Recent and proposed tax reforms 2017-2018

Recent and proposed tax reforms

 

There have been a number of recent and proposed tax changes during the last 12 months and many of these are particularly relevant to smaller businesses and individual taxpayers. A number of the changes also apply from 1 July 2017 so may impact on year end planning or structures.

 

Executive Summary

 

We have outlined the following in this letter.

 

  1. Key tax changes arising from the 2017-18 Federal Budget.
  2. Major legislated tax reforms over the 2016-17 year.
  3. Key amendments to the superannuation regime over the 2016-17 year.

 

Key tax changes arising from the 2017-18 Federal Budget

 

  • A Small Business Entity (SBE) will be able to claim an immediate deduction in respect of an eligible depreciating asset costing less than $20,000 for a further year as that concession will now cease on 30 June 2018 rather than on 30 June 2017. The threshold will now revert back to $1,000 from 1 July 2018 rather than on 1 July 2017 as originally intended. The effect of the above change is that an SBE will be able to claim an immediate deduction for a depreciating asset costing less than $20,000 which is first used or installed ready for use by 30 June 2018 to the extent it is used for a taxable purpose. Assets costing $20,000 or more can likewise continue to be depreciated under the general small business pool at a rate of 15% for additions acquired during the year ended 30 June 2018 and at a rate of 30% in subsequent years. Similarly, the lockout rules that prevent an SBE from re-entering the small business depreciation regime will also be suspended for a further year so that they do not apply for the year ended 30 June 2018.
  • The Medicare levy will be increased by 0.5% from 2% to 2.5% effective from 1 July 2019. As a corollary, the effective highest marginal tax rate effective from 1 July 2019 will be increased by 0.5% from 47% to 47.5%. This increase in the tax rate to 47.5% will also be reflected in other tax rates such as the Fringe Benefits Tax (FBT) rate and the rate of tax payable by trustees under section 99A of the Income Tax Assessment Act 1936 (the ITAA 1936) where no beneficiary is presently entitled to trust income.
  • The Taxable Payments Reporting System will be extended to apply to contractors in the courier and cleaning industries from 1 July 2018.
  • The purchase of digital currency will be treated as being acquired under an input taxed financial supply from 1 July 2017 for GST purposes.
  • From 1 July 2018, purchasers of newly constructed residential properties or new subdivisions will be required to remit the GST on the purchase directly to the ATO as part of a settlement.
  • From 1 July 2017, the depreciation of plant and equipment used in rental properties will be limited to outlays actually incurred by investors who own residential real estate properties. That is, investors who purchase plant and equipment for a residential investment property after 9 May 2017 will be able to claim a deduction for the depreciation of such plant and equipment over their effective life. However, subsequent owners of the property will be unable to claim deductions for plant and equipment purchased by the previous owner of that property. The cost incurred by subsequent purchasers in acquiring such depreciating assets will instead be taken into account for CGT purposes when the property is on sold. As a transitional measure where plant and equipment forms part of a residential property on 9 May 2017 (or was acquired under a contract for a property entered into by that date), the existing depreciation rules will continue until the property is either sold or the asset is written off.
  • From 1 July 2017, the travel expenses relating to inspecting, maintaining or collecting rent for a residential rental property will be disallowed.
  • An annual charge on foreign owners of a residential property will be imposed where the property is not occupied or genuinely available on the rental market for at least six months per year. The proposed change will apply to foreign persons who make a foreign investment application for a residential property on or after 9 May 2017.
  • From 1 January 2018, the CGT discount will be increased by 10% from 50% to 60% in respect of investments held by resident individuals in qualifying affordable housing.
  • Foreign and temporary tax residents will be denied access to the CGT main residence exemption from 9 May 2017 (although such foreign owners will continue to be able to claim the CGT main residence exemption in respect of residences acquired before that time up to 30 June 2019).
  • The foreign resident CGT withholding tax rate will increase from 10% to 12.5% effective from 1 July 2017, and the safe harbour threshold below which withholding does not apply will be reduced from the current level of $2 million to $750,000 from 1 July 2017.
  • From 1 July 2018, a person aged 65 or over can make a non-concessional contribution of up to $300,000 from the proceeds of selling their principal residence if it has been owned for the past 10 years or more which will not be included in the calculation of that person’s total superannuation balance.
  • From 1 July 2017, individuals will be able to make extra voluntary superannuation contributions of up to $15,000 a year up to a total of $30,000 additional voluntary superannuation contributions which will be used to later fund a deposit on a first home. Such voluntary contributions will be taxed at 15% and can be withdrawn to help finance the deposit on a first home on or after 1 July 2018. Where the extra concessional contributions (and related earnings) are withdrawn, the individual will pay tax on the withdrawn amount at their marginal tax rate less a 30% tax offset.
  • From 1 July 2017, the major five banks will be subject to a quarterly levy of 0.015% of their licensed entity liabilities which is expected to yield approximately $6.2 billion in additional revenue over the next 4 years.
  • Various anti-avoidance measures will be legislated including extending the operation of the multinational anti-avoidance law (MAAL) provisions of Part IVA of the ITAA 1936.

 

Major legislated tax reforms over the 2016-17 year

 

The major tax changes legislated during the 2016-17 year included the following.

