Tax Rates - 2010/11 and 2011/12
| $0 - $6,000 |
Nil |
| $6,001 - $37,000 |
Nil + 15% of excess over $6,000 |
| $37,001 - $80,000 |
$4,650 + 30% of excess over $37,000 |
| $80,001 - $180,000 |
$17,550 + 37% of excess over $80,000 |
| $180,001 + |
$54,550 + 45% of excess over $180,000 |
If you use a payroll software package to calculate the amount to withhold from salary and wages, please ensure your tax rates are updated even though there has been no change in the tax rates. This is to ensure the required level of PAYG withholding is withheld to cover items such as the new flood levy etc as detailed below.
Low Income Threshold
For the current 2010-11 income year, taxpayers are entitled to the low income tax offset of up to $1,500 if their taxable income is less than $67,500. The low income tax offset will continue to phase out at a rate of 4 cents in the dollar for every dollar of income over $30,000. From 1 July 2011, the Government has announced they will increase the amount of the Low Income Tax Offset (LITO) that is delivered through regular payments of salary and wages from 50% to 70% of their total entitlements (the remaining 30% is paid as a lump sum in the taxpayer’s return)
Annual PAYG Withholding Reconciliation
Employers need to lodge their annual PAYG payment summary statement for the 2011 financial year with the Taxation Office by 14 August 2011.
PAYG payment summaries (formerly called “group certificates”) should be provided to all employees by 14 July 2011. Please note that summaries should also be prepared and issued to employees who left before 1 July 2010 but received reportable fringe benefits after 31 March 2010.
Reportable Fringe Benefits
If the value of certain fringe benefits provided to an employee exceeds $2,000 (including GST) in an FBT year, the employer must record the grossed-up taxable value of those benefits on the employee’s PAYG payment summary.
This reportable fringe benefits amount needs to be reported on the employee’s income tax return. Where we have assisted with preparing the FBT return for 2011 a schedule of the reportable benefits has been provided to you.
Self Managed Superannuation Funds
For ease of accounting and audit purposes, we suggest that the expenses of a self managed superannuation fund be paid directly by the super fund. Once again we remind you that money belonging to the fund should not be used for personal or business purposes.
Payment of personal super contributions, e.g. contributions for which a member is claiming a tax deduction, should not be made directly from related entities. The related entity should transfer the funds from its bank account to the member. The member then needs to pay the contribution from their personal bank account.
Choice of Superannuation Fund
Many employees have the right to choose which superannuation fund will receive their employer superannuation guarantee contributions. Employers must give new eligible employees the Standard Choice Form. If the employee does not choose a fund, the default employer fund should be used.
Under the new superannuation system, employers now have to pass the employee’s tax file number (TFN) on to the employee’s nominated superannuation fund within 14 days of the employee quoting it or before the next contribution is made.
Concessions for Small Businesses - "Small Business Entities"
Tax concessions apply to businesses with an aggregate turnover below $2 million. For example, small businesses can report GST on a cash basis. CGT small business concessions are also available, which provide the opportunity to significantly reduce the CGT payable on the sale of your business or business assets.
Tax Offset and Government Benefit Eligibility Changes
There are eligibility tests for many tax offsets and deduction claims, including the following. (e.g. inclusion under definition of “income” of superannuation contributions, salary sacrifices and net investment losses):
- Spouse rebate
- 10% test for personal super contributions
- Mature age worker tax offset
- Senior Australians tax offset
- Pensioner tax offset
- Medicare levy surcharge (including lump sum payment in arrears) offset
- Deductions for personal super contributions
- Spouse super contributions tax offset
- Government super co-contribution scheme
- Repayment income for Higher Education Loan Program and Student Financial Supplement Scheme
These tests also take into account ‘reportable employer super contributions’ which are detailed on the PAYG payment summary.
Reportable employer super contributions are those contributions you make on behalf of an employee where the following applies:
- Your employee influenced the rate or amount of super you contribute for them; and,
- The contributions are additional to the compulsory contributions you must make under any of the following –
- Super guarantee law
- An industrial agreement
- The trust deed or governing rules of a super fund
- A federal, state or territory law
You must include all reportable employer super contributions you make on behalf of an employee on their payment summary (formerly group certificate). Your employee must then copy this figure from their payment summary to their income tax return.
