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2 Weeks Left to Grab Some Tax Benefits

Has your bookkeeper or accountant give you a heads-up on how you’re travelling for this financial year?

If you know how your balance sheet is shaping up, now may be the right moment to do some last minute, end of financial year shopping.

Not only do you have the opportunity to balance your books (for example, purchasing office equipment, machinery, or motor vehicles and claiming some depreciation almost immediately, or withdrawing more funds to top up your superannuation with a personal contribution), but there’s also some great bargains to be had, particularly in the auto industry, where manufacturers like Holden, Toyota, Ford, and Mitsubishi, are vying to sell you their vehicle in a super-competitive market.

At the bottom end of the market, you could drive away with a city car such as the 2013-plated Fiat for $13,000, or a 3-door Hyundai i20 for only $14,990. Toyota are offering 1% finance on their Yaris, as is Nissan on the Pulsar. And that’s just scratching the surface. If you need a work horse ute, Mitsubishi will soon be introducing a new Triton, so you may want to investigate whether it’s worth snapping up a bargain on the current model (on the downside, it’s resale value will be pushed down by the release of the new model, and it’s not as sophisticated as many of the new breed of utes).

In the prestige segment, BMW is offering to reduce the price by an amount equal to the GST; Audi are throwing in sweeteners like 4 years’ free servicing and road side assistance; Lexus is doing 1.8% comparison rate finance on several models; Infiniti is doing 0% finance on the QX70 SUV if you’re prepared to chip in a 10% deposit; and the list goes on.

Superannuation contributions are another key consideration for business owners at this vital time of year, in terms of their legal obligation for their employees, their personal wealth creation, and the issue of tax deductibility. If you haven’t already sought advice from an accountant, do it now!

As a minimum, employers are REQUIRED to pay the legislated Superannuation Guarantee amount (9.25% for the financial year ending 30 June 2014) by 28th July at the absolute latest (it must arrive in the superannuation fund’s account by that date). However, if you wish to claim any superannuation contributions in FY2013-14, then the payments must hit the super fund by 30 June 2014. Likewise, if you want to draw more funds from your business and make a personal superannuation contribution at concessional tax rates, this must occur by 30th June. If you wait until the financial year is over and then consult your accountant, it’ll be too late – get in touch with them now!

Computer equipment is another key area where, if you’ve got a decent profit up your sleeve and some cash in the bank, you may want to go shopping right now. Most of the major vendors (Dell, Lenovo, HP, but of course never Apple) have some attractive deals to try and hook you at this time of year. Depending on how much you’ve already spent this year, and the value of your purchases, you may find that you can in effect write-off the entire purchase in the same period, or a good portion thereof.

This is general information – the choices you make will be shaped by your specific circumstances, but the potential impact is significant so make sure you get professional advice now, and take the correct steps before 30 June to lock in some substantial tax benefits.


Novated Lease Car

Confused about Tax Legislation? Joe Hockey agrees!

Treasurer Joe Hockey yesterday told media that the Federal Government plans to drop a number of tax changes that were announced by the Labor Party while they were still in power, but will retain several more. Importantly, Mr. Hockey also highlighted that a number of pieces of tax legislation that have been announced to the public over more than 12 years had never yet been legislated.

96 tax announcements dating back to the Labor Government, and even before that to 2001 when Peter Costello was Treasurer, have somehow become waylaid in the Federal Government pending tray and never been legally enacted as legislation.

“You cannot go forward with a complicated and unresolved taxation system if you want to give business and consumers the best hope that what they work hard to achieve will be achieved,” Mr. Hockey told reporters in Sydney.

Some of the tax changes to be axed include:

  • The self-education expenses cap – Labor planned to limit self-education expense claims to $2000, but the Liberal Government has reversed that decision and claims will remain uncapped.
  • Fringe Benefits Tax crackdown on salary sacrificed cars – back in July, Kevin Rudd announced that the ‘Statutory Formula’ method of accounting for personal use of a motor vehicle would be scrapped, which would leave many people in a worse financial situation than they had been. The car industry predicted a significant slump in motor vehicle sales, and within days salary packaging companies like NLC had laid off as many as half their staff. The Liberal Party promised during the election campaign that they would reverse that decision, and Mr. Hockey yesterday confirmed that decision. As this was one piece of legislation that had not yet been passed through Parliament, there is in fact no further legislative action required. The traditional options of ‘Statutory Formula’ or ‘Operating Cost Method’ continue to be available. (And NLC has already restored 23 of the 72 jobs that it axed.)
  • 15% tax on Super Pensions above $100,000 per annum – all Australians get a tax break on their super contributions, and then expect to withdraw their savings as a tax-free pension when the time comes. The Labor Government proposed to tax the money coming out of those funds if it was greater than $100,000 per annum, but the Liberal Government has knocked that on the head as well. For now, your superannuation pensions will continue to be paid out tax free.

