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2006/07 Tax News Tax cuts and benefits from 1 July 2007The changes announced in the Federal Budget 2007-08 commencing on 1 July 2007Employers should apply the new personal income tax rates to all payments they make to their employees from 1 July 2007, including payments relating to work performed before this date. These new weekly and fortnightly tax tables are also available from most newsagents or can be downloaded from the Tax Office website at www.ato.gov.au. Low Income Tax OffsetFrom 1 July 2007, the low income tax offset will increase from $600 to $750 per year and the offset begins to reduce will increase from $25,000 to $30,000.Adults can now earn $11,000 tax-free and minors can earn $1,325 of non-excepted income tax-free.There are numerous other tax developments in 2007, including;· ATO targets on Capital Gains Tax Distributions from Trusts, Employee Living Away From Home Allowances, Entrepreneur Tax Offset claims, Employee travel & overtime meal allowances, Holiday Homes, Non Commercial Losses, Various industries & Occupations, Self Managed Super Fund investments, Shareholder loans, etc.· Capital Gains Tax concessions for marriage breakdown, depreciation write-offs for some assets increasing by 1/3, expanded definition of costs for Capital Gains Tax, small business.· Changes to Superannuation, including tax free lump sums and pensions at age 60+, abolishment of RBL contribution limits and concessions for self employed persons.· All of my clients will receive a year end newsletter which includes tax planning tips and more detailed latest tax news.HELP repayment thresholds and rates2007–08
*HRI= Taxable income plus any net rental losses, total reportable fringe benefits amounts and exempt foreign employment income. 2006–07
*HRI= Taxable income plus any net rental losses, total reportable fringe benefits amounts and exempt foreign employment income. Extra Superannuation Tax Just when you thought superannuation was a safe low tax investment, along comes a new 31.5 per cent tax on employer contributions. From July 1 2007, employees who have not given their tax file number to their superannuation fund will be subject to an additional tax of 31.5 per cent on employer contributions. Many Australians would avoid paying the additional tax if disclosure rules were amended to allow employers to provide their employees’ tax file numbers to superannuation funds. With large funds reporting that they are missing tax file numbers for half of their members it was expected that the no-TFN rules would affect millions of individuals. Donations of Listed Shares
From 1 July 2006 the market value of listed shares can be claimed as a tax deduction where they are transferred to deductible gift recipients and they have been held for at least 12 months prior to the donation and the market value is under $5,000.
Depreciating assets
and use
Year End 2006/07 FBT returns due 21 May (most self preparers) and 28 May 2007 (most tax agents). · The FBT rate for y/e 31/3/2007 is 46.5% (previously 48.5%) · Type 1 benefits (employer entitled to GST claim) gross up rate is 2.0647 · Type 2 benefits (employer not entitled to GST claim) gross up rate is 1.8692 · FBT can apply to cars, car parking, entertainment, expense payments and living away from home allowances.
Some Year End Issues · STS taxpayers can claim tax deductions for prepayments up to 12 months in advance. One tax planning opportunity is to enter into a one year car or plant & equipment lease with a 65.63% residual as authorized by ATO ID 2002/1004, so effectively claiming nearly 40% of the cost price in one year. · Alternatively, STS taxpayers can purchase the asset by entering into a Chattel Mortgage which enables all of the business GST to be claimed in the BAS and a 15% depreciation claim in the income tax return. · Non STS taxpayers don’t do so well, but they can claim back the full GST also under a Chattel Mortgage.
Upfront Forestry Deductions Assistant Treasurer Peter Dutton announced that from July 1 investors in non-forestry MIS would not be able to claim upfront deductions for their contributions on the basis that the investor is "carrying on a business". In December, however, Mr Dutton announced that from July 1 investors in forestry MIS would be entitled to an upfront tax deduction for all expenditure, provided at least 70 per cent of the expenditure was directly related to developing forestry. Contribution to discretionary trust not subject to FBT
Simpler Super Reforms legislation passed Under the legislation, from 1 July 2007:
Note however
Data Matching of Major Shopping Centre Retailers
The ATO is undertaking a data match program of some 10,000 retail tenants in major shopping centres Australia-wide to ensure compliance for GST and income tax. An ATO pilot project in 2005/06 contacted 98 tenants which netted an average of $22,000 GST revenue each.
New Annuity and Pension Rules Draft regulations based on ages either on 1 July of year concerned; or The date the annuity or pension commenced are
The proposed regulations have a commencement date of 20 September 2007, however the regulation allow pensions and annuities to operate under the new minimum payment rules from 1 July 2007.
