Tax Wise Business News (June 2012)

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  • 30 June is around the corner
  • Tax Changes affecting Small businesses
  • CGT Changes
  • Changes to the timing of Trust resolutions
  • Living-Away-From-Home Allowance changes
  • Superannuation Changes
  • Self-Assessment for Indirect Taxes
  • Anti-Avoidance provisions in state of flux
  • Tax Consolidated Groups – Proposed reforms
  • Director Penalty Regime
  • Residential Premises developments – new GST treatment
  • Taxable Payments Reporting – Building and Construction Industry

30 June is around the corner

The end of the financial year is fast approaching and it’s time to start planning to prepare for your 2012 Income Tax Return. Now is a good time to start reviewing certain assets and liabilities owned by your business and consider what should be done prior to 30 June 2012. Some suggested areas for review are:

  • Review your depreciable assets (capital allowances) register and write-off or dispose of any assets no longer used. Examples of depreciable assets are computer equipment, office furniture (eg desks and chairs) and kitchen appliances;
  • Carry out any repairs and maintenance required so you can recognise the deduction by 30 June;
  • Review receivables and see if any bad debts can be written off;
  • Negotiate with lenders to see if you can prepay some investment loan interest expenses prior to year end;
  • Re-consider funding strategies for your business – end-of-year is a good time to consider whether you have the right debt funding and equity funding mix in place;
  • Consider any newly announced concessions from the recent May Budget. There may be things you can do now to take advantage of these concessions in the next financial year. For example, do you need to dispose of assets prior to year end? Do you need to defer acquiring certain assets until after the new financial year begins?
  • Talk to your tax adviser if you think you might incur tax losses this year and how you might be able to preserve those losses to apply against taxable income in future years.

See your tax agent in relation to any of the above and for any end-of year planning tips. Your tax agent knows your business and is the best person to help you plan for the end of the 2011-12 tax year and for the start of the 2012-13 tax year.

Tax Changes affecting Small Businesses

Small Business Benchmark Updates

Small business benchmarks are financial ratios developed to help a business compare its financial performance to similar businesses in the same industry. The benchmarks provide guidance on what figures, such as amounts of income, the ATO would normally expect a business in that particular industry to report. The ATO uses these benchmarks to work out which businesses in particular industries might be avoiding tax by not reporting some or all of their income.

The ATO has updated its small business benchmarks with information from the 2010 financial year and they have also published new activity statement ratios for a range of industries. Benchmarks are now based on the most recent data available. The number of benchmark ratios has increased so businesses can now check their performance and recordkeeping against a greater range of ratios.

If your business falls outside the benchmarks that apply to your particular business, you may need to consider reviewing your records to ensure all your income and expenses, in particular cash amounts, are being recorded. Businesses in the same industry will differ from each other, though there will be common themes among them. It is well worth taking the time to review your business’s individual circumstances and satisfy yourself you are able to account for any difference between the industry benchmark and your business’s performance.

We will be able to assist you to review your business’s performance and look at ways to bring your business’s performance to within the industry benchmarks, if appropriate.

Changes starting in the 2012-13 Income Year

Small Business: instant asset write-off and simplified depreciation

An “instant write-off” amount of $6,500 (increased from $1,000) will apply to small businesses who acquire “low cost” assets from 1 July 2012. “Low cost” assets might include, for example, inexpensive items of equipment, such as office furniture. In addition, an instant write-off for the first $5,000 of the cost of a motor vehicle purchased by a small business will also be available (unless the vehicle can be written off immediately).

Other changes simplifying depreciation for small businesses include the creation of a “general small business pool”. This will be made up of depreciating assets that you might already have in separate pools of assets (that are being depreciated at a faster rate than if they were not in a pool) that will now be combined. Assets will be depreciated at a rate of 15% in the first year and at 30% in each subsequent year.

If you are currently considering some new asset purchases, your tax agent is the best person to help you decide when you should make those purchases.

See us for advice on new business asset purchases, including what and when you should purchase.

Entrepreneurs’ tax offset changes

The entrepreneurs’ tax offset is a tax offset equal to 25% of the income tax payable on your business income if you have an aggregated turnover of $50,000 or less.

The entrepreneurs’ tax offset ceases to be available on 30 June 2012. The new small business asset instant write-offs and depreciation pool in effect replace this tax offset.

