Tax Wise Individual News (November 2012)

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  • ATO Compliance Program
  • New Tax Rates – Residents and Non-Residents
  • Household Assistance Package
  • Tax Offsets
  • SchoolKids Bonus
  • Private Healthcare and Medicare Levy Surcharge changes
  • Superannuation
  • Are you an employee or contractor?
  • Living Away From Home Allowance
  • Personal Services Income – ATO Letters
  • Reasonable Travel and Overtime Meal Allowances
  • New PAYG Instalment Options
  • Employment Termination Payments – Withholding Rates

ATO Compliance Program

Another financial year has passed and we are well into the new one. The ATO has released its new Compliance Program for 2012-13. We highlight the main focus areas of the ATO in relation to Individuals, that is, all the things you need to be aware of that the ATO will be focusing on over the next 12 months.

The ATO will be focusing on the following areas:

  • Incorrect or fraudulent refunds for over-claims and deliberate fraud (including errors and misunderstanding of entitlements, lack of supporting documentation for certain claims, deliberately false claims and ID fraud);
  • Review of work-related expenses for certain occupations with high levels of claims;
  • People getting caught up in tax-avoidance schemes; and
  • Income that has been omitted including dividends, interest, capital gains and foreign source income.

The ATO will also be targeting the following three professions when it comes to claiming “work-related expenses”:

  • IT Professionals;
  • Certain Australian Defence Force Members and
  • Plumbers who are employees.

The ATO has developed guides for claiming work-related expenses in these three professions to assist members of these professions in claiming the right amounts of expenses they are entitled to and helping them to avoid making mistakes.

To assist taxpayers with their returns, it is a good idea to see a registered tax agent. Also, depending on your circumstances, you should check with your registered agent about when your return is (or was) due.

New Tax Rates – Residents and Non-Residents

In the table below are the new tax rates that affect individuals who are residents and non-residents of Australia from 1 July 2012:

Residents                                                     

Taxable Income Amount of Tax Payable
$0 – $18,200 Nil
$18,201 – $37,000 19c for each $1 between $18,201 and $37,000
$37,001 – $80,000 $3,572 plus 32.5c for each $1 between $37,001 and $80,000
$80,001 – $180,000 $17,547 plus 37c for each $1 between $80,001 and $180,000
$180,001 and over $54,547 plus 45c for each $1 over $180,000

Non-Residents

Taxable Income Rate
$0 – $80,000 32.5c for each $1
$80,001 – $180,000 $26,000 plus 37c for each $1 between $80,001 and $180,000
$180,001 and over $63,000 plus 45c for each $1 over $180,000

If you are a non-resident and need to apply for a tax file number, the ATO requires new “proof of identity” standards to be met. These are outlined in a new document they have published called entitled “Proof of identity – for individuals and businesses resident outside Australia”. A link to this publication is here (http://www.ato.gov.au/businesses/content.aspx?doc=/content/00124974.htm).

Household Assistance Package

The ATO has published information about the Household Assistance Package that has been made available by the Government as a result of various tax reform measures including the carbon tax. Specific information that affects individuals can be found here (http://www.ato.gov.au/individuals/content.aspx?doc=/content/00322112.htm). Information about certain changes, such as in relation to the Medicare Levy Surcharge and to certain tax offsets, can be found throughout this issue of TaxWise.

Tax Offsets

Below are some of the tax offsets that changed with effect from 1 July 2012:

  • Net medical expenses tax offset (NMETO) – a means test has been introduced for this tax offset. For taxpayers with adjusted taxable income above the Medicare levy surcharge thresholds ($84,000 for singles and $168,000 for couples or families in the 2012-13 income year), the amount above which a taxpayer may claim NMETO will be increased to $5,000 (indexed annually thereafter). The rate of reimbursement will be reduced to 10% for eligible out-of-pocket expenses incurred.
  • Combining of the “dependency tax offsets” – The eight dependency tax offsets have now been consolidated into a single, streamlined and non-refundable offset (including the invalid spouse, carer spouse, housekeeper, housekeeper (with child), child-housekeeper, child-housekeeper (with child), invalid relative and parent/parent-in-law tax offsets). This consolidated offset is based on the highest rate of the existing offsets it replaces, resulting in an increased entitlement for many of those eligible for this measure. Tax offsets for multiple dependants will still be able to be claimed by eligible taxpayers.
  • Mature age worker tax offset (MAWTO) – The MAWTO phases out for taxpayers born on or after 1 July 1957. This does not affect any person who currently receives MAWTO (taxpayers who are aged 55 years or older in the 2011 – 12 income year).

