Federal Budget 2012-13
Resident personal tax rates for the 2012/13 year
$0 – $18,200 Nil
$18,201 – $37,000 19% of amount over $18,200
$37,001 – $80,000 $3,572 plus 32.5% of amount over $37,000
$80,001 – $180,000 $17,547 plus 37% of amount over $80,000
Over $180,000 $54,547 plus 45% of amount over $180,000
(The marginal rates do not include Medicare levy.)
Non Resident personal tax rates for the 2012/13 year
$0 – $80,000 32.5%
$80,001 – $180,000 $26,000 plus 37% of amount over $80,000
Over $180,000 $63,000 plus 45% of amount over $180,000
Removal of CGT discount for non-residents
The CGT discount will not be available to residents on gains that accrue after 7.30 pm (AEST) on 8 May 2012.
Non-residents may apply the discount to gains that accrue before this time provided that they obtain a market valuation of the assets as at 8 May 2012.
Changes to the Employment Termination Payment (ETP) tax offset
Currently, an ETP is taxed at no more than 15% for those who have reached their preservation age and no more than 30% for those who are aged less than their preservation age, up to an annual indexed cap of $165,000 for the 2011–12 income year (to be indexed to $175,000 for the 2012–13 income year).
From 1 July 2012, if the payment of an affected ETP (such as a golden handshake) takes a person’s total annual taxable income, including the ETP, to no more than $180,000, they will continue to receive the ETP tax offset.
However, from 1 July 2012, if the payment of an affected ETP takes a person’s total annual taxable income, including the ETP, to more than $180,000, that amount of the ETP which exceeds this new whole-of-income cap will be taxed at marginal tax rates.
Company loss carry back
Companies will be allowed to carry-back tax losses of up to $1 million, effective from the 2012–13 income year.
A one year loss carry-back will apply in 2012-13 income year.
A two year loss carry-back will apply in 2013-14 income year and later years.
The Government will provide tax relief for companies by allowing them to carry-back tax losses to receive a refund of tax previously paid.
A one year loss carry-back will apply in 2012-13 income year —a tax loss incurred in that year can be carried back and offset against tax paid in the 2011-12 income year.
A two year loss carry-back will apply in 2013-14 income year — a tax loss incurred in that year (or a later year) can be carried back and offset against tax paid in the two previous income years.
Companies will be able to carry back up to $1 million of tax losses each year. This will provide a cash benefit of up to $300,000 a year. However, the refund cannot exceed the company's franking account balance.
Loss carry-back will be available to companies and entities that are taxed like companies. It will apply to revenue losses only and will be subject to integrity rules.
Changes to the medical expenses tax offset
Currently, the medical expenses tax offset (NMETO) is available where net medical expenses exceed $2,060 for the 2011–12 income year.
From 1 July 2012, for singles with an adjusted taxable income of more than $84,000, and for couple or families with an adjusted taxable income of more than $168,000, the NMETO reduces from 20 per cent to 10 per cent of net medical expenses over $5,000.
Education Tax Refund replaced with Schoolkids Bonus
On 6 May 2012, the Prime Minister and Minister for Families, Community Services and Indigenous Affairs announced that families with children will be provided with a new Schoolkids Bonus.
The Schoolkids Bonus is a cash payment to support the cost of their children’s education and replaces the ETR.
The following payments will be made in two equal instalments in January and July each year commencing in January 2013 and is:
• for each child in primary school — $410; and
• for each child in high school — $820.
Eligible families will not be required to maintain receipts and invoices as proof of the expenditure or wait until ‘tax time’.
Families will be eligible for the payment where they have children enrolled in and attending school and either:
• are in receipt of the FTB Part A; or
• have other qualifying income support payments or allowances.
For the 2011–12 income year, the ETR will be replaced by a one-off lump sum payment to eligible families in June 2012.
Medicare Levy Low Income Thresholds
Couples threshold increase to $32,743
Singles threshold increase to $19,404
Pensioners (below pension age) threshold increase to $30,451
Company tax rate reduction will not proceed
The proposed reduction of the company tax rate to 29 per cent for:
• small business from the 2012–13 income year ; and
• companies generally from the 2013–14 income year,
will not proceed.
High income earners superannuation contributions tax
• Individuals whose ATI is more than $300,000 will have their concessional contributions taxed in the fund at 30 per cent.
• Individuals whose ATI is $300,000 or less will continue to have their concessional contributions taxed in the fund at 15 per cent.
Those individuals whose ATI exceeds $300,000 solely because of the inclusion of concessional superannuation contributions in the calculation of their ATI will have their contributions taxed at the rate of 30 per cent only on the amount that has caused the ATI to exceed $300,000.