If you are planning on claiming the entrepreneurs’ tax offset this year, talk to your tax agent soon!

Budget 2012-13 Announcement – Loss Carry Back for small business

As announced in the Federal Budget on 8 May 2012, starting in the 2012-13 income year, companies (and entities taxed like companies) will be able to carry back up to $1 million of tax losses incurred in the 2012-13 year to offset against tax paid in the 2011-12 income year. From the 2013-14 income year, tax losses will be able to be carried back and offset against tax paid up to two years earlier.

You should talk to your tax agent about how you might be able to take advantage of these rules and carry back any tax losses your business may have to offset against tax you have paid in prior years.

If you incur any tax losses in the 2012-13 income year, you might be able to carry them back to offset against tax paid in earlier years. Speak to your tax agent to ascertain whether you are able to do this.

CGT Changes

In the 2012-13 Budget, the Federal Government announced several changes will occur to the CGT provisions, including:

  • How certain CGT rollovers (that allow taxpayers to defer recognising capital gains) would apply to trusts, superannuation funds and life insurance companies. The changes ensure certain provisions that relate to certain types of taxpayers (eg absolutely entitled beneficiaries, bankrupt individuals, security providers and companies in liquidation) interact appropriately with certain CGT rollover provisions and with the “connected entity test” in the small business entity provisions. Taxpayers may apply these changes from the 2008-09 income. Otherwise, the measures will apply from the date of Royal Assent of the new provisions.
  • How certain rollovers that affect assets replacing revenue assets and trading stock apply to interposed companies, broadening the availability of the rollovers for all interests (eg shares) that qualify for the general conditions of each of the rollovers, rather than only shares in a tax consolidated group. These changes apply from Budget night (7.30pm AEST 8 May 2012).
  • These changes apply from Budget night (7.30pm AEST 8 May 2012), so if you are considering applying this rollover to a transaction, see your tax agent for assistance on how the changes might impact your transaction.
  • Amendments to the CGT rules so the same outcomes apply where a taxpayer receives compensation, damages or certain insurance proceeds indirectly through a trust as they would have if they had received the proceeds directly. It will also ensure that insurance policies owned by superannuation funds that were treated as being exempt from CGT prior to the 2011-12 Budget changes to compensation payments and insurance policies continue to be exempt from CGT. As this change is effective from the 2005-06 income year, you should speak to your tax agent to see if there is any impact on amounts of compensation payments you have received (if any) and insurance policies you have taken out since the 2005-06 income year.

If you think any of the CGT changes are likely to affect your business, see your tax agent for advice on what, if any, impact the changes might have to your business.

Changes to the Timing of Trust Resolutions

In prior income years, trustees who were required to make resolutions prior to distributing income to beneficiaries had until 31 August following the end of the income year to make the resolutions. This extension came out of two old income tax rulings which the ATO withdrew in September 2011. This means that all trustees affected by this change must issue their resolutions by 30 June. As this change applies to the current year (1 July 2011 to 30 June 2012), trustees will need to make their resolutions by 30 June 2012.

Check with your tax adviser how this change might affect you if you are a trustee.

Living-Away-From-Home Allowance Changes

The Budget edition of TaxWise referred to recently announced changes to the living-away-from-home allowance (LAFHA). The proposed changes:

  • Mean that employees, rather than employers, will be liable to tax on any LAFHA received that is not exempt;
  • Limit access to LAFHA to temporary residents who maintain a residence in Australia and who are required to live away from it for work purposes;
  • Require individuals to substantiate their actual expenditure on food and accommodation in excess of the statutory amount.

These changes are due to apply from 1 July 2012. All employers who provide these types of benefits to their employees should consider reviewing their current arrangements and seeing how these proposed changes might affect those arrangements.

If you think the proposed LAFHA changes will impact arrangements you have in place with your employees, you should speak to your tax agent to discuss how these changes might affect you and your employees.

The legislation has not been finalised yet so the details of the changes could change. Your tax adviser is the best person to keep you up to date with these developments.

Superannuation changes

Previous Announcements

In March 2012, changes to super were announced. These changes include:

The superannuation concessional contributions cap will remain at $25,000 for individuals under 50 years of age up to and including the 2013-14 financial year, commencing 1 July 2013;

From 1 July 2011, eligible individuals will be able to have refunded to them contributions to their superannuation fund that exceeded the concessional contributions cap (amounts up to $10,000 only). This amount will be treated as assessable income to the individual (and subject to tax at the individual’s applicable marginal tax rate for the year) rather than being subject to “excess contributions tax”.