However, there are several Labor initiatives that the Liberal Government has pragmatically decided it will retain. The one which will get least argument in this regard is a series of increases to the cigarette tax. But they’re also phasing out the tax break for people with high medical expenses.  And, as per the Labor initiative, they’re cutting tax breaks on R&D for companies with income of $20 billion or more.

As we anticipated before the election, a number of Labor announcements have never made it into legislation. And the current Commonwealth Government certainly appears to be committed to improving consistency and transparency surrounding tax issues. A number of initiatives which were announced over the past decade may now make it formally into legislation, whilst others may be rescinded (expect more announcements to come over the next six months), but at the very least we expect that there will be greater clarity and less ambiguity.

Credit Cards

Are There Issues Using Personal Credit Cards for Business?

Many small business owners find themselves, for a variety of reasons, using their personal credit card to cover business expenses. But is that the right call? Whilst it may be easier and more cost effective to use a personal credit card for business expenses when you’re setting up, the accounting difficulties in the long term will probably make a small business credit card desirable.

Personal Credit Card Business Credit Card
Lower fees than business credit cards Simple to track and account for business expenses with monthly and online statements
Often have lower interest rates than corporate credit cards Avoid the danger of damaging your personal credit rating (if payments are missed or limits exceeded)
Can carry a single card Easy to provide proof of business expenses to the ATO
Enables you to maximise your reward points

Paying Tax by Credit Card

Many business owners are not aware that, since 2011, the Australian Taxation Office introduced a facility for businesses (and individuals) to pay their outstanding BAS and Income Tax debts using their credit card.

The ATO will accept payments of between $10 and $50,000. A card payment fee of 0.42% (VISA/Mastercard) or 1.45% (American Express) applies to transactions made using this service. (The fee is not subject to GST, and is equal to the fee the ATO incurs from its bank.)

Reward Points

Tax FBT Issues

A lot of business and personal credit cards offer reward points and other types of consumer loyalty programs (such as frequent flyers).

The courts have held and the ATO accepts that in most circumstances the rewards received under a consumer loyalty program are not taxable.

However, the ATO is mindful of businesses who try to integrate a loyalty progam into any of their employees’ remuneration packages.

Rewards may create a tax liability where:

  • the reward is received as part of an income earning activity, there is a business relationship between you/your business and the reward provider, and a business is being carried on or the benefit is convertible directly or indirectly to a monetary value; or

“Pamela is a sole trader operating a painting and wallpapering business, and she buys her paint from a paint wholesaler. The wholesaler has a loyalty program that entitles her to points which can be redeemed for shopping vouchers. There is a business relationship between Pamela and the paint wholesaler and it is this relationship that makes Pamela eligible to receive possible benefits.Pamela redeems her points for vouchers worth $2,500. Pamela uses the vouchers to acquire clothing for herself and her children.The redemption of points in return for the vouchers valued at $2,500 was as a result of business purchases of paint. The value of vouchers, $2,500, is assessable under section 21A of the ITAA 1936 as the benefit flows from the business relationship Pamela has with the paint supplier. The vouchers are assessable income at the time of receipt. Pamela is required to return $2,500 in her assessable income.

  • an employee receives a reward that is provided in such a way that their is a sufficient and material connection between the reward and his or her employment

John is an employee of XYZ Company. John uses his personal credit card for private expenditure. Under an arrangement (which can be explicit or tacit) between John’s employer and John, John is able to place all of the business expenditure of the company on his personal credit card. The company reimburses him for the expenditure he has paid on its behalf. Under the arrangement John’s points entitlement from the business expenditure is significant and exceeds 250,000 points per annum.

FBT may apply in this case. Any reward that arises from the redemption of the points has accrued in respect of significant business expenditure. The reward may have been provided under an arrangement, and may be in respect of employment.

GST and Reward Points

Are there any GST implications when you receive and/or redeem points under a credit card reward scheme for a reward?

The short answer is No, any goods or services purchased through redeeming of reward points are not considered a taxable supply.