KEY BUDGET CHANGES
Individuals and families
- Salary sacrificed contributions to super are now included in income testing for government benefits such as support programs for family assistance, child support, superannuation co-contributions, and financial and retirement savings assistance
- The age pension age will be gradually increased to 67 years of age. The new pension changes will apply to new pension entrants from 1 July 2017, which will mean that it applies to people who are 57 years of age or younger on July 2009.
- A Paid Parental Leave scheme is available to parents for births and adoptions that occur on or after 1 January 2011. The scheme will provide 18 weeks postnatal leave paid at the federal minimum wage (currently $569.90 per week). The choice is available to opt out of this scheme and receive the baby bonus.
- From 1 July 2012, individual taxpayers will be entitled to an optional standard deduction of $500, increasing to $1,000 from 1 July 2013.
- The medical expenses tax offset threshold will be increased from $1,500 to $2,000 with effect from 1 July 2010. The threshold will also be indexed annually, with effect from 1 July 2011.
- Money held in first home savers accounts will be able to be paid into approved mortgages where the account holder buys a home prior to the end of the four year period.
- From 1 July 2011, individuals will be entitled to a 50% discount on up to $1,000 of interest earned.
Superannuation
The co-contribution matching rate will be permanently maintained at 100% and co-contribution thresholds will be non-indexed until at least 30 June 2013.
Individuals and families
- From 1 July 2011, the flood and cyclone levy will apply to taxpayers with a taxable income over $50,000 with exemption for those affected. A 0.5% levy will apply to individuals with taxable income of between $50,001 and $100,000 in the 2011/2012 income year. Individuals with taxable income above $100,000 will pay a 0.5% levy on that part of taxable income between $50,000 and $100,000 and a 1% levy on taxable income above $100,000.
- From 1 July 2011, the dependent spouse offset will be phased out for taxpayers with a dependent spouse born on or after 1 July 1971 (40 years of age or less).
- From 1 July 2011, minors will not be able to access the low income tax offset (LITO) to reduce tax payable on their unearned income, such as dividends, interest, rent, royalties and other income from property. This will reduce the income from these sources to around $400, before tax applies at the top rates.
- From 1 July 2011, taxpayers cannot claim deductions against government assistance payments such as self-education expenses, against Youth Allowance.
- From 1 July 2010, the Medicare levy low income thresholds will increase to $18,839 for individuals and $31,789 for families. The additional amount of threshold for each dependent child or student will also increase to $2,919.
- From 1 January 2012, there will be a reduction in HECS scheme incentive to pay contributions up front from 20% to 10%. Discounts to voluntary payments made to the ATO > $500 will also be reduced from 10% to 5%
- The Entrepreneurs Tax Offset will be abolished from the 2013 income year to make way for other small business incentives.
Superannuation
- From 1 July 2011, Individuals who breach the concessional contributions cap by up to $10,000 can request that these excess contributions be refunded to them and assessed at their marginal tax rate, rather than the potentially higher rate of excess contributions tax. This is provided that it is a first time breach.
- Minimum pension payment amounts remain halved for 2010/2011, then reduced by 25% for 2011/2012 and will return to normal in 2012/2013.
- From 1 July 2012, the government has announced changes that, if passed by parliament, will permanently increase the concessional contributions cap to $50,000 for individuals who have total super balances below $500,000 and are 50 years old or over.
Companies & Trusts
- From 1 July 2012, small businesses will have access to an immediate write off for assets costing less than $5,000
- From 1 July 2012, small business companies will receive a reduction in the company tax rate from 30% to 29%.
Fringe Benefits Tax
- A single rate of 20% for the statutory method will be phased in from 10 May 2011 to determine the taxable value of car fringe benefits for new car fringe benefit contracts entered into after this date. Compared to the current statutory rates, a single rate of 20% will:
- increase the tax concession provided for vehicles driven less than 15,000 km a year;
- maintain the current tax concession provided for vehicles driven between 15,000 and 25,000 km a year; and
- decrease the tax concession provided for vehicles driven more than 25,000 km a year.
The operating cost or log book method remains unchanged and will become much more attractive for employees who undertake a significant amount of work related travel.