 

  • Following the enactment of the Treasury Laws Amendment (Enterprise Tax Plan) Act 2016 the company tax rate will be reduced from 28.5% to 27.5% for tax year ended 30 June 2017 for a company which qualifies as a small business entity, being a company that carries on a business and whose aggregated turnover is less than $10 million for the tax year ended 30 June 2017. The company tax rate of 27.5% will be extended to a ‘base rate entity’ being a company which carries on a business and whose aggregated turnover is less than $25 million for the tax year ended 30 June 2018, and to a company whose aggregated turnover is less than $50 million for the year ended 30 June 2019. Thereafter the company tax rate will be progressively reduced for a base rate entity with an aggregated turnover of less than $50 million to 27% in the tax year ended 30 June 2025, 26% in the year ended 30 June 2026 and 25% in the year ended 30 June 2027. All other companies which are not eligible for the reduced company tax rate cut during this period will continue to be subject to the standard corporate tax rate of 30%.
  • The above changes to the company tax rate have also resulted in changes to the imputation system for companies who are either a small business entity for the year ended 30 June 2017 or a base rate entity eligible for a reduced company tax rate in the year ended 30 June 2018 or in subsequent years because their aggregated turnover is below $50 million. In these circumstances, the maximum franking credit that can be attached to a frankable distribution by the above companies will be based on a corporate tax rate determined according to the aggregated turnover the company made in the immediately preceding year. That is, an eligible company’s corporate tax rate for a particular year will be worked out on the assumption that the company’s aggregated turnover for an income year is equal to its aggregated turnover threshold for the immediately preceding year albeit for franking purposes only.
  • The non-refundable small business tax offset for unincorporated businesses has increased by 3% from 5% to 8% for the tax year ended 30 June 2017. In addition, the eligibility threshold enabling individuals deriving net small business income to access the tax offset will increase from the current less than $2 million aggregated turnover threshold to a less than $5 million aggregated turnover limit from the tax year ended 30 June 2017 onwards. The small business tax offset will then remain at 8% before progressively increasing to 10%, 13% and 16% for the tax years ended 30 June 2025, 30 June 2026 and 30 June 2027 respectively. However, the amount of the small business tax offset will remain capped at an annual maximum amount of $1,000 for each individual directly or indirectly deriving net small business income in the 2016-17 year and in future years.
  • The definition of a small business entity under section 328-110 of the ITAA (1997) will be amended to increase the aggregated turnover threshold for an entity to be eligible to be a small business entity from a less than $2 million aggregated turnover to a less than $10 million aggregated turnover threshold from the tax year ended 30 June 2017 onwards. Hence, an eligible small business entity will be able to claim the following concessions for the tax year ended 30 June 2017:
    • immediate deductibility for certain small business start-up expenses
    • simpler depreciation rules (including access to the immediate deduction for depreciating assets)
    • simplified trading stock rules
    • roll-over for restructures of small businesses
    • deductions for certain prepaid business expenses immediately
    • accounting for goods and services tax (GST) on a cash basis
    • annual apportionment of input tax credits for acquisitions and importations that are partly creditable
    • paying GST by quarterly instalments
    • Fringe Benefits Tax (FBT) car parking exemption (from 1 April 2017)
    • Pay As You Go (PAYG) instalments based on gross domestic product (GDP) adjusted notional tax.
  • However, the basic eligibility conditions of the small business CGT concessions have been amended so that taxpayers seeking to access those concessions as a small business entity will continue to be subject to a less than $2 million aggregated turnover threshold rather than a less than $10 million aggregated turnover threshold as is the case with the above tax concessions.

 

Key amendments to the superannuation reforms over the 2016-17 year

 

Some of the major superannuation reforms enacted during the 2016-17 year were as follows.

 

  • A new $1.6 million general transfer cap will apply to amounts that can be held in a complying superannuation fund in the tax-free retirement phase effective from 1 July 2017. It will be necessary for individuals to ensure that their personal transfer balance cap does not exceed the general transfer balance cap which will commence from $1.6 million but which will be subject to future indexation. This has led to the development of a new transfer balance account concept under which certain credit and debit movements need to be closely monitored to ensure that the personal transfer balance cap does not exceed the prevailing general transfer balance cap. Amounts received in excess of the cap can either be transferred to an accumulations account (with any income derived on such excess amounts being concessionally taxed at 15%) or may be withdrawn from the superannuation fund. Individuals with funds in retirement phase which were in excess of the $1.6 million cap between 9 November 2016 and 30 June 2017 were required to transfer the excess amount to an accumulations account or withdraw such funds by 30 June 2017 (subject to a range of transitional measures).
  • From 1 July 2017 earnings on assets supporting transition to retirement pensions will also be taxed at 15% rather than be exempt (regardless of the date on which the payment of the transition to retirement pension commenced).
  • From 1 July 2017, a standard concessional contributions cap of $25,000 will apply to all individuals regardless of age. The $25,000 cap will be indexed for movements in Average Weekly Ordinary Time Earnings (AWOTE) in later years and increased in tranches of $2,500.
  • From 1 July 2017, the annual cap on non-concessional contributions will be reduced from $180,000 to $100,000. In addition, only an individual who has a total superannuation balance which is less than the general transfer balance cap at 30 June of the preceding year will be eligible to make non-concessional contributions from 1 July 2017. Very broadly, an individual’s total superannuation balance comprises an individual ‘s accumulation and retirement phase interests in all their superannuation funds reduced by any personal injury structured settlement amounts contributed to a superannuation fund. The general transfer balance cap for the year ended 30 June 2018 will be $1.6 million.
  • The maximum amount of non-concessional contributions that can be made under the three-year brought forward rule will be reduced from $540,000 to $300,000 from the year ended 30 June 2018 onwards. However, amounts contributed under the brought forward rule cannot be made to the extent that they would cause the $1.6 million cap to be exceeded. Special transitional rules also apply in respect of the phasing-in of the above changes to the three-year brought forward rule whereby the maximum amount that can be contributed is reduced from $540,000 to $300,000 on 1 July 2017. Where the three year brought forward rule was applied in the 2016 year the maximum cap will be $460,000 (being $180,0000 for both the 2016 and 2017 years and $100,000 for the 2018 year). Conversely, where the three year brought forward rule was applied in the 2017 year the maximum cap will be $380,000 (being $180,000 for the 2017 year and $100,000 for both the 2018 and 2019 years).
  • A Low Income Superannuation Offset has been introduced being a non-refundable tax offset of $500 available to low income earners deriving adjusted taxable income of up to $37,000 for the 2017-18 tax year. The design features of this offset are very similar to the Low Income Superannuation Contribution that applies up to the year ended 30 June 2017 including the absence of tapering off rules so that no entitlement to the offset will arise if adjusted taxable income is more than $37,000.
  • The extra 15% tax paid by high income earners on certain ‘low-tax’ contributions (i.e. concessional contributions up to the concessional contributions cap) under Division 293 of the ITAA 1997 will apply from 1 July 2017 where a person’s total ‘income for Medicare Levy surcharge purposes’ and ‘low tax contributions’ is in excess of $250,000 rather than the $300,000 threshold that currently applies.
  • From 1 July 2017, it is proposed that all individuals under the age of 75 will be able to claim an income tax deduction for personal superannuation contributions up to the amount of that person’s concessional contributions cap for the year in which such a contribution was made. This measure will enable substantially self-employed persons to claim deductions for personal superannuation contributions where more than 10% of their total earnings (i.e. assessable income, reportable fringe benefits and reportable employer superannuation contributions) were employment related.
  • From 1 July 2017 access to the low income spouse superannuation tax offset will be broadened as the income eligibility threshold will increase from $10,800 to $37,000 for the full $540 tax offset, and the tax offset will only fully phase out where such income is in excess of $40,000 in lieu of the existing $13,800 threshold. However, a taxpayer will no longer be entitled to a tax offset when making contributions for a spouse whose non-concessional contributions exceed the non-concessional contributions cap in the corresponding financial year or whose total superannuation balance exceeds their general transfer balance cap immediately before the start of the financial year.
  • From 1 July 2018, it is proposed that an individual will be able to make catch up concessional contributions if that person did not fully utilise their concessional contributions cap in one or more of the immediately preceding five years, and that person’s total superannuation balance is less than $500,000 at 30 June of the immediately preceding year. The amount of the unused concessional contributions cap is the difference between the concessional contributions made in a year and the prevailing concessional contributions cap in that year. The five year period in which catch up contributions can be made will be on a rolling basis so that the five year period will progressively be refreshed annually in each successive tax year. The first year in which an individual will be able to make additional superannuation contributions by applying their unused contributions cap will be in the 2019-20 tax year as the unused amounts will start to be available from the 2018-19 tax year.

