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5 June 2015

2015 End of Financial Year Newsletter

 

Significant tax changes and issues

Tax planning items to consider before 30 June 2015 

 
  • Tax rates 2014/15 and 2015/16
  • Medicare levy              
  • Temporary budget repair levy
  • Medical Expense Offset eligibility          
  • Annual PAYG witholding reconciliation
  • Reportable fringe benefits
  • Self managed superannuation funds
  • Choice of superannuation fund               
  • Taxable payments annual report
  • Concessions for small businesses - "small business entities"   
  • Tax offset and Government benefit eligibility

 

                           
  • Depreciable assets
  • Superannuation guarantee charge (SGC)
  • Superannuation contributions by employers
  • Personal superannuation contributions
  • Undeducted superannuation contributions
  • Bonuses
  • Motor vehicles
  • Work in progress/billings
  • Interest expense
  • Bad debts
  • Trading stock
  • Timing of payments and receipts
  • Wages to children
  • Foreign income
  • Landlords beware
  • Donations
  • Net medical expenditure rebate
  • Unrealised exchange gains/losses
  • Capital gains tax (CGT)              
  • Shareholder/beneficiary loans
  • Deferring termination payment
  • Transition to retirement & salary sacrifice

Key budget changes

 
  • Budget changes impacting from 1 July 2014:

-         Superannuation

-         Companies & trusts

-         Fringe benefits tax     

  • Budget changes impacting after 1 July 2015 

 

 

SIGNIFICANT TAX CHANGES AND ISSUES

Tax Rates - 2014/15 and 2015/16

Taxable income                       Tax payable                                                
 $0 - $18,200  Nil
 $18,201 - $37,000  Nil + 19% of excess over $18,200
 $37,001 - $80,000  $3,572 + 32.5% of excess over $37,000
 $80,001 - $180,000  $17,547 + 37% of excess over $80,000
 $180,000 +  $54,547 + 45% of excess over $180,000


Medicare Levy

From 1 July 2014 the Medicare levy increased from 1.5% to 2%.  From 1 July 2014, the Medicare levy low income thresholds are $20,896 for individuals and an increased $35,261 for families, with an additional $3,238 for each dependent child or student.

Temporary Budget Repair Levy

From 1 July 2014 until 30 June 2017 the government will apply a three year temporary levy on individuals with taxable incomes above $180,000. A levy of 2% will be charged on incomes in excess of $180,000.

Medical Expense Offset eligibility

To be eligible to claim the offset in 2014-15, you need to have received the offset in your 2013-14 income tax assessment.  The final year you can claim is 2014-15, unless you have medical expenses relating to disability aids, attendant care or aged care - in this case, you can claim the tax offset for these expenses up to the 2018-19 income tax year.

Annual PAYG Withholding Reconciliation

Employers need to lodge their annual PAYG payment summary statement for the 2015 financial year with the Taxation Office by 14 August 2015.

PAYG payment summaries (formerly called "group certificates") should be provided to all employees by 14 July 2015.  Please note that summaries should also be prepared and issued to employees who left before 1 July 2014 but received reportable fringe benefits after 31 March 2014.

Reportable Employer Superannuation Contributions (RESC) are amounts where the employee has influenced the rate or amount contributed and which exceed the 9.5% super guarantee requirement.  The excess amount must be declared separately on the PAYG summary for each employee.

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 2015, a schedule of the reportable benefits has been provided to you.

Self Managed Superannuation Funds

New legislation now allows the ATO to charge large penalties to Super Funds where there has been a contravention so we highly recommend that all 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, an employer now has 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. 
 

Taxable Payments Annual Report

 

A reminder that businesses in the building and construction industry need to report the total payments they make to each contractor for building and construction services each year using the annual report form from the ATO.

 

The Taxable payments annual report is due 28 August 2015 for payments made in the 2014-15 financial year.

 

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.  Capital Gains Tax (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

 

Some major changes to tax offsets as below:

 

  • From 1 July 2012, a means test has been introduced for the net medical expenses tax offset.  In the 2014-15 year, singles with adjusted taxable income greater than $88,000 or families with greater than $176,000 will only be able to claim a reimbursement of 10% for eligible out of pocket expenses incurred in excess of $5,100
  • From 1 July 2014, the mature age worker tax offset (MAWTO) and dependent spouse tax offset will be abolished. Instead, the government has introduced a seniors employment incentive payment called Restart to support mature age job seekers re-entering the workforce. From 1 July 2014, a payment of up to $10,000 will be available to employers who hire a mature aged job seeker, aged 50 years or over who has been receiving income support for at least six months

 

Please note in relation to the items above, the adjusted taxable income takes into account 'reportable employer super contributions' which are detailed on the PAYG payment summary.