PAY AS YOU GO
The GDP adjustment factor for PAYG instalment taxpayers who use the GDP adjustment method will reduce from 8% (which is the rate that would apply for the 2011-12 income year under the current law) to 4% for the 2011/2012 income year. This is intended to apply for a single income year before returning to the statutory rate.
TAX PLANNING - SUGGESTIONS TO CONSIDER BEFORE 30 JUNE 2011
While taxation is a major factor affecting many decisions, it should be remembered that it is normally only one of several factors to consider. In addition, keep in mind that you may need to consider other taxes such as stamp duty, payroll tax, land tax and GST and seek advice from licensed financial planners where appropriate.
Depreciable Assets
For those businesses that are not small business entities, a review of depreciable assets should be undertaken to ensure that a deduction is claimed for items lost, stolen, destroyed or scrapped during the year.
A deduction can also be claimed for depreciable assets no longer actually used in the business. It is not necessary to physically scrap the assets.
Small business entities are entitled to “6 months of depreciation” in the year of purchase, regardless of when the item was purchased, while assets costing less than $1000 are deductible in full.
Superannuation Guarantee Charge (SGC)
The superannuation guarantee requires employers to contribute 9% of each eligible employee’s earnings base to a complying superannuation fund, and to make the superannuation contributions at least every quarter.
If employers do not:
- make their superannuation guarantee contributions by the quarterly cut-off dates (28 days after the end of the quarter),
- offer “Choice of Fund” to eligible employees within 28 days, or
- action an employee’s choice of fund within two months,
then they will need to lodge a superannuation guarantee statement and pay the superannuation guarantee charge. The superannuation guarantee charge is made up of the employee’s superannuation guarantee shortfall, nominal interest of 10% per annum and an administration fee of $20 for each employee with a shortfall. Unlike superannuation contributions, there is no tax deduction available for the superannuation guarantee charge (which will include the superannuation contribution which is being paid late). Other penalties may also apply.
To avoid the charge, we suggest that employers ensure that all superannuation contributions are paid by each quarterly cut-off date. In addition, we suggest that all contributions for the 2011 year be made by 30 June 2011, in order to claim a tax deduction in the 2011 year. We note that the date payment is made is the date the payment is received by the superannuation fund. If payment is made by cheque, it is the date of receipt of the cheque, not the date the cheque clears the bank, nor the date it is posted. If a cheque is dishonoured, it is deemed not to have been received.
It should be noted that where a contractor’s services consist mainly of labour, there may well be a requirement to pay SGC contributions for this person. If you are unsure of your requirements in this area we suggest you contact us as soon as possible for clarification.
Small businesses can now register for the superannuation clearing house. The free service will help small businesses to save time and paperwork by enabling them to pay all their employees’ superannuation to a single location in just one simple electronic transaction. For more information visit, www.medicareaustralia.gov.au/about/super/index.jsp
Superannuation Contributions by Employers
The total deductions allowable for contributions in respect of an employee, without the employee incurring excess contributions tax, are limited to the age-based limit applicable to the employee. For 2010/11, these limits are:
- Employee aged under 50: $25,000 per year
- Employee aged 50 or more: $50,000 per year
If contributions are made above the limit, the excess amount of the contribution is taxed at a further 31.5% in the employee’s hands, on top of the 15% tax paid on entry to the fund. In addition, the excess counts towards their undeducted contribution limit.
Employees wishing to “top-up” their superannuation may wish to approach their employer about “salary sacrificing”. Under an effective salary sacrifice arrangement, an employee sacrifices future salary or wages in return for the employer making superannuation contributions of an equivalent value for the employee. Salary or wages to which an employee is already entitled cannot be sacrificed, and there should be a pre-existing agreement between the employer and employee.
Now is a good time to review current salary package arrangements and it is important to ensure that they do not breach the limits stated above and that the impact of the new measures mentioned earlier in this document are considered as part of the process.
Personal Superannuation Contributions
Self-employed persons may be entitled to deductions for personal superannuation contributions, where the contributions are made to a complying superannuation fund and the person has given the fund notice of their intention to claim a deduction. The deduction may also be claimed by employees who do not receive any employer superannuation support, and persons whose employment income is less than 10% of their total assessable income and reportable fringe benefits for the year. Salary sacrificed amounts are included in the calculation of the 10% limit from 1 July 2009. No deduction is allowed if the person is entitled to a Government co-contribution in respect of the contribution.
