The JobKeeper Payment will support employers to maintain their connection to their employees. These connections will enable business to reactivate their operations quickly – without having to rehire staff – when the crisis is over.

Eligible employers

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Employers will be eligible for the subsidy if:

• their business has a turnover of less than $1 billion and their turnover will be reduced by more than 30 per cent relative to a comparable period a year ago (of at least a month), or
• their business has a turnover of $1 billion or more and their turnover will be reduced by more than 50 per cent relative to a comparable period a year ago (of at least a month), and
• the business is not subject to the Major Bank Levy
• The employer must have been in an employment relationship with eligible employees as at 1 March 2020, and confirm that each eligible employee is currently engaged in order to receive JobKeeper Payments.
• Not-for-profit entities (including charities) and self-employed individuals (businesses without employees) that meet the turnover tests that apply for businesses are eligible to apply for JobKeeper Payments.

Eligible employees

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Eligible employees are employees who:

• are currently employed by the eligible employer (including those stood down or re-hired);
• were employed by the employer at 1 March 2020
• are full-time, part-time, or long-term casuals (a casual employed on a regular basis for longer than 12 months as at 1 March 2020)
• are at least 16 years of age
• are an Australian citizen, the holder of a permanent visa, a Protected Special Category Visa Holder, a non-protected Special Category Visa Holder who has been residing continually in Australia for 10 years or more, or a Special Category (Subclass 444) Visa Holder
• are not in receipt of a JobKeeper Payment from another employer.

If your employees receive the JobKeeper Payment, this may affect their eligibility for payments from Services Australia as they must report their JobKeeper Payment as income.

Payment process

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Eligible employers will be paid $1,500 per fortnight per eligible employee. Eligible employees will receive, at a minimum, $1,500 per fortnight, before tax, and employers are able to top-up the payment.

Where employers participate in the scheme, their employees will receive this payment as follows.

• If an employee ordinarily receives $1,500 or more in income per fortnight before tax, they will continue to receive their regular income according to their prevailing workplace arrangements. The JobKeeper Payment will assist their employer to continue operating by subsidising all or part of the income of their employee(s).
• If an employee ordinarily receives less than $1,500 in income per fortnight before tax, their employer must pay their employee, at a minimum, $1,500 per fortnight, before tax.
• If an employee has been stood down, their employer must pay their employee, at a minimum, $1,500 per fortnight, before tax.
• If an employee was employed on 1 March 2020, subsequently ceased employment with their employer, and then has been re-engaged by the same eligible employer, the employee will receive, at a minimum, $1,500 per fortnight, before tax.

It will be up to the employer if they want to pay superannuation on any additional wage paid because of the JobKeeper Payment.

Payments will be made to the employer monthly in arrears by the ATO.

Timing

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The subsidy will start on 30 March 2020, with the first payments to be received by employers in the first week of May. Businesses will be able to register their interest in participating in the Payment from 30 March 2020 on the ATO website.

How to apply

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Businesses with employees

Initially, employers can register their interest in applying for the JobKeeper Payment via The Australian Taxation Office (ATO) from 30 March 2020.

Subsequently, eligible employers will be able to apply for the scheme by means of an online application. The first payment will be received by employers from the ATO in the first week of May.

Eligible employers will need to identify eligible employees for JobKeeper Payments and must provide monthly updates to the ATO.

Participating employers will be required to ensure eligible employees will receive, at a minimum, $1,500 per fortnight, before tax.

It will be up to the employer if they want to pay superannuation on any additional wage paid because of the JobKeeper Payment.

Further details for businesses for employees will be provided on ato.gov.au.

Businesses without employees

Businesses without employees, such as the self-employed, can register their interest in applying for JobKeeper Payment via The Australian Taxation Office (ATO) from 30 March 2020.

Businesses without employees will need to provide an ABN for their business, nominate an individual to receive the payment and provide that individual’s Tax File Number and provide a declaration as to recent business activity.

People who are self-employed will need to provide a monthly update to the ATO to declare their continued eligibility for the payments. Payment will be made monthly to the individual’s bank account.

Example of the JobKeeper Payment

Self-employed

Melissa is a sole trader running a florist. She does not have employees. Melissa’s business has been in operation for several years. The economic downturn due to the Coronavirus has adversely affected Melissa’s business, and she expects that her business turnover will fall by more than 30 per cent compared to a typical month in 2019.

