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2007/08 Tax News Budget 2008 Tax highlightsThe Federal Budget handed down on 13 May 2008 contained a package of tax relief measures designed to help families with education, child care and other living expenses, while means testing a range of benefits. Here are some of the highlights. • The government has announced a comprehensive review of Australia's Federal & State tax system except for GST over the next 2 years. • Previously announced personal income tax cuts will go ahead. • The definition of “income” will be expanded for the purposes of determining eligibility for government support. • Changes will be made to the election requirements of the employee share scheme provisions. • The government has tightened the rules for a number of fringe benefits provided after 7.30pm on 13 May 2008. • Double taxation that arises in relation to certain employee share schemes that use employee share trusts will be removed. • The proposed first home saver accounts scheme has been modified to allow individuals to contribute up to $75,000 into their first home saver account. • The scope for family trusts to utilise tax losses to lower income tax will be reduced. • The level of withholding tax on certain distributions from Australian managed investment trusts to foreign resident investors will be reduced. • From 1 July 2008, the luxury car tax rate will increase from 25% to 33%. • Private ruling applicants to pay ATO for valuations. • The government has deferred until 1 July 2009 the measure to align PAYG instalments, GST payment and reporting requirements for taxpayers who are voluntarily registered for GST. • New rules will be introduced to regulate the operation of prescribed private funds. • The carer adjustment payment will be tax-exempt from 1 July 2008. • A tax-exempt one-off bonus payment of $500 will be provided to older Australians. • An annual incentive of $6,000 will be provided to institutional investors constructing affordable rental properties. • Rent assistance payable to Austudy recipients from 1 January 2008 will be exempt from income tax. • The Tax Office will establish a superannuation clearing house to assist businesses with meeting choice of superannuation requirements. Offsets & Rebates • A 50 per cent education tax refund will be available for eligible education expenses (eg School text books, education software, stationery) from 1 July 2008 for families receiving FTB Part A. • The child care tax rebate for out-of-pocket child care expenses will increase from 30% to 50% from 1 July 2008, with the maximum out-of-pocket expenses claimable increasing from $4,354 to $7,500 per child per year. • Medicare levy surcharge thresholds will be increased to $100,000 for singles & $150,000 for families and low-income thresholds will be increased to $1,200 from 1 July 2008. Most persons from 1 July 2008 will not start paying tax until their income exceeds $14,000 pa. Means Testing • From 1 July 2008, an income threshold of $150,000 will apply to dependency tax offsets and from 1 July 2009 alignment of the meaning of “income” to family assistance payments. • The entrepreneurs' tax offset will be subject to an income test from 1 July 2008, maximum adjusted annual income is singles $75,000 and families $120,000 • From 1 July 2008, the Baby Bonus will increase from $4,258 to $5,000 and from 1 January 2009, eligibility for the Baby Bonus will be limited to families with an adjusted taxable income of $150,000. • Eligibility for Family Tax Benefit Part B will be limited to families whose primary income earner earns $150,000 or less a year. • The Commonwealth senior's health card income test will now apply to certain superannuation stream income and salary sacrificed amounts.Reduction of Super Red Tape for BusinessThere will be fairer treatment for employers who make super contributions after the due date in an amendment introduced into Parliament on 20 March 2008.Under Superannuation Guarantee (SG) law, employers are required to make compulsory super contributions at least quarterly on behalf of their employees. If employers fail to make required contributions within 28 days of the due date, they must make the payments through the SG charge payable to the Australian Taxation Office (ATO). When paid to the ATO, the employer’s SG charge includes the shortfall amount. The problem with the current system is some well meaning employers incorrectly make late SG payments directly to their employee’s super fund instead of the ATO. If they do that, they are then treated as not having paid at all - in effect, they are forced to pay twice. The Bill will extend the late payment offset for employers so late contributions will count towards reducing the SG charge. The net effect is that employers will no longer have to pay twice. The offset will be available to employers from the date of Royal Assent, including to employers who have been assessed with the SG charge before this date, if their SG charge remains unpaid. Closing Employee Share Option Concessions The government intends to move to close a “loophole” in the taxing of employee share options. Luxury Car Tax About To Rise Vehicles that cost $57,000 or above (classified as luxury vehicles) are set to cost even more with the announcement of the new federal budget this Tuesday night. Around 105,000 new ‘luxury’ vehicles are sold each year and buyers will now have to pay an additional 8 per cent tax - 33 per cent, up from 25 percent. Although the government aims to target luxury imported vehicles, the tax rise will also affect some locally produced carsCapital Gains Tax-Small Business Concessions
CGT events that happen in the 2007/08 and later income years, taxpayers will need to be “small business entities” to access the concessions. Taxpayers that do not satisfy the small business test can still qualify for small business relief if they satisfy the maximum net asset value test. Partners in partnerships that are small business entities can also access the concessions if they satisfy the relevant small business concessions.
