include:

  • School fees and school uniform expenses
  • Student attendance at school-based extra curricular activities such as excursions and camps
  • Tutoring costs and school subject levies
  • Sporting equipment and musical instruments
  • Building levies and donations
  • Library book fees and school photos
  • Tuck shop expenses
  • Waiting list fees and transport
  • Computer games and consoles.

How do I claim the ETR?

You claim the ETR in your tax return. If you don’t have to lodge a tax return, you can still claim the ETR on a special claim form provided by the ATO.

From 1 July 2009, changes to income tests will mean changes to the way you work out your income for some government benefits and obligations administered by the ATO and other government organisations.

Three new income tests will be used when calculating your tax offsets and obligations such as:

  • Your rebate income; and
  • Your income for surcharge purposes.

Several other income tests will also be amended to include new items such as:

  • Higher Education Loan Repayment and Student Financial Supplement Scheme Repayments;
  • Superannuation income tests; and
  • Mature age workers tax offset.

As part of the changes, two new items will be included in your income for income testing purposes:

  • Your reportable super contributions; and
  • Your total net investment losses (e.g. from rental properties, shares, managed accounts and the like).

Tip!The changes do not change the income thresholds or the way we work out your assessable or taxable income. However, they may affect the amount of tax you are liable to pay as you may no longer receive a tax offset.

With 30 June 2009 fast approaching, it’s time to get serious about looking at what shape your tax affairs are in so you are prepared for this year’s tax return.

Four step guide to return preparation

Step 1: Get your records straight

To help prepare your tax return so you can be confident that it accurately reflects your optimum tax position, the starting point is assembling all your tax records. You will need to put together all the relevant records, which will include things like evidence of:

  • Your income (e.g. Payment Summaries for your salary and wages, dividend and interest income statements, rental property income, and any information on the sale of any of your assets during the year like the sale of an investment property or shares); and
  • Your allowable deductions (e.g. invoices, receipts of expenditure).

WORK RELATED DEDUCTIONSIf you are going to claim more than a total of $300worth of work-related deductions, you will need to be able to substantiate how you worked out the fullamount. If the total amount of your work related expenses is $300 or less, you don’t need written evidence to prove your claim – but the ATO can still ask you how you worked it out!

Step 2: Identify your assessable income

Keep in mind that your total assessable income could well be more than just your salary. If you have investment income (e.g. interest or dividends) or cash income (e.g. tips and gratuities), make sure you keep a record of them and let us know about them.

If you’re not sure whether some income you have received is taxable, it’s best to tell us about it so we can work out the correct tax treatment for you. Here is a checklist of some of the more common types of assessable income:

  • Salary and wages
  • Tips, bonuses and gratuities
  • Interest income
  • Dividends
  • Allowances provided by your employer
  • Pensions or annuities
  • Lump sum payments
  • Capital gains on any asset sales during the year.

Step 3: Maximise your tax deductions

As an employee, you may be able to claim a range of work related expenses, as well as some non-work related items like donations of more than $2 to an approved charity.

Here is a checklist of some of the more common work-related deductions:

  • Special work clothing
  • Subscriptions and union dues
  • Self education expenses relevant to your current employment
  • Work-related travel expenses
  • Home office expenses.

Step 4: Make the most of tax offsets

As with previous years, the ATO is still finding that taxpayers are not taking advantage of a number of rebates (now called “tax offsets”) and other concessions.

Tax offsets can reduce any tax you may have to pay on your taxable income and can in some instances even result in a refund.

Make sure you get advice to ensure you are not overlooking an offset that may be of benefit to you (such as the medical expenses offset).

Consider some forward planning

This is also the time of year when you should be considering some forward planning in readiness for the next tax year. Given the changes to the income tests applying from 1 July 2009, it would be prudent for you to review your current salary packaging arrangements with your employer now in readiness for the new financial year.

The Global Financial Crisis does not seen to have dampened growth of SMSF as taxpayers seek the comfort of being able to control the management of their superannuation funds themselves and not be at the mercy of the Retail Super Fund Managers. If you are interested in setting up your own SMSF please contact our office. We currently manage the accounts for over a hundred SMSF.

DISCLAIMERTaxwise® News is distributed quarterly by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult their tax adviser for advice on specific matters.

Read more