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7 June 2016

2016 End of Financial Year Newsletter

 

Significant tax changes

Tax planning and other items to consider before 30 June 2016 

 
  • Tax rates 2015/16 and 2016/17
  • Simplified depreciation for small business      
  • Temporary budget repair levy
  • Accelerated depreciation for primary producers
  • Company tax cuts for small business
  • Immediate deductions for start up costs
  • Small business income tax offset
  • Net medical expenses tax offset phase out              
  • First home savers accounts abolished
  • Exploration Development Incentive   
  • Increasing access to company losses
  • Motor Vehicle Expense Deduction calculation methods   

 

                           
  • Key budget changes
  • Depreciable assets
  • Superannuation Guarantee Charge (SGC)
  • Superannuation contributions by employers
  • Personal superannuation contributions
  • Undeducted (non-concessional) superannuation contributions
  • SuperStream
  • 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

 
  • 2016/2017 Federal Budget highlights impacting areas including: 

        -  Superannuation

        -  Small business

        -  Companies

        -  Individuals     

        NOTE: these measures are not yet legislation or law 

 

 

SIGNIFICANT TAX CHANGES AND ISSUES

Tax Rates - 2015/16

Taxable income Tax on this income  
 $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 
 

Tax Rates - 2016/17

New rates proposed in budget:

Taxable income  Tax on this income 
$0 - $18,200 Nil
$18,201 - $37,000 Nil + 19% of excess over $18,200
$37,001 - $87,000 $3,572 + 32.5% of excess over $37,000
$80,001 - $180,000 $19,822 + 37% of excess over $87,000
$180,000 + $54,232 + 45% of excess over $180,000 

Existing rates are as per 2015/16 year.

Simplified depreciation for small business

Small businesses can immediately deduct the business portion of most assets if they cost less than $20,000 (net of GST) and were purchased between 7:30pm on 12 May 2015 and 30 June 2017.  They can claim the deduction through their tax return.

 

They can also immediately deduct the balance in the small business pool if it is less than $20,000 at the end of an income year that ends on or after 12 May 2015 to 30 June 2017 (including an existing pool).

See also:

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.

Accelerated depreciation for primary producers

From 12 May 2015, primary producers can immediately deduct the costs of:

  • fencing – previously deducted over a period up to 30 years
  • water facilities – previously deducted over three years.

They can also deduct the cost of fodder storage assets over three years, instead of over a period up to 50 years.

See also:

Company tax cuts for small business

The small business company tax rate reduced from 30% to 28.5% for income years commencing on or after 1 July 2015. This lower rate also applies to small businesses that are corporate unit trusts and public trading trusts.

The company tax rate remains at 30% for all other companies that are not small business entities.

See also:

Immediate deduction for start up costs

From 1 July 2015, small businesses can immediately deduct certain start-up expenses, including costs associated with raising capital.

See also:

Small business income tax offset

From 2015–16, an individual is entitled to a tax offset on the tax payable on their share of net small business income earned by a sole trader, partnership or trust that is a small business entity.

Sole traders, partnerships and trusts that are small business entities need to work out their net small business income as well as the partner's and beneficiary's share of that income.

See also:

Net medical expenses tax offset phase out

From 1 July 2015, the offset can only be claimed by taxpayers with net expenses for disability aids, attendant care or aged care. The offset is income tested.

The offset will be abolished from 1 July 2019.

See also:

First home savers accounts abolished

First home saver accounts (FHSA) were abolished on 1 July 2015 and became ordinary savings accounts.

 

Account holders must include earnings in their tax returns. Account providers don't pay tax on FHSA earnings for any period after 30 June 2015.

 

See also:

Exploration Development Incentive 

 

The Exploration Development Incentive (EDI) encourages shareholder investment in small exploration companies undertaking greenfields mineral exploration in Australia.

The scheme enables eligible exploration companies to give up a portion of their tax losses from greenfields exploration to create and issue exploration credits to their shareholders.

Certain Australian resident investors are entitled to a refundable tax offset for the exploration credits that they receive.

See also:

Increasing access to company losses 

 

At the time of publishing, this had not become law.

On 7 December 2015, the government announced, as part of its National Innovation and Science agenda, that the current 'same business test' for company losses will be relaxed to allow businesses to access past year losses when they have entered into new transactions or business activities.

To give effect to this, a new 'predominately similar business test' will be introduced. Under this test companies will be able to access losses where their business is similar in regard to:

  • the extent to which the company generates assessable income from the same assets and sources
  • whether any changes to the business are changes that would reasonably be expected to have been made to a similarly placed business.

This measure is expected to take effect from 1 July 2015.

See also:

Motor vehicle expense deduction calculation methods

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 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.

 

KEY BUDGET CHANGES

The 2016/17 Budget changes - not yet legislation or law

 

The 2016-17 year budget handed down by the Treasurer on 3 May 2016 offers opportunity and benefits for business, challenges and some opportunities in the superannuation area, and some benefits for individuals and families.

 

However, as the budget is neither legislation nor law at this point, the implementation of these measures will depend on the outcomes in the lower and upper houses of Parliament in the upcoming federal election on 2 July 2016.