Reportable employer super contributions are those contributions made on behalf of an employee where the following applies:

  • the employee influenced the rate or amount of super you contribute for them; and,
  • the contributions are additional to the compulsory contributions required to be made 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

 

All reportable employer super contributions made on behalf of an employee must be included on their payment summary (formerly group certificate) in the year it relates to. I.e. June 2015 super payments not paid until July 20145will still be included.  The employee must then copy this figure from their payment summary to their income tax return.

 

OTHER KEY BUDGET CHANGES

Budget changes impacting from 1 July 2014

 

The government has not yet removed the 10% discount applying to the up-front voluntary payments made under the Higher Education Loan Program (HELP) and the 5% bonus on voluntary payments to the ATO of $500 or more.

 

Currently, the HELP debt repayment income threshold is $51,309. This has been increased to $54,345 from 1 July 2014 and will be further increased to $54,126 from 1 July 2015.

 

Superannuation

Any excess non-concessional superannuation contributions made after 1 July 2013 that breaches the cap will be able to be withdrawn and included in the individual's taxable income with no excess contributions tax payable.

 

The concessional contribution cap for 2014-15 and 2015-16 is $30,000 and $35,000 for those aged 49 years and over on 30 June of the previous year.

 

The non-concessional contribution cap has increased in 2014-15 from $150,000 to $180,000. This means that under the 3 year bring forward rule, a total of $540,000 could be contributed in the 2015 income year (if the contributions for the 2015 and 2016 years have not already been brought forward and claimed in the 2014 year at $150,000 pa).

 

The co-contribution matching rate has a maximum co-contribution entitlement of $500 with the lower income threshold at $34,488 and the higher threshold at $49,488 in 2014-15 then $35,454 and $50,454 in 2015-16   

 

The superannuation guarantee rate of 9.5% will remain at this level until 30 June 2021 

 

Financial year  Super Guarantee charge percentage 
 2014/15 - 2020/21    9.50%
 2021/22  10.00%
 2022/23  10.50%
 2023/24  11.00%
 2025/25  11.50%
 2025/26  12.00%

 Companies & Trusts

The threshold below which small businesses can claim an immediate deduction for the cost of assets will be temporarily increased from $1,000 to $20,000.  The rules preventing small businesses from re-entering the simplified depreciation regime for five years after opting not to use it will also be temporarily suspended.  From 1 July 2017, the $20,000 threshold for the immediate deduction of assets and the value of the pool will revert to $1,000.

Start-ups will be able to claim an immediate deduction for professional expenses associated with starting a business from the 2015-16 income tax year.

Fringe Benefits Tax

The fringe benefits tax exemption for portable electronic devices used primarily for work purposes will be expanded from 1 April 2016. Small businesses that provide their employees with more than one qualifying work-related portable electronic device will be able to access the FBT exemption even if the additional items have substantially similar functions as the first device.

 

Budget changes impacting after 1 July 2015

The tax rate for companies that qualify as a small business entity will be reduced by 1.5 percentage points (i.e. from 30% to 28.5%) from the 2015-16 income year.  A 5% tax discount (capped to a maximum value of $1,000) for individual taxpayers with business income from an unincorporated business with an aggregated annual turnover of less than $2m will also be introduced from the 2015-16 income year.

 

Capital Gains Tax relief will be available to small business for a CGT liability arising from the alteration of the legal structure from the 2016-17 income year.

 

The methods of calculating work-related car expense deductions will be modernised from the 2015-16 income year.  The "12% of original value" method and the "one-third of actual expenses" method, which are used by less than 2% of those who claim work-related car expenses, will be removed.  The "cents-per-kilometre" method will be modernised by replacing the three current rates based on engine size with one rate set at 66 cents per kilometre to apply for all motor vehicles, with the Commissioner responsible for updating the rate in following years.  The "logbook" method of calculating expenses will be retained.  These changes will not affect leasing and salary sacrifice arrangements.

 

A new Child Care Subsidy will be introduced from 1 July 2017 which will support families where both parents work.  Families meeting the activity test with annual incomes up to $60,000 will be eligible for a subsidy of 85% of the actual fee paid, up to an hourly fee cap.  The subsidy will taper to 50% for eligible families with annual incomes of $165,000.  The Child Care Subsidy will have no annual cap for families with annual incomes below $180,000.  For families with annual incomes of $180,000 and above, the Child Care Subsidy will be capped at $10,000 per child per year.  The Child Care Subsidy will replace the current child care fee assistance provided by the Child Care Benefit and Child Care Rebate.  Accordingly, the existing Child Care Benefit and Child Care Rebate will be abolished from 1 July 2017.

 

Families will no longer be eligible for subsidised child care or the Family Tax Benefit Part A end-of-year supplement unless their child is up-to-date with all childhood immunisations.  Children will have to fully meet immunisation requirements before their family can access certain government payments from 1 January 2016.

 

The ability for individuals to access government assistance in the form of the existing Parental Leave Pay (PLP) scheme in addition to any employer provided parental leave entitlements, will be removed from 1 July 2016.