Melissa will be able to apply for the JobKeeper Payment and would receive $1,500 per fortnight before tax, paid on a monthly basis.

Worker with multiple jobs

Michelle currently works two permanent part-time jobs, at an art gallery during weekdays, and at the local café on the weekend. Due to the impact of the Coronavirus, the gallery has closed and Michelle has been stood down without pay under the Fair Work Act. Michelle continues to work at the café delivering take-away orders.

Michelle can only receive the JobKeeper Payment once, from the employer from whom she nominates as her primary employer. As Michelle only claims the tax free threshold from her job at the art gallery, this will be treated as her nomination of the art gallery as her primary employer.

The art gallery is eligible for the JobKeeper Payment. The art gallery will pass the JobKeeper Payment on to Michelle, so she will receive $1,500 per fortnight before tax. During the application process, the art gallery will notify the ATO that Michelle receives the payment from them. The art gallery is also required to advise Michelle that she has been nominated to the ATO as an eligible employee to receive the payment.

The café is not eligible to receive the JobKeeper Payment for Michelle. The income that Michelle receives from her job at the café does not change her entitlement to the JobKeeper Payment she receives from the art gallery.

Employee made redundant after 1 March

Miles worked as a permanent part-time personal trainer at a gym for six months and was made redundant on 20 March 2020 in response to the Government directive that gyms close. Miles was not entitled to redundancy pay due to his length of service.

In response to the announcement of the JobKeeper Payment, the gym decides they want to re-engage Miles so they are well placed to resume their operations once the Coronavirus restrictions are lifted.

After being made redundant, Miles had registered an intent to claim with Services Australia for access to the JobSeeker Payment and the Coronavirus Supplement. Miles is single, with no children and in total he would be eligible to receive $1,124.50 before tax per fortnight.

If Miles chooses to be re-hired by the gym, under the JobKeeper Payment he will receive $1,500 a fortnight before tax while he is stood down. Miles will need to advise Services Australia of his income. He is no longer eligible for the JobSeeker Payment and the Coronavirus Supplement from Services Australia as a result of receiving the JobKeeper Payment.

Employer with 5 employees who all currently get paid more than $1,500 per fortnight

Sara runs a landscaping company, and employs five full-time gardeners. Sara is paying her employees $1,700 per fortnight before tax. She expects that her turnover will decline by more than 30 per cent over the coming months and that she will either need to lay staff off, or reduce their wages significantly.

As a result of the JobKeeper Payment, Sara will be able to keep employing every gardener, and only needs to pay the $200 wage cost per fortnight before tax per employee above the $1,500 per fortnight (before tax) JobKeeper Payment.

Employee who has been stood down and applied for income support

Phoebe works in administration services of a large retail company as a permanent full-time employee, but she has been stood down under the Fair Work Act without pay. Phoebe had registered an intent to claim with Services Australia for access to the JobSeeker Payment and the Coronavirus Supplement. Phoebe is single, with no children and in total she would be eligible to receive $1,124.50 before tax per fortnight from Services Australia.

Phoebe’s employer has decided to apply for the JobKeeper Payment for all its eligible employees for up to six months. This would entitle Phoebe to $1,500 per fortnight before tax. Phoebe’s employer is required to advise her that she has been nominated as an eligible employee to receive the payment.

If Phoebe elects to receive income support though Services Australia, she will need to report her income from the JobKeeper Payment to Services Australia. Phoebe may no longer be eligible for income support from Services Australia as a result of receiving the JobKeeper Payment.

https://treasury.gov.au/coronavirus/businesses Click on link: The Australian Government is supporting Australian businesses to manage cash flow challenges and retain employees. Assistance includes cash flow support to businesses and temporary measures to provide relief for financially distressed businesses.

https://treasury.gov.au/coronavirus/households – Click on link: The Australian Government is providing financial assistance to Australians. This assistance includes income support payments, payments to support households and temporary early releases of superannuation.