 

 

The above changes to the superannuation reforms are quite complex, especially those concerning compliance with the $1.6 million general transfer balance cap, but advice on their impact on your existing investment strategy can be provided by our licensed financial adviser.

 

Please contact our office should you wish to discuss any of the issues raised above.

Contact Julian on 0408 033 696 or julian@jagaccountants.com.au

 

EOFY resolutions for your small business

EOFY resolutions for your small business

Do a financial health-check

Year end is a good time to check the financial health of your business. Reviewing financial statements and conducting basic calculations on liquidity, solvency, profitability and return on investment – and comparing the results with previous annual figures and to similar businesses in your industry – will help identify strengths, key weaknesses or potential threats.

Revisit your strategic plan

After a financial health check, also use the end of financial year to reconsider your strategic plan. This should involve an analysis of your market segment and predictions about future trends and developments. It is important that a strategic plan reflects the objectives you, as the business owner, have for your business and personal life.

A strategic plan should also address weaknesses identified in the financial health check and include a work plan, responsibilities and due dates, and be implemented and monitored throughout the upcoming year.

Draw up a budget for the new financial year

When your budget aligns with your strategic plan, it allows you to allocate resources to achieve your plan’s objectives. However, if the budget shows that an objective is likely unaffordable, you may either need to seek more resources to fund it (for example, borrow funds from a bank) or modify the overall plan.

List all your assumptions when setting a budget. To stress test the business, amend these assumptions to determine what impact it has on your financial position; e.g. include a 10 to 20 per cent reduction in sales or a 20 per cent increase in fuel costs.

A budget should be regularly checked against actual results and variations always questioned.

Prepare a cash flow forecast

One of the most significant problems a small business can face is poor cash flow. A cash flow forecast is therefore fundamental to good business practice. Ensure your forecast aligns with your budget and is monitored regularly.

Review your business’s profitability

Issues influencing business profitability may come to light during the financial health check, strategic plan review, or while drafting the budget. Other issues impacting profitability can often be uncovered by reviewing:

  •        staff productivity
  •        your production process
  •        supply chain
  •        use of business assets
  •        costs

You should also consider tactics to increase sales of your most profitable products or services, reduce input costs and seek advice from a CPA Australia-registered tax agent on tax-effective strategies.

Ensure you have finance options

All businesses need finance to fund ongoing operations and to grow. Finance can be provided from debt, equity and internally generated cash flow. The purpose of the required finance – e.g. an asset purchase – will help you to determine the best type of finance to seek.

If you borrow from a lending institution, end of financial year is the perfect time to meet with your lender to discuss business plans for the forthcoming year. Indeed, you may find the lender offers to help finance your future objectives.

Of course, it is always good business practice to have surplus finance available to cover business contingencies, as well as to take advantage of new opportunities.

Revisit your marketing plan

While it may seem obvious, it is important that your marketing plan is focused on achieving key objectives, particularly with regards improving cash position. Ideas for using a marketing plan to bolster the cash position of a business include:

  • focusing on sales that have a high margin and bring in cash quickly; e.g. well placed visual displays such as in-store signs and posters to highlight a special or higher margin products
  • rewarding staff for sales of products that carry higher margins
  • paying staff commissions only when payments are received
  • closely monitoring promotional activity or campaigns to gauge their effectiveness
  • encouraging customers to pay at point of purchase or as soon as practically possible.

Review risk management strategies

Whether a business is experiencing good times or bad, it is important to have appropriate risk management strategies in place.