SchoolKids Bonus

The new SchoolKids Bonus, which replaces the Education Tax Refund, starts on 1 January 2013 and will be paid each January and July. The SchoolKids Bonus will be paid in two instalments, totalling $410 for each primary school child and $820 for each secondary school child per year. See your tax agent to find out if you are eligible for the SchoolKids Bonus. For more information about the SchoolKids Bonus, visit the Department of Human Services website here (http://www.humanservices.gov.au/customer/services/schoolkids-bonus).

The Education Tax Refund was paid out in full starting from 20 June 2012 to all eligible families and therefore there is no requirement to make a claim for it in the 2012 Income Tax Return.

If you believe you are eligible for the Education Tax Refund and did not receive a lump sum payment, see your tax agent who can assist in investigating this for you.

Private Healthcare and Medicare Levy Surcharge changes

Since 1 July 2012, the private health insurance rebate and who is required to pay the Medicare levy surcharge (which is payable when an individual or family doesn’t have sufficient private hospital cover from a private health insurer) has become means tested. This will apply to all 2013 and later income year tax returns.

The table below shows what percentage rebate certain taxpayers in particular income brackets are eligible to claim and also who has to pay the Medicare levy surcharge (and how much). The three-tiered scaling will likely result in those falling in the higher income brackets having increased private health insurance payments and a higher Medicare levy surcharge obligation (if this applies).

 No change  Tier 1 Tier 2 Tier 3
 Singles (income)  ≤ $84,000 $84,001 – $97,000 $97,001 – $130,000 ≥ $130,001
 Families (income)  ≤ $168,000 $168,001 – $194,000 $194,001 – $260,000 ≥ $260,001
 % of insurance premium = rebate*  30% 20% 10% 0%
 Medicare levy surcharge %  0% 1% 1.25% 1.5%

*If you are an older taxpayer (65 years or older), the rebate amounts are higher.

The way you claim your rebate (either directly from your private health insurer, through your tax return or from Medicare) should not change.

Superannuation

There are some important things you should know about super:

  1. You might be eligible for a low income super contribution – if you have adjusted taxable income of up to $37,000, you may be eligible for the low income super contribution which is a government payment of up to $500 to eligible taxpayers. See the ATO website for more information. (http://www.ato.gov.au/individuals/content.aspx?doc=/content/00323725.htm).
  2. You might be able to get a refund of excess concessional contributions tax – the ATO is making a once-only offer to taxpayers for excess amounts of super that have been contributed to their super account on which excess concessional contributions tax may be payable (the annual cap is $25,000 above which a contribution will be considered “excess”). Taxpayers may withdraw the excess amount (if the excess amount is less than $10,000) from their super fund (though the excess amount will be added to their assessable income and taxed at their applicable tax rate).
  3.  You should review your super contributions now before 30 June 2013 rolls around – as the super contributions cap is now $25,000 (reduced from $50,000 for taxpayers aged 50 and over), it is wise to monitor the amount of contributions being made to your super fund so you know if/when you may be nearing the $25,000 cap and whether you may be liable for excess concessional contributions tax.

Your tax agent will be able to help you answer all your superannuation-related questions.

It is a good idea to keep an eye on your super contributions and ensure the right amounts are being contributed on your behalf.

MySuper

The Government has also introduced another Bill in relation to the “Stronger Super” reforms in relation to “MySuper”. The Bill imposes various obligations on super funds, particularly where a “MySuper” product is offered, including:

  • requiring all superannuation funds to provide life and TPD insurance to members (excluding defined benefit members) on an opt-out basis;
  • requiring the disclosure and publication of key information in relation to superannuation funds;
  • allowing only funds that offer a MySuper product and exempt public sector superannuation schemes to be eligible as default funds in modern awards and enterprise agreements;
  • allowing exceptions from MySuper for members of defined benefit funds; and
  • requiring trustees to transfer certain existing balances of members to MySuper.

If the superannuation fund you are a part of is going to offer a MySuper product, you should be aware of the requirements above that the super fund will need to meet.

Are you an employee or contractor?