The ATO can disclose an individual’s superannuation interests and benefits to a regulated superannuation fund or public sector superannuation scheme, an approved deposit fund, retirement savings account (RSA) provider or their administrators. The purpose of this change is to assist administrators of these bodies to gain access to a member’s superannuation interests, including amounts held by the ATO, and help their members consolidate their superannuation interests; and

Employers MUST report on employees’ payslips the amount of superannuation contributions they will make on behalf of an employee as well as the date on which they expect to pay the contribution into the superannuation fund. The employer must also specify on the payment slip the name and number (if applicable) of the fund to which the contribution has been or will be paid.

Budget 2012-13 Announcements

The following announcements were made in the 2012-13 Budget in relation to superannuation changes:

Increasing concessional contributions caps (also known as pre-tax contributions) for individuals over 50 with low superannuation balances announced in the 2010-11 Budget has been deferred and will now start on 1 July 2014. This measure is intended to allow individuals aged 50 and over with superannuation balances below $500,000 to contribute up to $25,000 more in concessional contributions than allowed under the general concessional contributions cap of $25,000, which will apply to them in the 2012-13 and 2013-14 income year. In 2014-15, the general cap is likely to increase to $30,000 (the higher cap for individuals aged over 50 would then be $55,000).

Individuals with income greater than $300,000 (including superannuation contributions) will have the tax concession on their contributions reduced from 30% to 15% (excluding the Medicare levy). That is, the flat superannuation contributions tax rate will increase from a rate of 15% to a rate of 30%.

From 1 July 2012, the tax offset that applies to Employment Termination Payments (ETP) will be limited so that only that part of an affected ETP, such as a golden handshake, that takes a person’s total annual taxable income (including the ETP) to no more than $180,000 will receive the ETP tax offset.

Amounts above $180,000 (known as the “whole-of-income cap”), will be taxed at marginal rates. This cap will complement the existing ETP cap (which will be $175,000 in 2012-13, indexed) which ensures that the tax offset only applies to amounts up to the ETP cap.

Self-Assessment for Indirect Taxes

With effect from 1 July 2012, a new system will apply to GST, the luxury car tax (LCT), the wine equalisation tax (WET) and fuel tax credits to harmonise the system under which these taxes are collected with the self-assessment system that applies to companies and certain other entities for income tax purposes. The amendments apply to tax periods for the GST, LCT and WET and the fuel tax return periods that commence on or after 1 July 2012.

This means that the current system that applies to indirect taxes will now be aligned with the self-assessment system that applies for income tax purposes. Under the new system, for example, the Commissioner will be able to make a determination that errors made on a previous Activity Statement can be corrected on a current Activity Statement.

See your tax adviser to find out how these changes may affect your compliance obligations, such as preparing your Business Activity Statements, for GST, LCT, WET and fuel tax credit purposes.

Anti-avoidance provisions in flux

Anti-avoidance provisions contained in the tax law are aimed at trying to prevent taxpayers from structuring transactions and entering arrangements designed to avoid tax. Avoiding tax is different to evading tax which is a criminal offence.

Anti-avoidance provisions might apply in cases such as where a taxpayer tries, for example, to structure a transaction to gain a tax benefit that may not ordinarily arise if the transaction is carried out in another way and there aren’t necessarily sound commercial reasons why the transaction was structured in a particular way.

On 1 March 2012, the Federal Government announced that changes will be made to the existing general anti-avoidance provisions contained in the Federal Income Tax Act. The Government has not specified how it intends to change the general anti-avoidance provisions, though the amendments are intended to “clarify” how these provisions apply.

However it is important to be aware that the changes are intended to apply from 1 March 2012. So if you are currently considering entering into a transaction, you should seek advice from your tax adviser around the potential tax implications that may arise from the proposed transaction and guidance on what impact the general anti-avoidance provisions might have, if any.