Key risks to be aware of and manage include:

  • relying too heavily on a small number of major customers, which can in part be managed through increasing customer numbers and helping smaller customers grow
  • over-reliance on a single supplier: identify potential alternatives
  • selling on credit: conduct customer credit checks and if prudent limit the amount of credit they can access, follow up on payment before due and cease supply if customers become late payers
  • fraud: implement internal controls in high-risk areas – e.g. cash handling – and ensure the controls are enforced and breaches promptly acted on
  • cyber security: speak to your IT support provider about the cyber threats you potentially face and how to best mitigate them.

Take advantage of opportunities

It simply makes good business sense to never shy from new opportunities that are consistent with your strategic direction and can be properly funded.

Avoid these record-keeping mistakes

The Australian Taxation Office (ATO) has advised that when it comes to record-keeping, the most common mistakes it sees are a failure to:

  • record cash income and expenditure
  • account for personal drawings
  • record goods for personal use
  • separate private expenses from business expenses
  • keep valid tax invoices for creditable acquisitions when registered for GST
  • maintain adequate stock records
  • substantiate records for motor vehicle claims.

Conclusion

Well-managed businesses use many of the above-mentioned ideas through both good times and hard times to maximise profits, minimise risks, and grow. Applying them now to your business can not only help improve it, but likely lead to long-term growth.

16 tax tips for 2017

Do you know the tax deductions and offsets for which you might be eligible?

The following tips may help you to legitimately reduce your tax liability in your 2016-17 return.

Claim work-related deductions

Claiming all work-related deduction entitlements may save considerable tax. Typical work-related expenses include employment-related telephone, mobile phone, internet usage, computer repairs, union fees and professional subscriptions.

Note that the Australian Taxation Office (ATO) will again check claims made in real time. Claim only what you are legally entitled to and be sure to have all necessary receipts or credit card statements to support them.

Claim home office expenses

When part of your home has been set aside primarily or exclusively for the purpose of work, a home office deduction may be allowable. Typical home office costs include heating, cooling, lighting and even office equipment depreciation.

To claim the deduction, you must have kept a diary of the hours you worked at home for at least four weeks.

For more information on home office expenses see www.ato.gov.au or your CPA Australia-registered tax agent.

Claim self-education expenses

Self-education expenses can be claimed provided the study is directly related to either maintaining or improving current occupational skills or is likely to increase income from your current employment. If you obtain new qualifications in a different field through study, the expenses incurred are not tax deductible.

Typical self-education expenses include course fees, textbooks, stationery, student union fees and the depreciation of assets such as computers, tablets and printers.

Higher Education Loan Program (HELP) repayments are not deductible. You must also disallow $250 of self-education expenses, which can include non-deductible amounts such as childcare costs.

Claim depreciation

Immediate deductions can be claimed for assets that cost under $300 to the extent the asset is used to generate income. Such assets may include tools for tradespeople, calculators, briefcases, computer equipment and technical books purchased by an employee, or minor items of plant purchased by a landlord.

Assets costing $300 or more that are used for an income producing purpose can be written off over a period of time as a tax deduction. The amount of the deduction is generally determined by the asset’s value, its effective life and the extent to which you use it for income-producing purposes.

Maximise motor vehicle deductions

If you use your motor vehicle for work-related travel, there are only two choices for how you can claim.

If the annual travel claim does not exceed 5000 kilometres, you can claim a deduction for your vehicle expenses on the cents-per-kilometre basis. The allowable rate for such claims changes annually, so it is important to obtain this year’s rate from the ATO or your CPA Australia-registered tax agent. Such claims must be based on reasonable estimates.

If your business travel exceeds 5000 kilometres, however, the log book method is required to claim a deduction for total car-running expenses.

Contact your CPA Australia-registered tax agent to clarify what constitutes work-related travel and which of the two allowable methods can be applied to optimise your tax position.

Rental property deductions

Owners of rental properties that are rented or are ready and available for rent can claim immediate deductions for a range of expenses, such as:

interest on investment loans
land tax
council and water rates
body corporate charges
insurance
repairs and maintenance
agents’ commission
gardening
pest control
leases (preparation, registration and stamp duty)
advertising for tenants
reasonable travel to inspect properties.
Landlords may also be entitled to annual deductions for the declining value of depreciable assets (such as stoves, carpets and hot water systems), and capital works deductions spread over a number of years for structural improvements like remodelling a bathroom.
It’s worth noting that the government has proposed that it will change the law to no longer allow travel deductions relating to inspecting, maintaining, or collecting rent for a rental property from 1 July 2017. This is an integrity measure to address concerns that such deductions are being abused.

Further, the government announced that from 1 July 2017 plant and equipment depreciation deductions will be limited to outlays actually incurred by investors in residential real estate properties.

Plant and equipment forming part of residential investment properties as of 9 May 2017 will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life.

You can contact your CPA Australia-registered tax agent to clarify if expenditure relates to repairs and maintenance that can be claimed immediately, or improvements which need be claimed over time.

Residential property and non-residents

The government announced that from 9 May 2017, Australia’s foreign resident capital gains tax regime will be extended to deny foreign and temporary tax residents access to the main residence exemption. Properties held prior to this date will be grandfathered until 30 June 2019.

Maximise tax offsets

Tax offsets directly reduce tax payable and can add up to a sizeable amount. Eligibility generally depends on your income, family circumstances and conditions for particular offsets.

Taxpayers should check whether they qualify for tax offsets which, among others, include the low-income tax offset, senior Australians and pensioners offset and the offset for superannuation contributions on behalf of a low-income spouse.

Bring forward deductions and delay income for higher income earners

The effective highest marginal tax rate will decrease from 49 per cent in the 2016-17 year to 47 per cent in 2017-18, given the removal of the two per cent temporary budget repair levy, which applies to individuals deriving taxable income over $180,000.

Individual taxpayers in the highest tax bracket may wish to consider delaying income into the 2017-18 year, as it would be taxed at a lower rate. Conversely, such taxpayers may consider bringing deductions forward into 2016-17, as such amounts will be deducted at the higher effective tax rate of 49 per cent.