Standardized Small Business Concessions Test Proposal The government has announced that it will introduce legislation to standardise the eligibility criteria for small business tax concessions from 1 July 2007. Separate eligibility tests currently exist for GST, the Simplified Tax System, CGT, FBT and PAYG small business concessions. As a result of the announcement, any business with annual turnover of less than $2m will be able to access any of these concessions. Therefore, small businesses will only have to apply one eligibility test to access a range of small business concessions. Further, those businesses which meet the existing criteria for the various small business concessions will not lose out — the benefits will apply to businesses that meet the new small business definition or those that meet the existing criteria. The government says that it will be consulting publicly on the draft legislation in early 2007. Source: Joint press release of the Treasurer and Minister for Small Business and Tourism, press release No 123, 13 November 2006
ATO Test Litigation Program The Tax Office has released a guide to its Test Case Litigation Program. Under the program, the Tax Office provides financial assistance to taxpayers involved in litigation that it regards as being important to the administration of the revenue system. Applications to the program are considered by the Test Case Litigation Panel, which consists of members of the accounting and legal professions, as well as senior tax officers. The guide contains information about the program, including the criteria to be addressed, a description of the categories of cases that the Tax Office will fund, and an application form to apply for test case funding.
RevenueSA has updated its Stamp Duty Document Guide notes relating to family farm transactions.
More information at http://www.revenuesa.sa.gov.au/
Error in ATO Capital Gains Tax Guide The Tax Office has advised that there is an error in its Guide to capital gains tax 2005/06. At page 6 of the guide (under 2006 budget announcements), states that four of the amendments to the small business CGT concessions are intended to apply from the 2006/07 income year. In the correction, the third and fourth proposed amendments are intended to apply to CGT events that happen from the 2007/08 income year. These proposed amendments are:
Superannuation Fund investment in Instalment Warrants
· The Minister for Revenue and Assistant Treasurer, Peter Dutton MP, announced today that the Government will act to allow superannuation funds to continue to invest in instalment warrants, consistent with longstanding administrative practice. The full text is available at the following link.
http://assistant.treasurer.gov.au/pcd/content/pressreleases/2006/078.asp
Tax-free superannuation limits increasedINDIVIDUALS will be able to contribute up to $1 million into their superannuation accounts this financial year under changes to superannuation.Small business owners will also be able to put a further $1 million from the sale of their businesses into superannuation. Also announced is the removal of all exit taxes on superannuation payouts for people aged over 60. The Government measures will encourage more people to give their super funds their tax file numbers so they can avoid paying the top rate of tax on earnings. Under final proposals, individuals can now put up to $1 million into their accounts this financial year and up to $450,000 in the 2007-08 year. The annual contribution limits will be set at $50,000 of pre-tax income and $150,000 of post-tax income, but people will be able to bring forward two future years of post-tax contributions if they want to push a lot in quickly. These limits will be indexed, increasing in $5,000 increments. The changes will formally come into effect from July 1, 2007. Legislation is yet to be put through the parliament.
ATO Review Compliant Software The Tax Office has advised that it has now developed a new electronic software function (ATO-Review Compliant software), which is built into a range of business accounting packages that small business operators can buy off the shelf. Features of ATO-Review Complaint software include an audit trail capability, as well as the ability to produce an electronic record of this information that can be used by the Tax Office in the event of an audit. These features are intended to help small business reduce compliance costs and provide small business owners more certainty in their record keeping management. A software product’s conformity with ATO-Review Compliant specifications will be self assessed by the product developer, ie the Tax Office will rely on their self assessment on whether their product is branded “ATO-Review Compliant”. More information, as well as a list of commercially available software that meets ATO-Review Compliant specifications, is available at the ATO web site. GST treatment of residential premises An amendment has been made to the Goods and Services Tax (GST) Act which ensures that the GST treatment of some types of real property, such as serviced apartments and strata units which are leased to operators of commercial residential complexes, will remain input taxed. The amendment will apply from 1 July 2000. The Tax Office view of residential premises remains unchanged and is contained in Goods and Services Tax Ruling GSTR 2000/20 and GSTR 2000/20A2. Taxpayers affected by the legislative amendments should review the treatment of past transactions for tax periods that fall within the last four years and make any necessary amendments.
Compulsory Cashing of Superannuation Benefits On 9 May 2006, the Treasurer announced major reform to the superannuation system and released ‘A plan to simplify and streamline superannuation’. As a result, the rules for compulsory cashing of benefits have now changed. On 30 June 2006 modification declarations were registered (with effect during the period 10 May 2006 to 30 June 2007), removing the requirement on the trustee of a superannuation fund (including self managed superannuation funds) to compulsorily cash a member’s benefits where:
This means a fund trustee is no longer required to cash the benefits of a member simply because they have reached a certain age. This allows members in these circumstances (and subject to the rules of the fund) to delay cashing their benefits until the government’s plan is legislated This change does not alter the requirement to cash a member’s benefits upon their death.