Director Penalty Regime

Proposed amendments to the “director penalty regime” were announced by the Assistant Treasurer on 18 April 2012 to expand the tax law protections afforded to protect workers’ entitlements and impose greater obligations on directors. The amendments will:

  • expand the director penalty regime to include superannuation guarantee amounts meaning that directors will also be held personally liable for their company failing to pay employees’ super contributions;
  • ensure that directors cannot have their director penalties remitted by placing their company into administration or liquidation when unpaid Pay As You Go (PAYG) withholding or superannuation guarantee amounts remain unpaid three months after the due date; and
  • restrict access to PAYG withholding credits for company directors and their associates where the company has failed to pay withheld amounts to the Commissioner.

Anyone who is a director of a company with employees should familiarise themselves with these proposed amendments as they directly impact a director’s obligations and responsibilities under the tax law in respect of employee entitlements.

The good news is there are some concessions under the proposed amendments:

  • new directors will have time to familiarise themselves with a company’s accounts (30 days instead of 14 days) before being held liable for the company’s debts.
  • The ATO will be required to serve penalty notices on directors in all cases before commencing action.
  • Directors will also have available to them a new defence where they may face penalties for superannuation debts where, broadly, they had a reasonable basis for thinking that the worker was a contractor rather than an employee.

The amendments are contained in an exposure draft. Directors concerned by these proposed changes should ask their tax agents to keep an eye out for when these changes might become law.

Residential Premises developments – new GST treatment

All developers of residential premises should take note that the GST provisions have been amended to ensure that sales of residential premises that have been constructed under certain arrangements known as “development lease arrangements” will be subject to GST (ie they will be treated as sales of new residential premises).

 

Even if there has previously been a “wholesale supply” of the newly built premises to the developer (ie the freehold or long-term leasehold interest in the land transferred to the developer upon completion of the development on the land), this will still be the case. This is something that developers who build residential properties under these types of arrangements should be aware of.

There are also some changes under the GST law confirming that subdividing or strata-titling newly built residential property won’t have the effect of stopping the new building from being new residential premises.

 

You should be aware that these changes will apply from 27 January 2011. If you are a builder who has constructed new residential premises since 27 January 2011, you should see your tax agent to see if these amendments affect the GST treatment you have applied to your project. You might need to consider amending your previously lodged Activity Statements if these amendments impact your business.

Talk to us if you are concerned how these new GST provisions might affect the GST treatment of a residential development you have undertaken. You might need to amend your Activity Statements as well!

Taxable Payments Reporting – Building and Construction Industry

If you are in the Building and Construction industry and you have an Australian Business Number (ABN), you may need to report certain payments you make to contractors for certain building and construction services.

You need to report certain details in relation to the contractor to whom you make payments, including their ABN, name, address and amount you paid them (including GST). Generally, these amounts need to be reported to the ATO by 21 July, which is very soon after the financial year end.

As these rules apply from 1 July 2012, it might be a good time now to look at the kinds of records you keep in relation to payments you make to contractors and see if you need to change anything to help you comply with these new rules. Your tax agent can assist you with the types of records you might need to start keeping to help you meet this obligation, or it might turn out that you don’t need to change any of your record-keeping details and you will be able to meet this obligation.

You should take the opportunity now to consider the impact of this reporting obligation and make any necessary changes now so you are ready for 21 July 2013! See your tax agent if you need help with this.

Taxwise® News is distributed quarterly by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult Hurley & Co Chartered Accountant for advice on specific matters.

Tax Wise Business News (May 2012 – Budget Edition)

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  • Tax changes affecting Individuals and families
  • Tax changes affecting companies
  • Tax changes affecting debt
  • CGT changes
  • Fringe benefits tax changes
  • GST changes
  • Superannuation changes
  • Tax changes affecting non-residents
  • Other measures

The 2012-2013 Federal Budget

The 2012/13 federal Budget was handed down on 8 May 2012. The Budget was fiscally tight and designed to return the Budget to surplus.

You will need to be aware of many of the measures announced and take them into account when calculating your anticipated tax liability. You should also be aware of the abolition of previously announced measures, such as the company tax rate cut and the tax breaks for green buildings which will affect small business owners and individuals. Additionally, there are significant changes to the tax loss measures.

Below is a summary of the most significant measures announced in the Budget. However, in order to get the most specific advice for your circumstances, it is essential you consult with your tax adviser.