Care should be taken to ensure any action does not breach general anti-avoidance provisions or any specific provisions that could curtail activities such as the prepayment rules.

Accordingly, you may wish to contact your CPA Australia-registered tax agent if you are proposing to either defer deductions or bring forward income.

Superannuation

The changes to superannuation in the last 12 months are significant and require extra care. You may wish to consider making the maximum allowed concessional contribution before the new reduced concessional contribution cap of $25,000 per annum commences from 1 July 2017.

The concessional contribution cap for the 2016-17 financial year is $30,000 if you’re under 50 and $35,000 if you’re aged 50 or over. Concessional contributions include any contributions made by your employer, salary sacrificed amounts and personal contributions claimed as a tax deduction by self-employed or substantially self-employed persons.

If you’re making extra contributions to your super and breach the concessional cap, the excess contributions over the cap will be taxed at your marginal tax rate, although you can have the excess contribution refunded from your super fund.

Similarly, from 1 July 2017 the annual non-concessional (post-tax) contributions cap will be reduced from $180,000 per annum to $100,000 and the three-year bring-forward provision reduced from $540,000 to $300,000. There will also be an additional constraint that individuals with a balance of $1.6 million or more will no longer be eligible to make non-concessional contributions. As such, you may wish to consider making the maximum allowed non-concessional contribution before the caps are reduced and the maximum threshold applied from 1 July 2017.

High-income earners are also reminded that the contributions tax on concessional contributions is effectively doubled from the normal 15 per cent rate to 30 per cent if their combined income plus concessional contributions exceeds $300,000. The threshold for the higher rate of tax will be reduced to $250,000 from 1 July 2017.

Importantly, don’t leave it until 30 June to make contributions, as your super fund may not receive the contribution in time and it will then count towards next year’s contribution caps, which could result in excess contributions and an unexpected tax bill.

Self-employed tax-effective superannuation contributions

A self-employed person will be able to claim contributions to a complying superannuation fund as fully tax deductible up to the age of 75 in the 2016-17 tax year. However, such contributions will only be deductible if less than 10 per cent of the total of a person’s assessable income, reportable fringe benefits or reportable employer superannuation contributions is attributable to their status as an employee. Such a deduction cannot increase or create a tax loss to be carried forward. Employers can also claim deductions for superannuation contributions made on behalf of their employees.

Consider the superannuation co-contribution

An individual likely to earn less than $51,021 in the 2016-17 tax year should consider making after-tax contributions to their superannuation so as to qualify for the superannuation co-contribution, if their circumstances permit. The government will match after-tax contributions 50 cents for each dollar contributed up to a maximum of $500 for a person earning up to $36,021. The maximum then gradually reduces for every dollar of total income over $36,021, and to nil at $51,021.

Consolidate your super

For most employees it makes a lot of sense to have your entire super in one place. You’ll reduce the amount of fees you’re paying, receive one lot of paperwork and only have to keep track of one fund.

Consider consolidating the super funds you do have into one fund. Compare your funds to work out which best suits your needs. Important things to look at are fees and charges, available investment options and life insurance cover. You can look at past investment performance as well – but remember, it is no guarantee of how the fund will perform in the future.

Once you have chosen the fund you want to keep, contact the provider, which will help you to transfer money from your other super funds.

If you have moved around or changed jobs occasionally, your old super fund may have lost track of you and there is a risk you may miss out on some super when you need it. To find lost superannuation create a myGov account and link it to the ATO.

Review your superannuation income stream

From 1 July 2017, a $1.6 million transfer balance cap will be introduced on the total amount that can be transferred into the tax-free retirement pension phase from accumulation. Superannuation balances in excess of the transfer balance cap can remain in the accumulation phase.

If you are in excess of the transfer balance cap before 1 July 2017, you will need to transfer the excess back to your accumulation fund or remove it from your superannuation before 1 July.

Equally, if you have a self-managed superannuation fund (SMSF) where at least one member is exceeding their transfer balance cap, the fund will no longer be able to segregate its assets for tax purposes to calculate exempt current pension income, and the proportioning method will have to be applied instead. Capital gains tax relief is available for SMSFs that reduce the amounts supporting superannuation income streams as a result, but it is only available until 1 July 2017.

If you are likely to be in excess of the transfer balance cap, seek independent advice from a licensed financial adviser or a registered tax agent before 1 July 2017.

Also from 1 July 2017, the tax exempt status of earnings from assets supporting transition to retirement income streams (TRIS) will be removed. Earnings from assets supporting a TRIS will be taxed at a maximum 15 per cent, regardless of when it commenced. You may want to seek independent advice regarding continuing with TRIS.

Seek independent advice on end of year tax-effective investment products

The end of the financial year often sees the emergence of what claim to be tax-effective investment products. If you are considering such an investment, seek independent advice before making a decision, particularly from your CPA Australia-registered tax agent.

Review salary sacrifice arrangements

Employees can consider salary sacrifice arrangements, under which their gross salary may be foregone to obtain either a packaged car for fringe benefits tax (FBT) purposes, or they can make additional superannuation contributions.

A 20 per cent flat rate applies when calculating a motor vehicle fringe benefit under the statutory formula method, regardless of how many kilometres it annually travels. However, there may still be some tax savings in packaging a car under these rules compared to the cost of funding all operating expenses from your net salary.

In addition, under these rules employees who predominantly use a car for work-related travel may be able to obtain tax savings by calculating the FBT paid on the car under the operating cost method, rather than funding their car expenses from after-tax salary.

Advice should be obtained from a CPA Australia-registered tax agent as to whether any salary sacrifice arrangements will be tax effective.

Budget 2016 changes

How you might be impacted by the 2016 Federal Budget

Please call our office if you are seeking clarification as to whether proposed changes may impact you positively or negatively, ph: 03 9397 4552.