Taxation Statistics 2005/06 The Tax Office has released Taxation Statistics 2005/06, where it is revealed • 11.5 million individuals lodged income tax returns • 72.8% (8.4 million) of tax returns were submitted by tax agents and 13.2% (1.5 million) were submitted using e-tax • individuals declared total income of $483.1b, including $350.7b in salary and wages and claimed $27.0b in total deductions, including $13.1b in work-related expenses • 728,196 companies lodged returns, a 2.9% increase from 2004/05, reported total income of $1,802.6b, a 10% increase from 2004/05 and were liable for $47.8b in net tax, an 18.3% increase from 2004/05 • 285,784 superannuation funds lodged returns, a 6.6% increase from 2004/05 with the number of self-managed superannuation funds up by 13% during the 2006/07 year and the value of assets held by these funds grew by 30% • 415,279 partnerships lodged returns, a 4.4% decrease from 2004/05 • 569,593 trusts lodged returns, a 6.8% increase from 2004/05 • net capital gains totalled $46.9b, reported by 1,019,615 taxable individuals, 18,844 taxable companies and 90,496 taxable funds. Capital gains tax (CGT) payable on the net capital gains of taxable individuals, companies and funds was estimated to be $11.4b • fringe benefits tax (FBT) payable was $3.4b (excluding FBT payable by Australian government departments)
Copies of the publication are available online at www.ato.gov.au
Changes to Superannuation Guarantee The Tax Office has reminded employers that from 1 July 2008 ordinary time earnings (OTE), as defined in the Superannuation Guarantee (Administration) Act 1992 (SGAA), must be used to calculate superannuation guarantee (SG) contributions for their employees. Under the current law, employers calculate their SG contributions based on different earnings bases, depending on whether they were contributing for their employees before or after 21 August 1991. OTE as defined in s 6(1) of the SGAA is generally what an employee earns for ordinary hours of work including over-award payments, shift loading or commissions. It excludes such things as overtime. Most employees have OTE as their earnings base, however some have other earnings bases that may be contained in:
Tax Rates on the Increase Australians paid an average of $14,571 tax in 2005-06, an increase of 5.5 per cent from the previous year, the latest Australian Bureau of Statistics year book reveals, despite regular cuts in income tax rates. Most of the tax revenue goes to the Federal Government in the form of tax on income and on goods and services. State and local government tax was much less at just over $54 billion. Each resident also paid an average $2,594 a year in assorted local and state government taxes on property, stamp duty, gambling and payrolls - a five per cent increase in one year SUPERANNUATION INDUSTRY (SUPERVISION) AMENDMENT REGULATIONS 2008 (NO. 1) The Regulations create a new condition of release to allow persons with a terminal medical condition unrestricted access to their superannuation benefits and also make minor changes to the definition of a transition to retirement income stream to clarify the intended operation of these rules. The Regulations are available at: http://www.frli.gov.au/ComLaw/Legislation/LegislativeInstrument1.nsf/0/CEBBEAB2D0A1260DCA2573EF001FC675/$file/0722761A080204EV.pdf The Explanatory Statement is available at: http://www.frli.gov.au/ComLaw/Legislation/LegislativeInstrument1.nsf/0/AB33FF697105BD94CA2573EF001FC6D0/$file/F2008L00373.pdf
Tax Office to supply TFN to super funds Replacing the simplified tax systemFor the 2007–08 and later income years the simplified tax system (STS) no longer operates and has been replaced by the small business entity provisions. You can continue to use the concessions that were in the STS if you are a small business entity. For more information see Concessions for small business entities (NAT 71398)
CGT: single holiday unit not an active asset The ATO’s position on asset disposals:
Tax benefits can be cancelled, and penalties may apply. 2008's first ATO tax ruling clarifies the Commissioner's position regarding Part IVA of the ITAA36 and 'wash sales'. Ref TR 2008/1at the ATO web page. Employee Super Recovery from Failed Companies Changes to the Corporations Act 2001 means that from 31 December 2007 the super guarantee charge must be paid before payments to unsecured creditors, ranking equally with employees wages.
Anti-Avoidance Part IVA applied to olive growing scheme The AAT has held that a taxpayer's investment in an olive growing project attracted the operation of the general anti-avoidance provisions of Pt IVA of ITAA 1936. Deductions claimed by the taxpayer in relation to his investment, other than his cash contributions, were not deductible.