Income tax rates from 2012/13 financial year

From the 2012/2013 year, the tax-free threshold jumps to the first $18,200 of your income. You will be able to earn up to $20,542 before any income tax is payable, when taking into account the Low Income Tax Offset (LITO)

Tax scales 2012-2013 2015-2016
Threshold$ Marginal rate Threshold$ Marginal rate
1st rate 18,201 19% 19,401 19%
2nd rate 37,001 32.5% 37,001 33%
3rd rate 80,001 37% 80,001 37%
4th rate 180,001 45% 180,001 45%
LITO Up to $445 1.5% withdrawal rate on income over $37,000 Up to $300 1% withdrawal rate on income over $37,000
Effective tax-free threshold* 20,542 20,979

Tax Changes affecting Individuals and families

New Measures starting 1 July 2012

  • Net medical expenses tax offset – Currently, this allows you to offset 20% of your net medical expenses over $2,060. Net medical expenses are the medical expenses you have paid less any refunds from Medicare or a private health insurer.

From 1 July 2012 there will be two important changes to this offset:

  1. The offset will be means tested. This means that individuals earning more than $84,000 and couples and families earning more than $168,000 will have to spend $5000 on out-of-pocket medical expenses before they are eligible to make a claim.
  2. And they will be able to offset only 10% of those costs over $5000, down from the current 20 %

NB People with income below the thresholds will not be affected.

  • Combining of the “dependency tax offsets” – The eight dependency tax offsets will be consolidated into a single, streamlined and non-refundable offset. The offsets to be consolidated are the invalid spouse, carer spouse, housekeeper, housekeeper (with child), child-housekeeper, child-housekeeper (with child), invalid relative and parent/parent-in-law tax offsets.

The new consolidated offset will be based on the highest rate of the existing offsets it replaces, resulting in an increased entitlement for many of those eligible for this measure. For taxpayers who can claim more than one offset amount in relation to multiple dependants who are genuinely unable to work will still be able to do so.

  • Mature age worker tax offset – The mature age worker tax offset (MAWTO) will be phased out for taxpayers born on or after 1 July 1957. This will not affect any person who currently receives MAWTO. Access to the MAWTO will be maintained for taxpayers who are aged 55 years or older in the current income year (2011-12)
  • Change to the marginal tax rate applicable to non – residents in the Seasonal Labour Mobility Program – the marginal tax rate for non-resident individuals participating in this Program will be reduced to 15%. Individuals in the Program will be taxed on all eligible income at a flat rate of 15%, and will no longer be required to pay the Medicare levy.

Other New Measures

  • Increase of Medicare levy low income/below Age Pension age thresholds – The Medicare levy low income thresholds will be increased to $19,404 for individuals and $32,743 for families for the 2011/12 income year (ie from 1 July 2011).

From 1 July 2011, the Government will also increase the Medicare levy threshold for single pensioners below Age Pension age to $30,451 to ensure that pensioners below Age Pension age do not pay the Medicare levy when they do not have an income tax liability. From 1 July 2012, the low-income threshold for pensioners below Age Pension age will then be fixed at the level applicable to seniors entitled to the Senior Australians Tax Offset.

  • Flood levy further exemptions – Exemptions for the temporary flood and cyclone reconstruction levy will be extended to individuals who were eligible for an Australian Government Disaster Recovery Payment in 2010/11 as well as certain individuals affected by a natural disaster in 2011/12.
  • SchoolKids Bonus to replace Education Tax Offset – From 1 January 2013, the new “SchoolKids Bonus” will replace the Education Tax Refund. Under the SchoolKids Bonus, an annual payment will be available for schoolchildren at primary school level of $410 and secondary school level of $820. The bonus will be paid to eligible families in two equal instalments in January and July each year. The Education Tax Refund will be paid out in full to eligible families in June 2012 in view of transitioning to the new SchoolKids Bonus system.

Measures not proceeding

  • Standard Deduction of $500 – The Government will not proceed with the standard deduction of $500 for work-related expenses that was announced in the 2010-11 Budget.
  • 50% Interest income tax discount – The Government will not proceed with the 50% tax discount for interest income that was announced in the 2010-11 Budget.

Tax Changes affecting Companies

New Measures

  • Loss carry-back – Starting in the 2012-13 income year, companies (and entities taxed like companies) will be able to carry back up to $1 million of tax losses incurred in the 2012-13 year to offset against tax paid in the 2011-12 income year. From the 2013-14 income year, tax losses will be able to be carried back and offset against tax paid up to two years earlier.
  • New limited recourse debt arrangements – A ‘limited recourse debt’ is a debt in which the creditor has limited claims on the loan in the event of default. Starting from 7.30pm (AEST) on 8 May 2012, the definition of limited recourse debt will be amended to include arrangements where the creditor’s right to recover the debt is effectively limited to the financed asset or security provided.