 

Business

  • From 1 July, 2016 small and medium-sized businesses will receive a tax cut, with their company tax rate falling to 27.5%. The Government has also announced a timetable to lower corporate tax for all businesses with the turnover threshold for the reduced tax rate rising incrementally to $100 million in 2019-20.
    Turnover Threshold Effective Date
    $10 mil 1 July, 2016
    $25 mil 1 July, 2017
    $50 mil 1 July, 2018
    $100 mil 1 July, 2019

    The Government also plans to keep raising the maximum turnover threshold for the 27.5% corporate tax rate until all businesses are included by 2023-24. By 2026-27 the intention is to lower the corporate tax rate to 25% for all businesses.
    Non-incorporated businesses do not miss out on tax relief, with those turning over less than $5 million getting an 8% discount up to a maximum value of $1,000, effective 1 July, 2016.

  • All small businesses with a turnover of less than $10 million will also now be eligible for the instant tax write-off for equipment purchases of up to $20,000 made next financial year.

Superannuation

  • Increased tax on super contributions for high income earners – Currently, when personal income exceeds $300,000 the tax payable on any superannuation contributions increases from the standard concessional tax rate of 15% to 30%. The government has now proposed to decrease this income threshold from $300,000 to $250,000 per year from 1 July, 2017.
  • Concessional contribution caps – Currently, the annual cap on concessional (before-tax) contributions is $30,000 for under-50s and $35,000 for those aged 50-plus, these will be both decrease to $25,000 per year effective 1 July, 2017. These concessional contributions are generally superannuation guarantee (SG) contributions and salary sacrifice.
  • Non-concessional contribution caps – Current legislation allows for Non-concessional (after-tax) contributions of $180,000, or $540,000 every three years for people under aged 65. These contributions are usually voluntary and effective 3 May, 2016 will also be subject to a lifetime cap of $500,000, taking into account all non-concessional contributions made since 1 July, 2007.
  • Catch up contributions for individuals who have time out of the workforce– From July 1, 2017 the Government will allow individuals to make catch-up concessional super contributions for those people with balances under $500,000. This measure is to allow people with lower contributions, interrupted work patterns, or irregular capacity to make contributions to make catch up payments to their super.
  • Low income superannuation tax offset – A new scheme will be introduced that provides a tax offset of up to $500 p.a. on concessional superannuation contributions for individuals earning less than $37,000 per year, effective 1 July, 2017.
  • Transfer of superannuation into retirement phase – From July 1, 2017 a cap of $1.6 million will be placed on the transfer of superannuation balances into the tax-free retirement phase (Pension accounts). Any existing Pension accounts with balances beyond $1.6 million will have to be transferred into accumulation accounts and will be subject to up to 15% tax.
  • Extended ability to make contributions – From 1 July, 2017 the Government is extending the ability for all individuals aged between 65 – 74 to make concessional tax contributions to their superannuation, and to make or receive payments from their spouse, without having to meet the current work test criteria.
  • Spouse contribution tax offset – The tax offset for spouse contributions where the spouse income was previously less than $10,800 has now increased to $37,000 per year effective 1 July, 2017.
  • Easing of restrictions on tax deductibility of personal super contributions– From 1 July, 2017 the Government will allow individuals regardless of employment status to make concessional super contributions up to the concessional cap (subject to 15% contribution tax). Individuals can claim a personal income tax deduction for personal super contributions.
  • Transition to Retirement (TTR) Accounts – The existing tax exemption on investment earnings for supporting TTR income streams will be removed from 1 July, 2017

    . This means members with a TTR accounts will now have their investment earnings subjected to 15% tax.

Taxation

  • The salary threshold where the 37% tax rate kicks in will be raised from $80,000 to $87,000 p.a. This measure is designed to reduce the impact of ‘bracket creep’, where inflation pushes income earners into a higher tax bracket.
  • The existing temporary deficit levy applying to people earning more than $180,000 per annum will be removed from July 1, 2017.

2015 Tax Tips

 

Claim work-related deductions

Claiming all your work-related deduction entitlements may save you considerable tax. To do so, make sure that you have all the necessary receipts or credit card statements. Typical work-related expenses include employment-related landlines, mobile phone and internet usage, computer repairs, union fees and professional subscriptions.

Claim home office expenses

When part of your home has been set aside primarily or exclusively for work, a home office deduction may be allowed. Typical home office costs include heating, cooling, lighting and even depreciation of your office equipment.

To claim the deduction, you must have kept a diary for a representative four-week period of the hours you worked at home.

Claim self-education expenses

Self-education expenses can be claimed provided the study is directly related to either maintaining or improving your current occupational skills or it is likely to increase your income from your current employment. However, if you obtain new qualifications in a different field through study, the expenses incurred are not allowable.

Typical self-education expenses include, amongst others, course fees, textbooks, stationery, student union fees and the depreciation of assets such as computers and printers.

However, any Higher Education Loan Program (HELP) repayments are not deductible. You must also disallow $250 of self-education expenses, which can include non-deductible amounts such as child-care costs.

Claim depreciation deductions

Immediate deductions can be claimed for depreciating assets that cost under $300 to the extent the asset is used for an income-producing purpose such as earning salary and wages or rental income. Such assets include tools, calculators, briefcases, computer equipment and technical books purchased by an employee or minor plant items purchased by a landlord.

Claim and maximise motor vehicle deductions

If you use your motor vehicle for work-related travel, and your annual claim for kilometres travelled does not exceed 5,000 kilometres, you can claim a deduction for your vehicle expenses on a cents per kilometre basis. The allowable rate for such claims changes annually so you need to obtain this year’s rate from the ATO. Such claims must be based on reasonable estimates.

If your business travel exceeds 5,000 kilometres, it may be possible to claim one-third of your actual car expenses or 12 per cent of the original value of the vehicle without a log book.

