If you use a payroll software package to calculate the amount to withhold from salary and wages, please ensure your tax rates are updated to reflect the changes.
Low Income Threshold
For the current 2009-10 income year, taxpayers are entitled to the low income tax offset of $1,350 if their taxable income is less than $63,750. For 2010/11, this upper threshold will increase to $67,500 to accommodate the previously legislated increase in the offset to $1,500. 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.
Annual PAYG Withholding Reconciliation
Employers need to lodge their annual PAYG payment summary statement for the 2010 financial year with the Taxation Office by 14 August 2010.
PAYG payment summaries (formerly called "group certificates") should be provided to all employees by 14 July 2010. Please note that summaries should also be prepared and issued to employees who left before 1 July 2009 but received reportable fringe benefits after 31 March 2009.
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 2010 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 have been changes made to 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):
| SIGNIFICANT TAX CHANGES AND ISSUES
Tax Rates - 2009/10
| Taxable income
|| Tax payable
| $0 - $6,000
| $6,001 - $35,000
|| Nil + 15% of excess over $6,000
| $35,001 - $80,000
|| $4,350 + 30% of excess over $35,000
| $80,001 - $180,000
|| $17,850 + 38% of excess over $80,000
| $180,001 +
|| $55,850 + 45% of excess over $180,000
Tax Rates - 2010/11
| Taxable income
|| Tax payable
| $0 - $6,000
| $6,001 - $37,000
|| Nil + 15% of excess over $6,000
| $37,001 - $80,000
|| $4,650 + 30% of excess over $35,000
| $80,001 - $180,000
|| $17,550 + 37% of excess over $80,000
| $180,001 +
|| $54,550 + 45% of excess over $180,000
- 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
A new income line called 'reportable employer super contributions' will also be added to the PAYG payment summary, which will impact on employer reporting obligations..
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.
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2009/2010 budget changes (last year's Budget changes coming into effect)
From 1 July 2010
- The government plans to introduce three new "Private Health Insurance Tiers" in respect to the Medicare levy surcharge thresholds and rebate. This has been rejected by the Senate twice:
| Medicare levy surcharge thresholds
|| Tier 1
| Tier 3
|| $75,001 - $90,000
|| $90,001 - $120,000
|| $150,001 - $180,000
|| $180,001 - $240,000
| Medicare Levy Surcharge
| Private Health Insurance Rebate:
| Tier 1
| Tier 2
| Tier 3
| - Less than 65 Years
| - 65 to 69 Years
|- 70 Years or over
- Salary sacrificed contributions to super will be 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
From 2010/2011, the current Research and Development (R&D) concession will be replaced by the new R&D tax credit. The new R&D tax credit will provide a 45% refundable credit for firms with an annual turnover of less than $20m (i.e. equivalent to a 150% deduction). The credit will be available to small companies in a loss position, with no limit on the level of R&D expenditure undertaken. As a transitional measure for 2009/10, the R&D expenditure cap for the existing R&D Tax Offset will be lifted from $1million to $2million.
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 will be 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 $543.78 per week). The choice is available to opt out of this scheme and receive the baby bonus.
2010/2011 Budget Changes
Individuals and families
From 1 July 2011, individuals will be entitled to a 50% discount on up to $1,000 of interest earned.
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.
The Senior Australians tax offset regulations will be amended, with effect from 1 July 2010, to take account of the low income tax offset threshold.
The benchmark interest rate on capital protected borrowings entered into from 7:30 pm (AEST) 13 May 2008 is the Reserve Bank indicator rate for standard variable housing loans plus 1%.
The co-contribution matching rate will be permanently maintained at 100% and co-contribution thresholds will be non-indexed for the next two income years.
Companies and trusts
There will be changes to eligibility requirements for film tax offsets to provide a boost for the Australian film industry.
The IWT rate on borrowings of local subsidiaries from their overseas parents will be reduced from the current level of 10%.
The margin scheme provisions will be restructured to clarify and simplify the current provisions, with effect from 1 July 2012. The Government will also make a minor technical amendment to ensure that a valuation can be obtained for the purposes of using the margin scheme for subdivided land.
Eligible supplies of boats used for recreational purposes will be GST-free if the boats are exported from Australia within 12 months, with effect from 1 July 2011. The current limit is 60 days.
A number of minor revisions will reduce GST compliance costs for businesses involved in the domestic transport of exported and imported goods.
A large number of measures noted in the Budget were released in the Government's response to the Australia's Future Tax System report (Henry Review), including:
- A Resource Super Profits Tax (RSPT) will be introduced on 1 July 2012 at a rate of 40% on profits made from the exploitation of Australia's non-renewable resources.
- A refundable resource exploration rebate will be provided to companies, set at the prevailing company tax rate, for exploration expenditure carried out in Australia from 2011/12.
- The company tax rate will be reduced to 29% from 2013/14, and to 28% from 2014/15.
- The company tax rate for "eligible small business companies" will be reduced to 28% from 2012/13.
- The immediate write-off for assets of small businesses will be extended to assets valued at less than $5,000 from 1 July 2012.
- The superannuation guarantee charge (SGC) will be increased by annual increments until it reaches the plateau level of 12% by 2019/20:
||SG rate %
- The entitlement to the SGC will be broadened by lifting the maximum age threshold from 70 to 75 years of age.
- The concessional contributions cap will be raised to $50,000 per year for workers who are 50 and over and who have superannuation balances of under $500,000. For those with balances over $500,000 the concessional contributions cap will reduce, from $50,000 to $25,000 per year, from 1 July 2012.
- A new government superannuation contribution will be created which will pay up to $500. Under this change, those earning under $37,000 will receive a Government contribution to their super of up to $500, paid automatically. The amount payable will be 15% of SG contribution made on behalf of an employee. This is likely to commence from 1 July 2012.
- 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,
- 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 for the year ended 30 June may be deductible if incurred before yearend. To ensure that the bonus is deductible:
Superannuation - Spouse Rebate
- 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.
- 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.
- repairs to plant and equipment, premises or motor vehicles
- printing and stationery expenses (and other consumables)
- advertising expenditure
- trade gifts or donations