Measures not proceeding

  • Lowering the company tax rate – the proposed measure to lower the company tax rate in the 2013-14 income year (and from 2012-13 income year for small businesses) will not proceed.
  • Green Buildings tax breaks – the Tax Breaks program for Green Buildings will not go ahead.

Tax changes affecting Debt

  • Bad Debt write-offs – starting from 7.30pm (AEST) on 8 May 2012, no deduction will be allowed for a bad debt written off owing from a debtor who is a related party, but is not part of the same tax consolidated group. Any corresponding gain arising to the debtor will not be taxed as well. This will ensure consistent tax treatment of bad debts between related parties whether or not they are part of the same tax consolidated group.

CGT Changes

  • Amendments to beneficial interests – Changes will be made to the application of the scrip-for-scrip roll-over and small business concessions to trusts, superannuation funds and life insurance companies. This is to ensure the provisions that relate to absolutely entitled beneficiaries, bankrupt individuals, security providers and companies in liquidation interact appropriately with the CGT provisions and with the connected entity test in the small business entity provisions. Taxpayers may apply these changes from the 2008-09 income. Otherwise, the measures will apply from the date of Royal Assent of the new provisions.

This measure will also ensure that consequential impacts on the Wine Equalisation Tax Act 1999 (WET Act) through the operation of the changes to the “connected entity” test in the small business entity provisions will also apply to wine producers.

  • Revenue asset and trading stock rollovers for interposed companies – starting from 7.30pm (AEST) on 8 May 2012, these rollovers that apply to the exchange of interests in a company or unit trust for shares in another company will be broadened to be available for all interests that qualify for the general conditions of each of the rollovers, rather than only shares in a tax consolidated group. Replacement shares in the interposed company will need to maintain the character of the original revenue asset or trading stock asset that was exchanged.
  • Scrip-for-scrip rollover strengthened – starting from 7.30pm (AEST) on 8 May 2012, the scrip-for-scrip rollover integrity measures will be strengthened to ensure taxpayers cannot get around the provisions by holding interests to acquire ownership rights (eg convertible preference shares), rather than shares themselves, indefinitely defer the CGT liability that would have otherwise arisen on the on-sale of the target entity, broaden the scope of the rules that apply to intra-group debt and ensure these integrity provisions apply appropriately to trusts.
  • Temporary loss relief to facilitate super reforms – amendments will be made to ensure income tax considerations do not prevent mergers of superannuation funds or transfers of existing default members’ balances and relevant assets in the transition to Stronger Super and MySuper. Relief will be available for mergers of complying superannuation funds from 1 June 2012 to 1 July 2017 and the roll-over and relief available for mandatory transfers of default members’ balances and relevant assets will be available from 1 July 2013 to 1 July 2017.
  • CGT exemption for compensation payments and insurance policies – effective from the 2005-06 income year, the CGT rules will be amended to disregard the CGT consequences where a taxpayer receives compensation, damages or certain insurance proceeds indirectly through a trust. This will ensure that a taxpayer will have the same CGT outcome as a taxpayer who receives such proceeds directly. It will also ensure that insurance policies owned by superannuation funds that were treated as being exempt from CGT prior to the 2011-12 Budget changes to compensation payments and insurance policies continue to be exempt from CGT.
  • CGT and Deceased Estates – refinements to the CGT provisions will be made to the 2011-12 Budget measure to ensure the proper functioning of these provisions in relation to deceased estates in respect of the following:
    • ensuring the deceased’s income tax return does not need to be amended as the taxing point will be recognised by the entity transferring the asset;
    • modifying the application dates for two of the minor changes announced in the 2011-12 Budget to ensure taxpayers are not disadvantaged; and
    • broadening the scope of the integrity provisions to also apply to assets passing through survivorship.

Fringe Benefits Tax Changes

  • Living Away From Home Allowance (LAFAH) – the tax concession for LAFHA will be limited to employees living away from a home they maintain in Australia and will only be available for a maximum of 12 months. The changes will apply from 1 July 2012 for arrangements entered into after 7:30pm (AEST) on 8 May 2012, and from 1 July 2014 for arrangements entered into prior to such time.