The ATO has recently put together some tools and comprehensive information to assist businesses and individuals to work out whether they are an “employee” or “contractor”. Links to the tools and information are below:

If you are unsure about whether you are an employee or contractor, or whether you could be a contractor rather than an employee, it is a good idea to have a look through the information now available on the ATO website and talk to your registered tax agent about your particular circumstances.

Just because you have an ABN and have given it to the person for whom you are doing work doesn’t necessarily make you a contractor. Therefore, it is a good idea to be clear on what your status is (ie “employee” or “contractor”) to ensure the right amount of tax is being withheld from payments made to you and superannuation guarantee payments are made on your behalf if you are in fact an employee.

Living Away from Home Allowance

The new Living Away From Home (LAFH) allowance provisions began to apply from 1 October 2012. The new LAFH provisions ensure that recipients of the LAFH allowances that meet the requirements will be tax-free and not included in the recipient’s assessable income.

 

Since the previous issue of TaxWise, in which it was noted that the LAFH provisions would be moved into the income tax law and taken out of the fringe benefits tax law, after much detailed consultation with the tax profession, the Government agreed not to complicate things too much and to leave the LAFH provisions within the FBT space, which is where they had always been.

However, the rules still have the effect of limiting access to the concession to employees who are required to live away from a home they maintain in Australia and require employees to substantiate their actual expenditure on food and accommodation in excess of the statutory amount.

The ATO has published detailed information relevant for individuals subject to a LAFH arrangement on their website (see link http://www.ato.gov.au/individuals/content.aspx?doc=/content/00333793.htm).

 

There are also transitional rules which apply to arrangements that were in place at 7.30pm on 8 May 2012. The new rules will apply to these existing arrangements on the earlier of the existing arrangement changing (after 8 May 2012) or 1 July 2014 when the transitional period ends.

If you are subject to a LAFH arrangement, speak to your tax agent to find out how the new rules might affect your current arrangement.

Personal Services Income – ATO letters

In September 2012, the ATO wrote to several taxpayers who have reported personal services income, but who may have incorrectly self-assessed themselves as conducting a personal services income business. If you have received a letter of this kind, it is best to talk to a registered tax agent about what this might mean for you. If you already have a tax agent, your agent should have also received a copy of the letter that was sent to you. It is important to work out whether you have correctly determined if you conducted a personal services business (and have derived personal services income) as your reporting obligations may be affected and it may impact certain deductions you may or may not be able to claim.

Reasonable travel and overtime meal allowances

For the 2012-13 income year, the ATO has released Taxation Determination TD 2012/17 entitled “Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2012-13 income year?” which sets out the amounts considered “reasonable” for travel and meal allowances for which there will be no substantiation requirements.

This includes amounts such as:

  • overtime meal allowance expenses – for food and drink in connection with overtime worked and where a meal allowance has been paid under an industrial instrument;
  • domestic travel allowance expenses – accommodation, food and drink, and incidentals that are covered by the allowance;
  • travel allowance expenses for employee truck drivers – food, drink and incidentals that are covered by the allowance; and
  • overseas travel allowance expenses – food, drink and incidentals that are covered by the allowance.

If in your occupation you are entitled to such an allowance, such as truck drivers, you may wish to have a look at the “reasonable” amounts included in the Taxation Determination for which you may not have to keep documentation substantiating the expense. Where your expenses incurred exceed the specified “reasonable” amounts, you will need to keep written records of the expenses incurred.

New PAYG Instalment Options

If you pay PAYG Instalments, there may be an opportunity for you to change to account for your PAYG Instalment obligations on an annual basis rather than the report and pay on a quarterly basis. Your tax agent may already have received a letter advising which of their clients may be entitled to make this change (which could include you). Though the cut-off date was 29 October 2012, this may be something to keep in mind for next year.

Employment Termination Payments – Withholding Rates

New withholding rates that apply to employment termination payments have been set out in a new Schedule issued by the Commissioner. The Schedule sets out the withholding rates that might apply (Nil, 16.5%, 31.5%, 46.5%) to the various components of an employment termination payment (including a benefit received for a genuine redundancy, compensation or similar such payment; payment of unused annual leave and long service leave; a “golden handshake” etc) which is also determined by your age when you receive the payment. The Schedule can be accessed through this link (http://www.ato.gov.au/content/downloads/BUS00319263N709800612.pdf)

If you receive an employment termination payment during the 2012-13 income year, it is a good idea to check the Schedule to make sure the right amount of tax (if any) is withheld from the payment.

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.