The flat 15 per cent tax on earnings within the superannuation fund and the tax exemption for assets supporting pension payments are to remain.
Deferral of concessional cap for those aged 50 and over
• For the next two years commencing on 1 July 2012 the concessional cap will be $25,000 irrespective of a person’s age.
• Individuals with low superannuation balances under $500,000 are expected to have a concessional cap of $55,000 in the year commencing 1 July 2014 assuming the concessional cap increases to $30,000 due to indexation.
• The $500,000 will be easier to determine through the implementation of an online reporting facility being developed by the ATO.
• Individuals who salary sacrifice superannuation should review their salary sacrifice agreement to ensure that they do not exceed their concessional caps for the year commencing 1 July 2012.
Employer super payments on payslips
From 1 July 2012 employers will need to advise on payslips the superannuation actually paid for an employee.
Super funds will advise both the employer and the employee where regular payments have ceased.
Starting a Business in Australia
If you are considering starting a business in Australia or investing in a business in Australia, you will need to consider a number of factors including:
- Feasibility Study
- Licence & Permits
- Business Planning
- Finance/Funding
- Business Structure
- Location & Premises
- Registration of Business Name
- Income Tax, State Tax & Duty
- Insurance
- Employees
- Business Documentation
- Budgeting & Finance Control
- Marketing, Advertising
- Credit & Debt Collection
- Technology & Communications
- Legal Aspects
- Franchising
ATO to increase audit activity of foreign transactions
Due to the increase in Australian businesses venturing into foreign markets and Australian investors investing abroad in foreign property and shares the ATO has increased its audit activity of foreign transactions.
There are many taxation implications of investing and doing business overseas. Some of the more common implications include:
1. Australian residents are taxed on worldwide income.
2. Where income earned overseas has already been taxed in a foreign jurisdiction, the Australian foreign income tax offset is available to address any double-up.
3. Where SMEs have dealings with an overseas-related entity, those dealings must be on a commercial basis to ensure arm’s length principals are adopted and appropriate tax is paid
4. Exports of goods and services from Australia will generally be GST free, but GST can apply in certain instances.
5. Where goods are being imported, the Australian Customs Service collects GST generally before Customs releases the goods. The amount payable is calculated as 10% of the value of the imported product. However, if you are an importer and are registered for GST, you may be able to defer payment by participating in the deferred GST scheme.
6. There are also rules around what foreign exchange rate needs to apply to all foreign income, deductions and tax paid when converted into Australian dollars for inclusion on your Australian tax return.
Given the ATO's compliance focus on international transactions, including the high-profile Project Wickenby, now is a good time to make sure your international dealings are compliant with Australian Taxtaion Law.
Cooper Review
The final report of the Cooper superannuation review has been released by the Government and has some potential significant consequences for self-managed super funds. Whilst not yet law trustees should be prepared in case the recommendations are supported by the Government.
Four major aspects that we find are relevant to most of our client SMSF’s are:
1) SMSF’s acquiring business real property from members.
2) In House assets
3) Borrowing through the use of instalment warrants
4) Exotic investments (cars, artwork etc)
Listed below are a summary of what the Cooper review had to say about each of the above listed topics:
1. Don't worry if your business premises are held in your SMSF.
Fortunately, the Cooper review makes no recommendations about business real estate held in SMSFs – even if rented to the members' own businesses. This should be seen as a key win for many SME owners.
Significantly, business real estate is expressly excluded in law from being classified as a so-called in-house asset of a SMSF, which the Cooper review wants to prohibit funds from owning.
2. Think about how to refocus your SMSF's investment portfolio if it holds related-party investments.
The Cooper review has strongly recommended to the Government that self-managed funds be barred from holding even a small percentage of what are known as in-house assets. In-house assets include loans, investments or leases involving related parties of the fund.
Currently, a self-managed fund cannot hold more than 5% of its assets (based on value) in in-house assets. The Cooper review recommends that the SMSFs be prohibited from acquiring new in-house assets, and funds with existing in-house assets be given five years to either get rid of them or become what is known as a small APRA fund with a professional, APRA-approved trustee.
3. Be cautious about gearing levels in your SMSF.
The Cooper review states that "leverage should not be a core focus for SMSFs".
The Superannuation Industry (Supervision) Act was amended in September 2007 to unequivocally allow self-managed funds to borrow to buy investments – using such means as instalment warrants – provided strict conditions are met.
While the Cooper review notes that the level of borrowing by funds under this amendment began modesty, it appears to have gathered pace.
Given the fund gearing recommendation of the Cooper review, it is not difficult to envisage the Government tightening of the borrowing provision sometime in the future. Whilst no changes are currently proposed to the borrowing arrangements trustees should always be prepared.