Rudd’s Novated Lease Upset to Fund Carbon Tax Changes

Company vehicleKevin Rudd’s resurrection as Prime Minister comes at a critical time for the Labor Party, and the on-again, off-again, on-again Prime Minister wasted no time in trying to stem the bleeding by addressing the biggest political nightmares the public were caning them for.

However, most solutions come at a cost. And bringing forward changes to the Carbon Tax had to be funded somehow. So Rudd decided to cut out the ‘statutory formula’ method for valuing fringe benefits in the form of employer-provided cars.

It’s not that you can no longer receive an employer-provided car, or that you will now incur FBT on the entire value of the car. Until 16th July 2013 you were able to use either the ‘cost method’ or the ‘statutory formula’ method and in future you will still be able to use the cost method. What Rudd’s change means is that you will be levied FBT on the ‘actual’ value for personal use rather than a deemed amount. It could be argued that this is the fairest method. However, it carries with it an increased compliance burden in terms of record keeping, and because FBT is levied at the top marginal tax rate (currently 46.5%) an employee who is not in the top marginal bracket would be better off paying the cost of their personal use out of their own pocket, because the tax on their personal income is at a lower rate than the FBT on an employer-provided vehicle.

Aside from the fairness of these arrangements, many Australians have reacted negatively to Rudd’s announcement because the statutory method has been a long-standing option which we have come to expect and have indeed planned for.

However, in the media frenzy that followed Rudd’s announcement a few important details have failed to receive much airplay.

Firstly, the changes were presented as though they take effect ‘immediately’. In fact, they only apply to new contracts entered into after 16 July 2013. So anybody who has a current novated lease on a vehicle can continue to have their FBT treated under the old regime.

Furthermore, all new contracts established after 16 July 2013 can still be calculated under the statutory method up until the end of this FBT year (31st March 2014). It’s only from 1st April 2014 onwards that contracts entered into after 16 July 2013 must be assessed by the cost method.

Of course, if the Rudd Labor Government loses the upcoming Federal Election, we can expect the new Liberal Government to honour their pledge to abolish Rudd’s reform, so things may all go back to the way they were in a few months’ time.


Net Medical Expenses Offset to be Phased Out

The Net Medical Expenses Tax Offset (NMETO) is to be phased out by 1st July 2019, with transitional arrangements for those currently claiming the offset.

Those who claimed the NMETO during the 2012/13 income year will continue to be eligible for the NMETO for 2013/14 income year if they have eligible out of pocket medical expenses above the relevant thresholds. Similarly, those who claim the NMETO in 2013/14 will continue to be eligible in 2014/15. The offset will apply to all medical expenses.

For all other taxpayers (i.e. those who did not claim the NMETO in 2012-13), the NMETO will be restricted to out-of-pocket medical expenses for disability aids, attendant care, or aged care expenses which exceed the relevant thresholds.

Carry Back Tax Losses

Historically companies could only carry forward losses, to offset against future years’ earnings. Under new legislation introduced by the Australian Federal Government, losses in 2012-13 can be carried back so you can claim a refund against tax paid in 2011-12. From 2013-14 onwards, tax losses can be offset against tax paid over the previous two years.

Who is eligible to claim?

To carry-back tax losses, you must:

  • be a company, or taxed like a company (e.g. corporate unit trust, corporate limited partnerships, public trading trusts) throughout the year you are claiming the offset and the year you are carrying losses back to
  • have a tax loss in either or both of
    • the current year
    • the income year just before the current year (the middle year)
  • have an income tax liability for either or both
    • the middle year
    • the income year just before the middle year (the earliest year)
  • have lodged all required income tax returns for the current year and each of the five income years before the current year
  • make a loss carry-back choice on your company tax return

How much can you claim?

The loss carry-back tax offset for the income year in which you carry back tax losses is the lowest of:

  • the sum of the loss carry-back tax offset components for the earliest year and the middle year
  • $1,000,000 x the corporate tax rate for the year you make a claim (i.e. a maximum of $300,000 in the 2012-13 income year)
  • your franking account balance at the end of the income year you make a claim (unless your company was a non-resident other than a New Zealand franking company)

If you need further advice, please speak to Michelle Mulligan on 1300 622 422.


Taxable Payment Reporting for the Building & Construction Industry

Businesses in the building and construction industry have been required since 1st July 2012 to record the total payments they make to each contractor for building and construction services, so that it can be reported on an annual basis. The first Taxable Payment Report is due on 21st July 2013 (if your company lodges BAS quarterly you will have an extra week in 2013, with an extended deadline of 28th July).

Who needs to report?