 

The main points to note from the budget include the following:

 

Small business

  • The small business entity turnover threshold will be increased from $2m to $10m from 1 July 2016 for the purposes of accessing certain existing income tax concessions (including the $20,000 asset write off).  The increased threshold will not apply for the purposes of accessing existing small business capital gains tax concessions.
  • The unincorporated small business tax discount will be increased in phases over 10 years from the current 5% to 16%, first increasing to 8% on 1 July 2016. The current cap of $1,000 per individual for each income year will be retained.

Other enterprises

  • The company tax rate will be progressively reduced to 25% over 10 years.
  • Tax incentives for investing in early-stage innovative companies are to be expanded.
  • Funding arrangements to attract more venture capital investment will be expanded.
  • A new tax and regulatory framework will be introduced for two new types of collective investment vehicles.

Superannuation

  • The threshold at which high income earners pay additional contributions tax will be lowered to $250,000 from 1 July 2017. The annual cap on concessional superannuation contributions will also be reduced to $25,000.
  • The tax exemption on earnings of assets supporting Transition to Retirement Income Streams will be removed from 1 July 2017.
  • A lifetime non-concessional contributions cap of $500,000 will be introduced effective 3 May 2016.
  • The current restrictions on people aged 65 to 74 making superannuation contributions for their retirement will be removed from 1 July 2017. 
  • Individuals with a superannuation balance less than $500,000 will be allowed to make additional concessional contributions where they have not reached their concessional contributions cap in previous years, with effect from 1 July 2017.
  • From 1 July 2017 all individuals up to age 75 will be allowed to claim an income tax deduction for personal superannuation contributions. 
  • A low income superannuation tax offset (LISTO) will be introduced to reduce tax on superannuation contributions for low income earners from 1 July 2017. 
  • A balance cap of $1.6m on the total amount of accumulated superannuation an individual can transfer into the tax-free retirement phase will be introduced from 1 July 2017. 
  • The anti-detriment provision in respect of death benefits from superannuation will be removed from 1 July 2017.

 

Individuals and families

  • As detailed in the tax rate tables above, the threshold at which the 37% marginal tax rate for individuals commences will increase from taxable incomes of $80,000 to $87,000 from 1 July 2016.
  • The low-income thresholds for the Medicare levy and surcharge will increase from the 2015/16 income year.

A comprehensive list of the changes announced and their full details are available in our budget newsletter.

 

TAX PLANNING AND OTHER ITEMS - TO CONSIDER BEFORE 30 JUNE 2016

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. 

 

Key budget changes

 

As mentioned above, the measures announced in the 2016-17 handed down recently are not yet law. However, it would appear to be fair to say that they should be considered in the lead-up to 30 June to ensure the best chance of achieving the optimal tax position.

 

To this end, the following items include details of issues that should be considered in relation to the same where applicable.

 

Please note that we will be in touch with you regarding this as part of our normal pre 30 June tax planning discussions, but please contact us if you have any specific queries in the meantime.


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. 

Under the budget the small business entity turnover threshold will be increased from $2m to $10m from 1 July 2016 for the purposes of accessing certain existing income tax concessions, including the $20,000 asset write off. This may mean it may be prudent for businesses with a turnover between $2m and $10m in the 2016 and 2017 years to hold off on planned pre 30 June 2016 capital expenditure items not exceeding $20,000 until after 30 June.

 

Otherwise, 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 in the 2017 year.  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 2016 year be made by 30 June 2016, in order to claim a tax deduction in the 2016 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 (non-concessional) 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 (non-concessional) superannuation contributions

 

The recent budget announced significant changes in the area of undeducted superannuation contributions, specifically the introduction of a lifetime non-concessional contributions cap of $500,000 effective 3 May 2016.

 

Prior to this the non-concessional contribution cap for the 2016 and future years was  $180,000. This means that under the 3 year bring forward rule, a total of $540,000 could have been contributed in the 2016 year (if the contributions for the 2016 and 2017 years have not already been brought forward and claimed in the 2015 year at $150,000 pa). This will 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, depending on the budget measures ultimately becoming law.

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.

 

SuperStream

 

SuperStream is a standard for processing superannuation data and payments electronically. It must be used by:

Under SuperStream, you need to pay super contributions for your employees electronically (EFT or BPAY) and send the associated data electronically.  The data is in a standard format so it can be transmitted consistently across the super system – between employers, funds, service providers and the ATO. It's linked to the payment by a unique payment reference number.  This means you can make all your contributions in a single transaction, even if they're going to multiple super funds.

Small employers (19 or fewer employees) must meet the SuperStream standard by 30 June 2016. Larger employers should have been using SuperStream since 31 October 2015.

Next steps:

See also:

Please note that you don't need to use SuperStream if you are making contributions to your own self managed superannuation fund.

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, especially bearing in mind the potential reduction in small business and company tax rates applicable in the 2017 income year as noted above.

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 potentially reduced small business and company tax rate in the 2017 year ay make this even more beneficial for the current 2015-16 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 2016 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.

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 2017 financial year.

Clients who have realised capital gains in the 2016 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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