TAX OFFICE MAY PAY LEGAL FEES The tax office faces paying the legal costs of taxpayers who enjoy a courtroom victory under proposals put to the federal government. The Inspector-General of Taxation, David Vos, also believes the tax office needs to clearly outline its approach to litigation, with a focus on resolving disputes fairly, quickly and in a cost-effective manner. It follows a report by Mr Vos which reviewed how the tax office managed litigation, including an evaluation of test cases. There had also been concerns that taxpayers were often unable to access funding for test cases which are often used to test tax office rulings. Mr Vos, in his main recommendation, said the tax office had to set out a corporate philosophy which committed the organisation to resolving litigation quickly and fairly. In another recommendation, Mr Vos said taxpayers' expenses in defending cases, where the tax office is unsuccessful, should be covered by the tax office. The government has agreed to ask the Treasury Department to work with the tax office and the Attorney-General's Department on coming up with guidelines to cover taxpayers' costs. The government will also provide a right of review by a Treasury-headed body that will look at test case funding decision taken by the tax office. Solicitor released from tax liabilities In yet another case, the Federal Court has affirmed the decision of the Small Taxation Claims Tribunal (STCT) to grant a solicitor relief from his income tax liabilities on the basis that, otherwise, he would suffer serious hardship.
Thousands to face tax investigationTHOUSANDS of Australians are likely to be dragged into the largest ever investigation of tax evasion and offshore financial havens, which has already identified 14 tax-fraud schemes operating in the country.A taskforce led by the Australian Taxation Office has launched a series of criminal investigations and continues to examine the work of as many as 130 international accountants and tax- minimisation promoters. The crackdown on the schemes - which allegedly include laundering money through false offshore loans, fake inter-company invoices and intellectual property sales - is expected to raise more than the $300million in lost revenues estimated when the investigation was launched in 2004. It is expected to come up with more than $300million with investigations into offshore tax fraud and money laundering. It follows a continuing criminal investigation, led by the Australian Crime Commission and codenamed Operation Wickenby. It is estimated 5 per cent of those involved in the 14 tax evasion schemes are expected to face criminal prosecution. The remainder will face "civil and administrative treatment" to recoup outstanding tax debts. "The criminal investigations, and likely prosecutions will be reserved for the high-end, more serious criminal matters," a source said. Project Wickenby is auditing the tax returns of most of the suspected cheats over the past five years. But in cases of high-level evasion, investigators are willing to extend back the time frame of the audits. In February, the government injected $305million in funding over six years for Project Wickenby, which also involves the Australian Federal Police and Department of Public Prosecutions.
ATO Phone Service for Tax Debts Payment arrangements with the Tax Office for tax debts of less than $25,000 can be made by using an automated self-help telephone service. The Tax Office says the payment arrangement can be organised by the taxpayers themselves or by their tax agents. Personalised payment slips will be issued within seven working days upon acceptance of the proposed instalment arrangement. Further information on the service is available at: http://www.ato.gov.au/print.asp?doc=/content/76441.htm. Superannuation Changes Report
July 13 AAP - No-one will lose from the federal government's planned overhaul of superannuation taxes and some may come out ahead, an analysis of the proposals has found. The Institute of Actuaries of Australia report is the first full examination of the plan to axe tax on super benefits for people aged 60 and over. Reasonable benefit limits will go, while people will be able to make super contributions until they turn 75. The government estimates that for a person on the average wage, the proposal would boost their retirement super-pension income by more than $130 a week. But there have been questions raised about what the proposal will eventually cost, and whether it will help cover the longer term costs of an ageing population. The institute found that the benefits tax was only a relatively small amount of total government revenue. Few retirees actually pay benefits tax under the current system. It also found that even if the benefits tax continued it would only ever be a small fundraiser. The only problem with the government's proposal, the institute found, was that it appeared to provide benefits to high income earners that low income earners can't get. But ultimately, no-one is worse off. "Hence the transition to the new system will create some winners. It appears to create no losers," it found. Institute president Martin Stevenson said that while the planned super changes seemed generous, they apparently would not cause the government much financial pain. "The modelling illustrates that benefit taxes are destined to remain much smaller than contributions and investment taxes well into the future," he said. "Currently they are just seven per cent of contributions and investment taxes and it will take more than 30 years for them to reach a third of contributions and investment taxes." Superannuation holding account closed