For the 2007/08 year onwards, self employed people are eligible to claim a full deduction for the contributions they make to superannuation until age 75 (prior to the 2008 year a full tax deduction applied to the first $5,000 contributed and 75% thereafter).
If you are a contractor you should be aware that you may not be able to access a tax deduction for your superannuation contributions. Under the superannuation guarantee laws, if you are paid for your personal labour or skills, perform the work personally (not delegated) and you are not paid to achieve a result (for example, the contract is based on your time), you are considered to be an employee and not a business. As a result, any contributions you make are not tax deductible as the hirer should be making a superannuation guarantee contribution on your behalf (unless you meet the definition of an ‘eligible person’) under SIS.
To be considered ‘substantially self employed’ and therefore eligible to claim a tax deduction for super contributions, less than 10% of your assessable income including reportable fringe benefits will be from employment. It is important to note that this rule applies on a financial year basis. So, if you were employed for any part of the year, you might fail the test.
As with the employer superannuation contributions above, if the same age-based limits shown are exceeded by self-employed persons, excess contributions tax will be incurred at the rates stated.
Undeducted Superannuation Contributions
A limit of $150,000 per financial year applies to undeducted contributions. For those under 65, this limit is averaged across 3 years allowing you to bring forward three years worth of contributions ($450,000) into one year if you choose.
Any contributions above this non-concessional threshold are taxed at the top marginal tax rate of 46.5% in your hands (the fund can pay this tax).
As superannuation is not taxed when you withdraw it under the new rules (assuming you are 60 or older, and the payment is from a taxed fund), superannuation is an attractive investment vehicle. By comparison, if you were to put the money into a different investment vehicle, any income you generate from the investment would be taxed as income at your marginal tax rate. In super, your investment can grow and any gain is potentially tax free. Note however that tax is only one consideration, and advice should be taken from a licensed financial planner.
The undeducted contribution limit is available to all taxpayers eligible to contribute to superannuation at the time of contributing.
Bonuses
Bonuses for the year ended 30 June may be deductible if incurred before year end. To ensure that the bonus is deductible:
- The employer must be “completed subjected to” or “definitely committed” to paying the bonus. This should be evidenced in writing before 30 June.
- The payment should not be subject to discretion, review or confirmation at a later date.
- The amount must be determinable before year end (even if actually calculated later).
- The receivers should be told of the amount prior to year end.
Superannuation - Spouse Rebate
A spouse rebate of up to $540 applies where a taxpayer contributes to a superannuation fund for the benefit of a low income/non working spouse. The spouse must be earning less than $10,800 (including reportable fringe benefits) to get the full rebate and no rebate is available when the spouse earns more than $13,800. This is being phased out from 1 July 2011.
Motor Vehicles
All individuals who claim motor vehicle expenses for income tax purposes should ensure that they record odometer readings as at 30 June. Readings are also required at the date of sale or purchase of a vehicle.
Work in Progress/Billings
Clients who are not required to pay tax on their work-in-progress at June 30 are generally those in professions where the services cannot be billed to the client and give rise to a recoverable debt because the services agreed to be provided have not been completed. (We note that construction industry businesses are not considered to be in this category.) We suggest that those clients carefully consider their work-in-progress before billings are done for 30 June.
Interest Expense
Interest is deductible to the extent it is incurred in gaining or producing assessable income or in carrying on a business for that purpose and is not of a capital, private or domestic nature. Where a loan is taken out for two purposes, one business and one non-business, only a proportion of the interest will be deductible.
Some of the situations in which Interest may be deductible include:
- Where the money is borrowed by a partnership to repay money advanced by a partner for working capital. This rule does not extend to co-owners of income-producing assets such as rental properties.
- Where the money is borrowed to acquire shares, if it is reasonably expected that dividends will be derived from the investment . Interest will not be deductible where the shares are acquired solely for the purpose of making a capital profit on their resale.
- Where the money is borrowed by persons in business for the purpose of paying income tax, in certain circumstances.
- Where the money is borrowed to acquire units in a split property unit trust.
Note that if interest is prepaid, the prepayment rules may preclude a deduction in certain circumstances. Interest is not deductible on borrowings to finance life premiums or personal superannuation contributions.