4. Think about how your fund's diversification may have to change if it owns paintings, antiques or classic cars.
The Cooper review recommends that the Government prohibit self-managed funds from owning collectables and personal-use assets. The review suggests that funds already with these investments be given five years to get rid of them or to convert to a small APRA fund.
Trusts – Bamford High Court Decision
Special consideration must be given to making trusts distributions for the year ended 30 June 2010 due recent developments.
On 30 March 2010 the High Court handed down its decision that:
The expression “income of the trust estate” in s.97(1) is to be ascertained by the trustee in accordance with the trust deed, trust principles, and appropriate accounting principles; and
The proportionate approach and not the quantum view, in the correct approach to apply when determining a beneficiary’s “share” of the trust’s tax law income to be included in the beneficiary’s assessable income.
We recommend anybody who uses a trust to thoroughly review their trust deeds paying special attention to the trust distribution clauses, recharacterisation clauses and equalisation clauses.
ATO attacks trust distributions to companies
Special attention must be given to making a trust distribution to a company beneficiary due to the recently released tax ruling 2010/3 issued on 2 June 2010.
For many years the Australian Taxation Office has accepted that non-payment of a trust distribution to a company beneficiary which gives rise to an unpaid present entitlement is not a loan for the purposes of Division 7A. However this view has recently changed with the release of TR 2010/3.
ASIC fees
Examples of some fee changes are:
Annual review for a proprietary company increases from $218 to $226.50
Application for registration as an Australian company increases to $426
Company voluntary deregistration fee increases from $34 to $35
Targeting overseas employment income exemption
The Government will better target the income tax exemption for foreign employment income, with effect from 1 July 2009. The exemption will apply to income earned as an aid worker, a charitable worker, under certain types of government employment or on projects that are in the national interest.
Currently, certain foreign employment income earned by Australians working overseas for a continuous period of 91 days or more is exempt from income tax. The original intent of this measure was to relieve double taxation, however, in practice little foreign tax may actually be paid on the foreign income concerned.
Instead, subject to the aforementioned exemptions, foreign employment income will generally become taxable and taxpayers will be entitled to a foreign income tax offset for foreign tax paid on the foreign employment income. This will relieve double taxation for those individuals.
Targeting the concessions for Employee Share Schemes
The Government has announced measures that will remove the inconsistency which currently exists between the two types of employee share schemes: qualifying shares schemes and non-qualifying share schemes. The measures will maintain the incentives for low and middle-income earners to access such schemes.
Currently an employee under a qualifying share scheme can elect to be assessed on discounts provided on shares or rights in the income year the shares or rights are acquired. If no election is made, the discount (which includes gains on shares or rights) is taxed at a later time (such as when restrictions on the shares or rights are lifted). If an employee elects to be taxed upfront they receive a tax exemption of up to $1,000 on the discount.
In comparison, if the shares or options are issued under a non-qualifying scheme, the employee is taxed on the discount when he or she acquires the shares or options. This means they do not enjoy the tax benefits associated with qualifying employee share schemes.
Under the new arrangements, all discounts on shares and options provided under an employee share scheme - either qualifying or non-qualifying -will be assessed in the income year in which they are acquired. That is, employees acquiring shares or options under qualifying employee share schemes will no longer be able to elect to defer taxation on their discount to a later time. This will ensure that all forms of remuneration are taxable in the year the remuneration is received.
The Government will also limit access to the $1,000 upfront concession. The $1,000 upfront tax exemption will be limited to those employees with a taxable income of less than $180,000 after adjustment for fringe benefits, salary sacrifice and negative gearing losses.
The measure will take effect with respect to shares and rights acquired after 7:30pm (AEST) on 12 May 2009.
Tax Time !
Beware - Tax Refund Scam
The Tax Office has issued two separate but related media releases warning taxpayers of two e-mail scams purporting to offer a tax refund.
The scams operate by requesting a taxpayer’s credit card and personal details.
Generally, the subject heading of the emails are titled:
• Get refunds on your Visa or Master Card;
• Notification — Please Read; or
• Australian Taxation Office — Please Read This.
The Tax Office does not send e-mails requesting personal information including credit card details.
Individuals who receive emails of this nature should immediately delete them.
Tax is all done, time to prepare for next year
Yes it is never ending. Every year we reach the end of the financial year and start thinking about doing our tax and usually by the time we've sorted it all out its time to start thinking about the next year. At Schwarz & Reynolds we specialize in helping you prepare for the next year's tax issues. If you ever look at your payment summary and wonder, where did it all go, or why do I pay so much tax, we can help.
Please email us at enquiry@sraccountants.com.au or call us on +61 3 9853 1587 to find out more.