Alternatively, you may be able to claim a deduction for your total car-running expenses for that travel. However, such claims are only available if you have kept a log book, odometer readings and receipts..

Claim rental property deductions

Landlords can claim immediate deductions for a range of expenses such as:

  • interest on investment loans
  • land tax
  • council and water rates
  • body corporate charges
  • insurance
  • repairs and maintenance
  • agent’s commission
  • gardening
  • pest control
  • leases (preparation, registration and stamp duty)
  • advertising for tenants
  • reasonable travel to inspect properties.

Landlords may be entitled to claim annual deductions for the declining value of depreciable assets (such as stoves, carpets and hot-water systems), and capital-works deductions spread over a number of years (for structural improvements, like remodelling a bathroom).

Maximise tax offsets

Tax offsets directly reduce your tax payable and can add up to a sizeable amount. Eligibility for tax offsets generally depends on your income, family circumstances and conditions of particular offsets.

For 2014/2015, taxpayers should check their eligibility for tax offsets, which can include the low-income tax offset, senior Australians and pensioners offset and the offset for superannuation contributions on behalf of a low-income spouse .

Maximise your super contributions

Gone are the days when you could wait until the kids left home and the house was paid off to top up your super with additional contributions. With the introduction of the contribution caps in 2007, you should consider contributing as much as you can each year, up to the cap, to maximise your super.

The concessional contributions cap for 2014/2015 is $30,000 if you are under 49, and $35,000 if you are aged 49 or over. Concessional contributions include any contributions made by your employer, salary-sacrificed amounts and personal contributions claimed as a tax deduction by self-employed or substantially self-employed persons.

If you’re making extra contributions to your super and breach the concessional cap, those contributions will be taxed at your marginal tax rate. However, you can have the excess contributions refunded from your super fund.

Importantly, don’t wait until 30 June to make your contributions as your super fund may not receive them in time.

The contributions tax on concessional contributions for high-income earners is effectively doubled to 30 per cent if their combined income plus concessional contributions exceed $300,000.

Your super can also be boosted by non-concessional, or after-tax, contributions. While not as tax effective, you are still getting more money into the concessional-taxed super environment. The non-concessional contribution cap is $180,000 for 2014/2015, but you could also take advantage of the ‘bring forward’ provision if you are under 65 and utilise the cap for the next three years to contribute up to $540,000.

If you breach the non-concessional cap, the excess contributions will be taxed at the top marginal tax rate. However, you can now have any excess non-concessional contributions made since 1 July 2013 refunded from your super fund.

Importantly, don’t wait until 30 June to make your contributions as your super fund may not receive them in time. As a result, those contributions will count towards next year’s contribution caps, which could result in excess contributions and an unexpected tax bill next year.

Self-employed? Consider tax effective superannuation contributions

A self-employed person will be able to claim their contributions to a complying superannuation fund as fully tax deductible up to the age of 75 in 2014/2015. However, such contributions will only be deductible if less than 10 per cent of the total of a person’s assessable income, reportable fringe benefits or reportable employer superannuation contributions is attributable to their employment. Such a deduction cannot increase or create a tax loss to be carried forward. Employers can also claim deductions for superannuation contributions made on behalf of their employees.

Consider the superannuation co-contribution

An individual likely to earn less than $49,488 in 2014/2015 should consider making after-tax contributions to their superannuation to qualify for the superannuation co-contribution. The government will match after-tax contributions – fifty cents for each dollar contributed – up to a maximum of $500 for a person earning up to $34,488. The maximum then gradually reduces for every dollar of total income over $34,488 to nil at $49,488.

Consolidate your super

It makes a lot of sense to have your super in one place. You’ll reduce your fees, only receive one lot of paperwork, and you only have to keep track of one fund. You can also use the same fund in any job you may have.

Compare your funds’ fees and charges, investment options and life insurance cover to work out which best suits you before consolidating them into one fund. You can look at past investment performance as well but remember it is no guarantee of how the fund will perform in the future.

Once you’ve chosen the fund you want to keep, contact them and they can help transfer the money from your other super funds.

If you’ve moved around or changed jobs occasionally, your old super fund may have lost track of you and you may miss out on some of your super when you need it. To find your lost super, use the SuperSeeker System on the ATO website.

 

Contact us  for assistance to reduce your tax!

Email: info@jagaccountants.com.au  or call  Julian on 0408033696.

This information is general nature and does not take into account your individual needs and objectives.Please do not act on any information before seeking advice from a qualified Accountant and a licensed Financial Planner.

Small business Budget announcements become law

Instant asset write off – the Act temporarily increases the threshold below which small businesses can claim an immediate deduction for the cost of assets from $1000 to $20,000. The increased threshold of $20,000 applies from 7.30pm (AEST), on 12 May 2015 until Friday 30 June 2017.

The new Act also reduces the company tax rate from 30 per cent to 28.5 per cent for companies that are small business entities with an aggregated turnover of less than $2 million from the 2015-16 income year. The corporate tax rate for companies that have an aggregated turnover of $2 million or more remains at 30 per cent.

Contact Julian from JAG Accountants for all your business and tax questions on 0408 033 696 or email info@jagaccountants.com.au to make an appointment at our Williamstown or Flemington Offices.

Ways to reduce your tax before 30 June 2015! – Strategy 9: Government Co-Contribution

The end of the 2014/15 financial year is fast approaching, so now’s the time to review what strategies you can use to minimise your tax.

  • Qualify for a Government Co-Contribution

If your total income is less than $49,488 you may be eligible for a super co-contribution from the Federal Government. For each dollar in personal after-tax super contributions, the Government will contribute from 50 cents up to a maximum co-contribution of $500 for those earning less than $34,488. For the purposes of this test, total income is assessable income plus reportable fringe benefits plus reportable employer superannuation contributions, less allowable business deductions. Please contact us to verify that you can meet all the eligibility criteria for the Government Co-Contribution.