Bad Debts
To qualify for a deduction, the book entries to write off bad debts must actually be made by 30 June, rather than at a later time (such as when the accounts are finalised). To be a bad debt, you need to have brought the income to account as assessable income, and given up all attempts to recover the debt.
An additional advantage of writing off any bad debts if you are on the accruals method for GST is that you will be able to claim back the GST remitted on the invoice originally raised.
Trading Stock
A physical stock-take must be conducted as at the close of business on 30 June. (Small business entities do not need to take a physical stock-take if the value of stock on hand does not fluctuate by more than $5,000 from year to year.)
The method of valuing trading stock on hand can be changed each year, the three basic methods being cost price, market selling value or replacement price. It is normally appropriate to value the stock at cost price, however the option of valuing certain items of stock at replacement prices to lower the overall value of stock should be considered. If this option is exercised, a specific election must be made in your income tax return in regard to those items.
Obsolete trading stock could be disposed of prior to 30 June and the resulting loss would be claimed in the current year's accounts, or alternatively an application could be made to the Commissioner for a valuation based on the "fair and reasonable" value of the trading stock.
In a manufacturing context, "cost" includes a proportion of manufacturing overheads for finished and partly manufactured goods.
Note that trading stock does not include stationery and other consumable stores, if the supply is "reasonable" to ensure the "normal continuity of operations". Such expenditure will still be deductible.
A ruling from the Tax Office indicates that packaging items may be classed as trading stock in certain situations.
Year end stock take records are very important, as the Taxation Office expects that all businesses with trading stock will be able to produce stock sheets and other relevant documents which would indicate that an actual stock take was undertaken at the year end and that the level of stock has been reported accurately.
Timing of Payments and Receipts
Clients whose returns are submitted on a “cash” basis should remember that income received up to 30 June will affect your current tax liability, while income received after 30 June will affect next year's tax liability. You may wish to delay the receipt of further income until 1 July. Generally, interest income on term deposits can be deferred if the maturity date is after 1 July.
We are aware that when the Taxation Office audits a cash basis profession, the level of banking in June and July are carefully looked at, to ensure there has been no artificial reduction in May/June.
Clients can take steps to incur expenses in this year, which might otherwise have been deductible in the following year. In each case, the work would need to be complete and an invoice received dated 30 June or earlier (and must have been paid if using the Simplified Tax System cash accounting method).
Examples would include:
- repairs to plant and equipment, premises or motor vehicles
- printing and stationery expenses (and other consumables)
- advertising expenditure
- trade gifts or donations
Bonuses due to be paid to arms-length employees will be deductible this year if the decision to pay has been made and documented prior to 1 July, and the amounts to be paid are quantified. A company resolution constitutes suitable documentation.
Small business entity taxpayers with a 3-year average group turnover of less than $2 million are entitled to a deduction where the relevant services will be wholly provided within 12 months of the date of expenditure, such as office supplies, stationary, rent, advertising, interest, preventative maintenance contracts, etc.
A possibility also exists to enter into a one-year lease before 30 June, prepaying all the lease payments (40-50% of the cost of the goods) and then financing the residual value in 12 months’ time.
Wages to Children
Salary, wages and payments for services rendered by unmarried persons who are under 18 years of age on the last day of the income year are taxed at the rates applying to adult taxpayers. You should therefore consider paying wages to children who have worked in the family business, as the income will not attract tax in their hands (provided their total income is less than $15,000) and will be a tax deduction to the business. Care should be taken to pay normal arms-length rates and to document periods worked. PAYG payment summaries are required to be prepared in these circumstances and the child may need to have a tax file number.
We note also that where the above income is accumulated by the child and invested, the income earned on the investment is also subject to tax at normal rates, rather than at the higher rates applying to "unearned income" of unmarried minors. Naturally, these funds legally belong to the child who then has complete control over them. Where the funds are invested back into a business undertaking, the Commissioner of Taxation has discretion enabling him to form an opinion on how much of the income should be taxed at normal rates. The main factors considered hinge around "real and effective conduct, and control" over the business.
Foreign income
Changes to the taxation of income earned overseas will require this income to be included in Australian tax returns for the 2010 year and onwards. You may be able to claim a tax credit for any foreign tax paid in your Australian tax return.