Largest Tax Evasion The single largest tax evasion investigation ever mounted in this country, it involves not only the Australian Taxation Office, but the Australian Crime Commission, federal police, the Australian Securities and Investments Commission and the Commonwealth Director of Public Prosecutions. Together they are examining a range of schemes that the government believes could cost the nation's revenue base at least $300 million - if not more. Most rely on the use of tax havens by wealthy Australians to minimise their tax, or avoid it altogether. This includes overseas promoters administering offshore trusts and companies controlled indirectly by taxpayers in many countries, including Australia. In some cases, deductions have been claimed for payments for expenses and services that never took place, or income made overseas was not divulged - so it could not be taxed by Australian authorities. Some income has been made to look like a gift or inheritance, which in normal circumstances would avoid tax. Australian authorities have been working with their overseas counterparts because in some cases, circular cross-ownership of companies has been used to muddy any paper trails. Some Australians involved are alleged to have accessed money held offshore by credit and debit card. Chinese, Swiss and British authorities have been giving some assistance. Many of the early court skirmishes have been clouded by suppression orders on the names of those allegedly involved. There is a legal battle in which is challenging the Australian Crime Commission's powers and the scope of its investigation. The operation itself has been clouded in secrecy, although some prominent names in the entertainment industry have been linked to the investigations. All that authorities have revealed is that at least 12 rich, prominent figures have been targeted in a range of raids that took place last year. Last year the crime commission inspected records at 37 separate locations in Sydney, Melbourne, Brisbane and Perth with more than 500 people+7-- involved. ATO Report on Tax Evasion According to the latest ATO report in the six months to 31 December 2005, there were over 22,900 reports about suspected tax evasion. Reports with sufficient information for the Tax Office to initiate action or investigation led to over $26m in tax and penalties being raised. The most common reports were about: (1) irregularities in pay-as-you-go (PAYG) withholding; (2) business income not being declared; (3) businesses being involved in the cash economy; (4) income tax returns not being lodged; and (5) non-business income not being declared. The five industries reported most often were: building and construction; retail trade; cafes and restaurants; property and business services; and manufacturing. The Tax Office noted that offshore avoidance structures are under increasing scrutiny. In particular, it is investigating arrangements such as:
Convictions for Outstanding Activity Statements A Sydney barrister and a former Canberra solicitor have been convicted for failing to lodge their activity statements and tax returns. One was fined $85,800 for failing to lodge 43 activity statements and one tax return while another was fined $11,905 for failing to lodge 12 activity statements and four tax returns. The ATO says the convictions and penalties imposed should serve as further warning that those who avoid their tax obligations will be brought to account. ATO Fishing Project The Tax Office has given notice that it will request and collect information regarding commercial fishing licence holders, commercial boat licence holders, registrations, transfers of fishing licences and unit entitlements from relevant federal and state authorities. This information will be electronically matched with Tax Office data to identify compliance with lodgment and payment obligations under tax law. The estimated number of individuals who will be affected by this program is 5,000.
Tax cuts and benefits from 1 July 2006On Thursday 29 June 2006, the Commonwealth Treasurer, Mr. Costello, issued a media release outlining the changes announced in the Federal Budget 2006-07 commencing on 1 July 2006The Tax Office has reminded employers to apply the new personal income tax rates to all payments they make to their employees from 1 July 2006, including payments relating to work performed before this date. The new rates have been introduced following changes to tax rates and income tax thresholds announced in the May federal budget. Deputy Commissioner, Ms Erin Holland, said the Tax Office had mailed the new weekly and fortnightly income tax tables to all employers in the last fortnight. These new weekly and fortnightly tax tables are also available from most newsagents or can be downloaded from the Tax Office website at www.ato.gov.au. Source: Tax Office media release Nat 2006/21, 30 June 2006.Low Income Tax OffsetFrom 1 July 2006, the low income tax offset will increase from $235 to $600 per year and the offset begins to reduce will increase from $21,600 to $25,000. Both of these changes mean the income limit up to which some offset can be claimed will increase from $27,475 to $40,000.Adults can now earn $10,000 tax-free and minors can earn $1,325 of non-excepted income tax-free.Part-Year Tax-Free Threshold for StudentsThe part year tax-free threshold will be removed where a person ceases full time education. This will extend the full tax-free threshold of $6,000 to all resident taxpayers who cease full-time education for the first time. This applies from 1 July 2006.Medicare Levy Low-income Thresholds The Government increased the Medicare levy low-income thresholds to $16,284 for individuals and $27,478 for families, with effect from 1 July 2005. The additional amount of threshold for each dependent child or student increased to $2,523. The Medicare levy low-income threshold for pensioners below age pension age will also be increased. From 1 July 2005, the threshold increased to $19,583.
Family TrustsFamily trust election rules changes to increase the flexibility for family trusts and comes into effect from the income year in which the legislation receives Royal Assent.This measure will allow family trust elections and interposed entity elections to be revoked or varied in certain limited circumstances. The definition of a family group will be broadened to include lineal descendants of family members. In addition, trust distributions to former spouses, and to widows or widowers of family group members with new spouses, will also be exempted from family trust distribution tax.Reasonable allowances for 2006/07 The ATO has released Taxation Determination TD 2006/43 which sets out the reasonable meal and travel amounts for 2006/07June
2006 and annual exchange rates
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