Contact us before the 30 June 2015 deadline for assistance to reduce your tax!

Email: info@jagaccountants.com.au or call  Julian on 0408033696

 

This information is general nature and does not take into account your individual needs and objectives.

Please do not act on any information before seeking advice from a qualified Accountant and a licensed Financial Planner.

Ways to reduce your tax before 30 June 2015! – Strategy 8: Defer Investment Income & Capital Gains

The end of the 2014/15 financial year is fast approaching, so now’s the time to review what strategies you can use to minimise your tax.

  • Defer Investment Income & Capital Gains

If practical, arrange for the receipt of Investment Income (e.g. interest on term deposits) and the Contract Date for the sale of Capital Gains assets, to occur AFTER 30 June 2015. The Contract Date is generally the key date for working out when a sale occurred, not the Settlement Date!

Contact us before the 30 June 2015 deadline for assistance to reduce your tax!

Email: info@jagaccountants.com.au or call  Julian on 0408033696

 

This information is general nature and does not take into account your individual needs and objectives.

Please do not act on any information before seeking advice from a qualified Accountant and a licensed Financial Planner.

Ways to reduce your tax before 30 June 2015! – Strategy 7: Realise Capital Losses

The end of the 2014/15 financial year is fast approaching, so now’s the time to review what strategies you can use to minimise your tax.

  • Realise Capital Losses

Tax is normally payable on any capital gains. You should consider selling any non-performing investments you hold before 30 June to crystallise a capital loss and reduce or even eliminate any potential capital gains tax liability. Unused capital losses can be carried forward to offset future capital gains.

Contact us before the 30 June 2015 deadline for assistance to reduce your tax!

Email: info@jagaccountants.com.au or call  Julian on 0408033696

 

This information is general nature and does not take into account your individual needs and objectives.

Please do not act on any information before seeking advice from a qualified Accountant and a licensed Financial Planner.

Ways to reduce your tax before 30 June 2015! – Strategy 6: Defer Investment Income & Capital Gains

The end of the 2014/15 financial year is fast approaching, so now’s the time to review what strategies you can use to minimise your tax.

  • Defer Investment Income & Capital Gains

If practical, arrange for the receipt of Investment Income (e.g. interest on term deposits) and the Contract Date for the sale of Capital Gains assets, to occur AFTER 30 June 2015. The Contract Date is generally the key date for working out when a sale occurred, not the Settlement Date!

Contact us before the 30 June 2015 deadline for assistance to reduce your tax!

Email: info@jagaccountants.com.au or call  Julian on 0408033696

 

This information is general nature and does not take into account your individual needs and objectives.

Please do not act on any information before seeking advice from a qualified Accountant and a licensed Financial Planner.

Ways to reduce your tax before 30 June 2015! – Strategy 5: Prepay Expenses

The end of the 2014/15 financial year is fast approaching, so now’s the time to review what strategies you can use to minimise your tax.

  • Prepay Expenses and Interest

Expenses relating to investment activities can be prepaid before 30 June 2015. You can prepay up to 12 months of interest before 30 June on a loan for a property or share investment and claim a tax deduction this financial year. Also, other expenses in relation to your investments can be prepaid before 30 June, including rental property repairs, memberships, subscriptions, and journals.

Contact us before the 30 June 2015 deadline for assistance to reduce your tax!

Email: info@jagaccountants.com.au or call  Julian on 0408033696

 

This information is general nature and does not take into account your individual needs and objectives.

Please do not act on any information before seeking advice from a qualified Accountant and a licensed Financial Planner.

Ways to reduce your tax before 30 June 2015! – Strategy 4: Depreciation

The end of the 2014/15 financial year is fast approaching, so now’s the time to review what strategies you can use to minimise your tax.

  • Property Depreciation Report

Are you achieving the full tax benefits of owning an investment property?  A Property Depreciation Report allows you to claim depreciation and capital works deductions on capital items within the property. The cost of this report is tax deductible and will provide great future tax savings.

 

Contact us before the 30 June 2015 deadline for assistance to reduce your tax!

Email: info@jagaccountants.com.au or call  Julian on 0408033696

 

This information is general nature and does not take into account your individual needs and objectives.

Please do not act on any information before seeking advice from a qualified Accountant and a licensed Financial Planner.

Ways to reduce your tax before 30 June 2015! – Strategy 3: Motor Vehicle Log Book

The end of the 2014/15 financial year is fast approaching, so now’s the time to review what strategies you can use to minimise your tax.

  • Motor Vehicle Log Book

Is your log book up to date and accurate? Motor Vehicle Log Books must be kept for at least a 12-week period. The start date for the 12-week period must be on or before 30 June 2015. Ensure you keep all receipts/invoices for your motor vehicle expenses.

Contact us before the 30 June 2015 deadline for assistance to reduce your tax!

Email: info@jagaccountants.com.au or call  Julian on 0408033696

 

This information is general nature and does not take into account your individual needs and objectives.

Please do not act on any information before seeking advice from a qualified Accountant and a licensed Financial Planner.

Ways to reduce your tax before 30 June 2015! – Strategy 2: Assets

The end of the 2014/15 financial year is fast approaching, so now’s the time to review what strategies you can use to minimise your tax.

  • Ownership of Assets

Its is important to review  the ownership of your investments. Any change of ownership needs to be carefully planned in relation to any capital gains tax and stamp duty implications. Investments may be owned by a Family Trust, which has the key advantages protecting assets and providing flexibility in distributing income on an annual basis in a tax effective way.  Please seek  our advice before making any changes.

Contact us before the 30 June 2015 deadline for assistance to reduce your tax!

Email: info@jagaccountants.com.au or call  Julian on 0408033696

 

This information is general nature and does not take into account your individual needs and objectives.

Please do not act on any information before seeking advice from a qualified Accountant and a licensed Financial Planner.