Landlords Beware
Rental properties are high on the ATO’s audit radar, especially with owners looking to accelerate deductions before the end of the year by way of expenditure on repairs and maintenance. Landlords need to be aware that repairs and replacements are likely to be deductible, whereas new and improved items are more likely to be capital expenditure and depreciated over time. If it’s new, bigger and brighter than what was already there, it’s likely to be capital expenditure and depreciated.
The question is, are you improving or repairing and maintaining? Repairs relate directly to wear and tear as a result of renting out the property. They generally involve a replacement or renewal of a worn out or broken part.
Replacement of an entire structure is capital. For example, replacing an entire fence is likely to be capital as opposed to repairing a few broken palings. Also, be wary of holiday homes that are rented out. If you or family members have used the holiday home throughout the year then you will need to apportion the expenditure on the property between private and investment.
Donations
Any promised tax deductible donations should be made prior to 30 June.
Net Medical Expenditure Rebate
This rebate is allowable only when net medical expenditure exceeds a threshold of $2,000 for the year ending 30 June 2011. The rebate is calculated on the excess of expenditure over these limits.
Consideration should be given to maximising the claim in one year, e.g. by delaying payment of medical expenditure until July if it appears that the threshold of $2,000 will not be reached this financial year.
Alternatively, if the threshold will be reached, outstanding medical expenditure could be paid prior to 30 June.
Expenditure for medical rebate purposes includes doctors, dentists, hospital fees, chemist prescriptions etc.
Medical expenditure incurred for cosmetic operations for which a Medicare benefit is not payable and dental services and treatment which is solely cosmetic are no longer subject to the rebate.
Unrealised Exchange Gains/Losses
Where possible and appropriate, the realisation of exchange gains should be deferred until after June 30, and foreign exchange losses crystallised prior to June 30.
Capital Gains Tax (CGT)
If assets are likely to return a profit on sale, CGT can be deferred by delaying the sale until after June 30. In addition to this, the effective rate of tax payable on the gain can be reduced to 15% by salary sacrificing the taxable portion of the gain into super. Where the gain is realised after June 30, a salary sacrifice arrangement can be put in place where the amount is sacrificed over the full 2011 financial year.
Clients who have realised capital gains in the 2011 year should ensure that expected capital losses are incurred prior to June 30. The ATO has concerns regarding “wash sales”, where the item sold at a loss is reacquired soon after.
A reminder that the normal date for both acquisition and disposal is the date of contract and not the date money is paid or received.
The capital gains tax discounting provisions (individuals, trusts and super funds) will only be available where the assets are held for greater than 12 months.
We encourage you to contact us should you be considering a significant purchase or sale to ensure that the most tax advantaged position is obtained.
Super Co-Contributions
Employees who earn less than $61,920, a year and make personal (non-deductible) superannuation contributions may be eligible for Government Super Co-contributions.
Where the eligible employee’s assessable income is $31,920 or less, the government will put in $1 for every dollar the employee puts into super, up to a maximum of $1000 a year. Where the employee’s assessable income is between $31,920 and $61,920 reduced co-contributions are available.
There are some other conditions attaching to this, so please contact us if you are considering making a payment.
Shareholder/Beneficiary Loans
Legislation effective from 4 December 1997 has the potential for loans and other payments to shareholders and beneficiaries, to be deemed as dividends/distributions to the shareholder/ beneficiary. This area is complex and advice should be sought if your company or trust has advanced loans to shareholders/beneficiaries or associates.
Deferring Termination Payment
Individuals who are nearing age 55 and who are about to receive a termination payment that is not to be rolled over into another approved fund can achieve a tax reduction by waiting until age 55. There are substantial savings on tax rates and tax free amounts for 55 year olds compared to people aged under 55.
Transition to Retirement & Salary Sacrifice
An individual who is over age 55 can access superannuation as a non-commutable income stream. Assessable income can be salary sacrificed to a level where minimal tax is paid, while at the same time accessing a low tax (tax free if over 60) pension.
Where the assessable income is low enough and at least 10% of it is generated from employee type activities or carrying on a business, a taxpayer can also make an undeducted contribution into super and qualify for the government’s co-contribution.