You are obliged to report if:

  • you are a business that operates primarily in the building and construction industry
  • you make payments to contractors for building and construction services
  • you have an ABN

How does the ATO determine whether you meet these criteria?

If 50% of more of your business income in the financial year OR prior financial year was derived from providing building and construction services, OR 50% or more of your ‘business activity’ in the financial year relates to building and construction services, then you are deemed to operate ‘primarily’ in the the building and construction industry.

What do you need to report?

You will need to report each relevant contractor’s:

  • Name
  • Address
  • ABN (if known)
  • Gross amount paid for the financial year (including GST)
  • The total GST that was included in that gross amount

Need more info?

The ATO web site clarifies a number of critical details that impact whether or not you are caught in the net of this reporting requirement, and defines occupations and work activities that qualify as building and construction services. You can read all the details here.

Need to make an asset purchase before 30th June?

With 30th June almost upon us, you’ve only got a few days to make up your mind on whether or not it’s worth making some last-minute purchases to grab a tax advantage with a handy write-off or write-down of assets in the 2013 financial year.

The Federal Government introduced some valuable amendments last year to the depreciation rules which give small businesses (annual turnover less than $2 million) some significant benefits, effective from this financial year (2012/13). Under these new rules, you can:

  • write off the full value of most depreciating assets costing less than $6,500 each (the limit used to be only $1,000 in prior financial years)
  • pool other depreciating assets in a ‘general small business pool’ and claim a 30% deduction for them
  • claim a deduction for most assets you have newly purchased or acquired, at 15% in the first year, regardless of when during that year you purchased or acquired them

Motor vehicles also get some handy concessional treatment (that includes cars, trucks, scooters, motorcycles, utes and vans, but not items such as tractors, harvesters, road rollers and graders, or trailers).

Small businesses can allocate a vehicle purchase to the small business pool and then also immediately write-off up to $5,000 for vehicles costing $6,500 or more, for the first year they start to use the vehicle. Along with the instant $5,000 write-off businesses can depreciate the remaining value of the vehicle through the general small business pool at 15% for the first year (i.e. $5,000 + 15% of the remaining balance as a deduction in the 2012/13 year) and 30% for the following years.

If you have any questions about eligibility or the benefits for your business, speak to Michelle Mulligan on 1300 622 422.

Labor announces plan to tax Superannuation income streams

Superannuation Minister Bill Shorten and Treasurer Wayne Swan this morning announced Labor plans to tax Superannuation income streams above $100,000 at 15%, commencing on 1st July 2014.

Superannuation Minister Bill Shorten (Image: news.com.au)

“We all know that concessions can’t be open ended. Once you’ve achieved a comfortable level in retirement savings, you probably don’t need as much as those who haven’t gotten to that point.” Income streams up to $100,000 will remain tax free. In their media conference Shorten and Swan also announced a range of further reforms, including:

  • simplification of the design and administration of the higher concessional contribution caps
  • bringing forward to 1st July 2013 the commencement of the higher contributions concession cap for people aged 60 and over, who will be able to contribute up to $35,000 at concessional tax rates (those aged 50+ will  need to wait until 1st July 2014 for their $35,000 cap to kick in) – significantly, these higher caps will not be limited to individuals with superannuation balances below $500,000, as it was decided this would impose too high an administrative overhead
  • reforms to the excess contributions tax (ECT) to ensure that people who have contributed above the cap are not penalised with a level of tax above their normal marginal rate, and they have the opportunity to withdraw the excess contributions from their super fund if they so wish
  • extending the normal deeming rules to superannuation account-based income streams

If you have any questions about the impact this will have on you, and whether you need to make any changes to your current retirement planning, please contact Michelle Mulligan on (03) 9014 7125.

Private Health Insurance

Means Testing of Private Health Insurance Rebate

The Private Health Insurance Rebate was introduced in 1999 to encourage Australians to take out their own private health insurance and reduce the reliance of an aging population on Government-funded health services. Effective from 1st July 2012, the Federal Government has now introduced a tiered rebate structure based on means-testing. The amount of rebate you receive is also affected by your age.

Singles earning under $84,000 and families earning under $168,000 are eligible for the maximum rebate, and at the other end of the spectrum, singles earning over $130,000 and families earning over $260,000 are not eligible for any rebate.

The Medicare Levy Surcharge was also modified according to the same tier structure.

Up to $84,000
Up to $168,000
< 65 y.o. 30% 20% 10% 0%
65-69 y.o. 35% 25% 15% 0%
70+ y.o. 40% 30% 20% 0%
All Ages 0% 1% 1.25% 1.5%