 

  • Airline transport fringe benefits – for airline transport fringe benefits provided after 7:30pm (AEST) on 8 May 2012, their taxable value will be the market value of the benefits provided and no longer the “stand-by” value which is no longer relevant has airlines now use discounted pricing to optimise passenger levels.

GST Changes

  • GST-free health supplies – the Government’s measure introduced in the 2011-12 Budget will be further amended to ensure health supplies from a health care provider paid for by compensation will be GST-free if the underlying supply from the health care operator is also GST-free.
  • Reduced GST tax credits – from 1 July 2011, access to reduced GST tax credits will be restored for all credit unions who rebrand as “banks”.
  • GST compliance activities – additional funding will be provided to ensure GST compliance activities undertaken by the ATO will be extended for a further two years until 2015-16.
  • Cross-border transactions – there will be minor clarifications to the 2010-11 Budget measure in relation to cross-border transactions, including clarification of the definition of “permanent establishment” for GST purposes.

Superannuation changes

  • Increasing concessional contributions caps – the measure to increase the concessional contribution caps (also known as pre-tax contributions) for individuals over 50 with low superannuation balances announced in the 2010-11 Budget has been deferred and will now start on 1 July 2014 instead of 1 July 2012. Under this higher concessional contributions cap, individuals aged 50 and over with superannuation balances below $500,000 will be able to contribute up to $25,000 more in concessional contributions. The two-year deferral means that for the 2012-13 and 2013-14 income years, all individuals will be able to make concessional contributions of up to $25,000 per year as permitted under the general concessional contributions cap. In 2014-15, the general cap is likely to increase to $30,000 through indexation, and the higher cap would then commence at $55,000.
  • Higher contributions tax for higher income earners – From 1 July 2012, individuals with income greater than $300,000 will have the tax concession on their contributions reduced from 30% to 15% (excluding the Medicare levy). That is, the flat superannuation contributions tax rate will increase from a rate of 15% to a rate of 30%.

The definition of “‘income” for the purpose of this measure includes concessional superannuation contributions. If an individual’s income, excluding their concessional superannuation contributions, is less than the $300,000 threshold, but when their concessional contributions are included they exceed the $300,000 threshold, the reduced tax concession will only apply to the part of the contributions in excess of the threshold.

The reduced tax concession will not apply to concessional contributions which exceed the concessional contributions cap and are therefore subject to “excess contributions tax” (which are taxed at the top marginal rate).

  • Employment termination payment tax offsets – from 1 July 212, the tax offset (also known as rebates) will be limited so that only that part of an affected Employment Termination Payment (ETP), such as a golden handshake, that takes a person’s total annual taxable income (including the ETP) to no more than $180,000 will receive the ETP tax offset.

Amounts above $180,000 (known as the “whole-of-income cap”), will be taxed at marginal rates. This cap will complement the existing ETP cap (which will be $175,000 in 2012-13, indexed) which ensures that the tax offset only applies to amounts up to the ETP cap.

Tax changes affecting Non-residents

  • Marginal tax rates for non-residents – the marginal tax rates and thresholds as apply to non-residents will be amended from 1 July 2012. The tax rate that will apply is 32.5% (applying to taxable income below $80,000.,From 1 July 2015, this rate will then rise to 33%.
  • No CGT discount for non-residents – starting from 7.30pm (AEST) on 8 May 2012, the CGT discount will no longer be available to non-residents for capital gains accrued after this time.
  • Managed Investment Trust withholding – withholding tax is applied to certain Managed Investment Trust (MIT) income paid to a non-resident of Australia. The withholding rate that applies to managed investment trusts will be increased from 7.5% to 15% starting from 1 July 2012.

Other measures

  • Clean Energy Finance Corporation – the Clean Energy Finance Corporation will be exempt from income tax effective from 1 July 2013. This should enhance the Corporation’s ability to finance investments in the commercialisation and deployment of renewable energy and enabling technologies, energy efficiency and low-emissions technologies.
  • Wine producer rebate – From 1 July 2012, the wine producer rebate will be amended to ensure that wine producers will not be able to claim multiple rebates for the same quantity of wine.

TaxWise® News is distributed by professional tax practitioners to provide information of general interest to their clients. The content of this newsletter does not constitute specific advice. Readers are encouraged to consult Hurley & Co Chartered Accountant for advice on specific matters.