 

From 1 July 2015, the First Home Saver Accounts scheme will be abolished. Account holders will be able to withdraw their account balances without restrictions from 1 July 2015. Once the scheme is abolished, the accounts will be treated like any other account held with the provider.

 

From 1 July 2017, the qualifying age for Age Pension will increase from 65 years to 65 and a half years. The qualifying age will then rise by six months every two years, reaching 67 by 1 July 2023. See table below.
      

 

Date of birth

Qualifying age at

 1 July 1952 to 31 December 1953                

 65 years and 6 months

 1 January 1954 to 30 June 1955

 66 years

 1 July 1955 to 31 December 1956

 66 years and 6 months

 1 January 1957 to 30 June 1958

 67 years

 1 July 1958 to 31 December 1959

 67 years and 6 months

 1 January 1960 to 30 June 1961

 68 years

 1 July 1961 to 31 December 1962

 68 years and 6 months

 1 January 1963 to 30 June 1964

 69 years

 1 July 1964 to 31 December 1965

 69 years and 6 months

 1 January 1966 and later

 70 years


From 1 July 2015, the income limit for Family Tax Benefit (FTB) Part B will decrease from $150,000 p.a. to $100,000 p.a. This will also reduce the income threshold for Dependent (Invalid and Carer) Tax Offset to $100,000. The FTB Part B payment will also be limited to families whose youngest child is less than 6 years old, with a transitional arrangement for those with children 6 years on 30 June 2015 to still be eligible for payments for two years.
 


TAX PLANNING - SUGGESTIONS TO CONSIDER BEFORE 30 JUNE 2015

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 businesses will be entitled to an immediate deduction where they acquire depreciating assets costing less than $20,000 between 7.30pm 12 May 2015 and 30 June 2017.  Any assets over $20,000 can be pooled and depreciated at the same rate.  These pooled assets will be depreciated at 15% in the first income year and 30% per year thereafter.  If the value of the pool is below $20,000 it can be immediately deducted until the end of June 2017.  Only a small number of assets will not be eligible (such as horticultural plants and in-house software).


Superannuation Guarantee Charge (SGC)

The superannuation guarantee requires employers to contribute 9.50% 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 2015 year be made by 30 June 2015, in order to claim a tax deduction in the 2015 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, https://www.ato.gov.au/business/super-for-employers/paying-super-contributions/small-business-superannuation-clearing-house/


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 $30,000 for employees (and $35,000 for those aged 49 years or over at 30 June 2014).

 

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.  No deduction is allowed if the person is entitled to a Government co-contribution in respect of the contribution.

Self employed people are eligible to claim a full deduction for the contributions they make to superannuation until age 75.

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 $30,000 ($35,000 if over 49 years) limit is exceeded by self-employed persons, excess contributions tax will be incurred at the rates stated.


Undeducted Superannuation Contributions

The non-concessional contribution cap increased in 2014-15 from $150,000 to $180,000. This means that under the 3 year bring forward rule, a total of $540,000 could be contributed in the 2015 year (if the contributions for the 2015 and 2016 years have not already been brought forward and claimed in the 2014 year at $150,000 pa). This could have an impact on those looking at making undeducted contributions leading up to 30 June and also those nearing 65 years of age in that they may be able to contribute a higher amount into their Super Fund. 

 

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 "completely subjected" 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.

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.
If your business use proportion of your motor vehicle use is substantial, we suggest keeping a logbook. This involves keeping a logbook of all car travel for a 12 week period that is reflective of the business use to determine your business use proportion.
 

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 stocktake must be conducted as at the close of business on 30 June.  (Small business entities do not need to take a physical stocktake 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.  The reduced company tax rate for small businesses may make this even more beneficial for the current 2014-15 year.  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 $20,542 for the 2015 income year) 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.  Donations must be claimed in the income tax return of the individual whose name is on the receipt.

Net Medical Expenditure Rebate

This rebate is allowable only when you were eligible to claim the offset in the 2013/14 year and net medical expenditure exceeds a threshold of $2,218 for the year ending 30 June 2015 and you are under the relevant income thresholds as noted in the
Private Health Insurance Means Test.  The rebate is calculated on the excess of expenditure over these limits. Private health insurance premiums cannot be included in the calculation.

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 are 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 2016 financial year.

Clients who have realised capital gains in the 2015 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.


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.  Note that access to superannuation benefits for those born after 1 July 1960 is gradually being extended:

 

Date of birth Preservation age (years) 
 Before 1 July 1960  55
 1 July 1960 - 30 June 1961  56
 1 July 1961 - 30 June 1962  57
 1 July 1962 - 30 June 1963  58
 1 July 1963 - 30 June 1964  59
 After 30 June 1964  60

 

Assessable income can potentially 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.

 

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This Newsletter, of necessity, has dealt with matters of a technical nature in general terms only. Clients should contact us for detailed information on any of the items in the Newsletter. No responsibility for loss occasioned to any person acting or refraining from acting in reliance upon any material in this Newsletter can be accepted by any member or employee of the firm.

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