Federal Government plan boosted super deposits by 142%
Instalment Warrants are Eligible for SMSF (Self Managed Super Fund) Instalment warrants are now an eligible form of gearing for an SMSF following an amendment to the Superannuation Industry (Supervision) Act that allows a gearing exception to the borrowing restriction. The new section 67(4A) is called Exception - Instalment Warrants. The history was that the ATO considered that the rollover of warrants created a loan as a liability for the fund and this was considered to be in breach of the SIS borrowing requirements. The arrangement needs to be properly documented indicating how the non-recourse loan and the instalment arrangement is to operate. These changes now allow the buyer to pay an initial fee to acquire an underlying asset with an option to pay a second fee to acquire the legal title of that asset. There are still questions to be resolved particularly regarding the loan and a special instalment trust must be in place and allowed for in the trust deed. Trustees must seek specialised SMSF advice when considering or implementing instalment warrants due to the nature and complexity of the new arrangements.
Management fees for professional sportsmen deductible
· Self Managed Super Fund Penalty In October 2007 the Federal Court declared that the trustees for a self managed superannuation fund (SMSF) had breached superannuation legislation by selling a property belonging to the fund and using the proceeds of nearly $150,000 to pay personal debts. The trustees of a self managed superannuation fund have been issued penalties of $30,000 and ordered to pay $32,500 in costs for breaching the rules relating to their fund, as they had accessed assets in the superannuation fund before meeting any conditions of release such as retirement or reaching preservation age. It should always be remembered, the main purpose of SMSFs is to provide for retirement. Trustees who access their superannuation without meeting a condition of release are breaking the law and risking their retirement savings. · ATO Out sources Debt Collection Several external debt collection agencies have been contracted by the ATO to assist with the collection of tax debts mainly over two years old. This follows a successful 3 month trial in 2006 which resulted in $21m of outstanding debt being collected.
Terminally ill access to superannuation tax free · The government has announced from 12 September 2007 people under the age of 60 with a terminal illness will be able to access their lump sum superannuation benefit tax free. (Source: Assistant Treasurer’s press release no. 111)
ATO Time Limits on GST Refunds · The ATO has issued a fact sheet explaining the four year time limit for claiming a GST refund or notifying the Office that you are entitled to a GST refund. NAT 11645-August 2007.doc Trustee Declaration Self Managed Super Fund · From 1 July 2007 all new trustees of a SMSF must sign a declaration within 21 days of becoming a new trustee stating that they understand their duties as a trustee. The declaration is not sent to the ATO but must be retained by the trustee for as long as that person remains a trustee or at least 10 years whichever is longer. ATO 2007/08 Compliance Program · Individuals Examine about 6000 capital gains on property disposal cases including gains used to fund superannuation investments. Also under scrutiny will be individuals borrowing to fund super and claiming the interest as a tax deduction or using criminal income to fund super. Work related expenses including claims from workers within Tourism, Fitness and sporting, Construction, Security guards and Mining sites. Rental income and expenses including incorrect claims for interest, capital works, borrowing expenses. · Small & Medium Business The focus here includes losses, capital gains, wealth extraction, international transactions, service trusts, FBT. About 2,500 businesses will be contacted by letter or phone and about 6,000 income tax returns will be checked for irregular income and/or claims.
ATO outline targets for 2007-08 tax year Workers and personal trainers will be among the Australians whose tax returns will face extra scrutiny this year. One of the biggest mistakes taxpayers make is claiming deductions not related to the generation of their income. The ATO's reminded people to make sure "work expenses are relevant to your job". The ATO will be paying particular attention to big superannuation contributions which take advantage of changes to the legislation, which come into effect on July 1. Before June 30 people can contribute up to $1 million to their superannuation, while the limit will change to $150,000 per annum from July 1. The ATO has said if people were selling assets to boost their superannuation before the end of the financial year they needed to factor in any capital gains they made. They need to think about where that money came from and whether it's something for their tax return If borrowed money is used for superannuation contributions by an individual, the interest is not tax deductible. The ATO would receive contributions statements from superannuation funds later this year and would cross-match them with tax returns. If a very big contribution and it is not obvious how that was funded, then it is likely the ATO will follow up with a query. Workers on mine sites, and in the tourism and travel, construction, security, sporting and fitness industries will be among those whose returns will face extra scrutiny. Each year, the ATO chooses a number of industry groups which receive extra attention when returns are filed. When looking at returns from these industry groups, the ATO will focus on a variety of areas including travel expenses, equipment claims and self-education expenses.
2007-2008 Tax Rates Now Available
2007-2008 tax tables are available at the ATO web site.
Family Tax Benefit and Maintenance Income Credit
From 1 July 2006 a maintenance income credit became available, allowing eligible individuals to offset late child support payments and reduce the effect of the payments on the maintenance income test. Pre-Filling of 2007 Tax Returns
The ATO will provide details progressively over the first few months of the financial year on
The pre-fill is a guide only and cannot be relied on to include all of your taxable income and expenses. For example, where you have not provided your TFN the information will not be pre-filled.
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