Summary

Federal initiatives:

• Eligible employers with a turnover of up to $50 million that employ workers will be eligible for tax-free payments up to $100,000
• Apprentice wages subsidies up to $21,000 per apprentice
• SME loan guarantee scheme to provide access to unsecured loans for SMEs and relief from responsible lending obligations on lenders
• Accelerated and additional tax deductions in the form of increased instant asset write-off and 50% investment incentive
• Temporary relief in relation to director liability and other insolvency aspects for financially distressed businesses
• $750 stimulus payments now and in July to welfare recipients
• Reduced pension deeming rates
• $550 per fortnight Coronavirus supplement payment to certain welfare recipients, employees who are stood down and sole traders, self-employed and casual workers meet income tests
• Reduced waiting times for applications for Jobseeker, Youth Allowance and Parenting payments
• Access to up to $20,000 of superannuation tax free to recipients of the coronavirus supplement or where income has reduced by 20% or more since 1 January 2020
• Minimum superannuation pension withdrawals reduced by 50% for the 2020 and 2021 financial years

State Government initiatives

• Payroll tax refunds and relief for employers with payrolls less than $3m per annum
• State government assistance for businesses in the form of hardship payments, small grants and tailored assistance
• State Government assistance to help workers who have lost their jobs find new opportunities

Commonwealth Assistance

Cash Flow Assistance for Employers

In the latest package, cash flow assistance for employers been significantly enhanced from the first round of measures. It now specifically includes not-for-profit organisations. The amounts have increased and the period extended. This assistance is available to all organisations with turnover up to $50 million. It only applies to active employers prior to 12 March 2020 but not-for-profits are excluded from this in recognition that some may be established to specifically deal with the Coronavirus fallout. The details are now as follows:

Cash payments up to $100,000

Eligible employers with a turnover of up to $50 million that employ workers will be eligible for tax-free payments up to $100,000. It will be delivered in two tranches.

• The first tranche of payments will be 100% of the amount withheld from employees’ salary and wages during March, April, May and June 2020 up to a maximum of $50,000.
  • This will be paid from late April to July.
  • Businesses that pay salary and wages but do not have to withhold tax will receive a payment of $10,000.
• The second payment tranche will, in total, be the same amount as the first payment, but will be delivered in equal instalments in the June – September activity statements.

This will result in a minimum credit delivered under this scheme of $20,000 and a maximum credit of $100,000. The payments will be delivered as a credit in the activity statement system by the Australian Taxation Office (ATO) and where this results in a refund, the ATO will deliver this within 14 days.

Example 1:

An employer withholds $5,000 per month from employees. The payments (as a credit against the IAS or BAS) are as follows:

• If the employer remits PAYG quarterly
  • March: 3 x $5,000 = $15,000
  • June: $15,000
  • Total for 1st tranche – $30,000
  • The 2nd tranche payments will also total $30,000 and $15,000 will be applied against the June and September BASs
• If the employer remits PAYG monthly
  • March: 3 x $5,000 = $15,000
  • April: $5,000
  • May: $5,000
  • June: $5,000
  • Total for 1st tranche – $30,000
  • The 2nd tranche payments will also total $30,000 and $7,500 will be applied to the June BAS, July and August IAS and September BAS

Example 2:

An employer with less than $10,000 PAYG to be reported in the March to June period, will be entitled to the minimum payments which will be paid as follows:

• March activity statement credit $10,000
• June and September activity statement credits of $5,000 each

Apprentice and Trainee Support

Businesses employing fewer than 20 full-time employees who have engaged an apprentice or trainee prior to 1 March 2020 will be eligible for a wage subsidy of 50% of the apprentice’s or trainee’s wage over the 9 month period between 1 January 2020 – 30 September 2020. This will be capped at a maximum amount of $21,000 per apprentice ($7,000 a quarter). Registrations will open in early April 2020 and final claims must be lodged by 31 December 2020.

Support for Cash Flow Needs for SMEs

SME Loan Guarantee Scheme

Starting in early April, the Government will provide a guarantee of 50% to SME lenders for new unsecured loans to be used for working capital. This will apply to businesses with a turnover of less than $50 million.

The maximum loan size will be $250,000 per borrower and the loans will be for up to 3 years with a six month repayment holiday. No assets will have to be provided as security for the loan.

Lenders are encouraged to provide facilities to SMEs that only have to be drawn if needed by the SME.

The scheme is worth up to $20 billion to guarantee support for up to $40 billion of loans.

Exemption from the responsible lending obligations

Lenders providing credit to existing small business customers will be relieved of the responsible lending obligations. The aim is to increase the speed at which businesses can access credit.

Business Investment

This remains the same as what was announced in the first round of measures. We have repeated them here for clarity:

Instant Asset Write Off

Currently, businesses with a turnover of up to $50 million can claim tax deductions in full for assets costing less than $30,000 (GST exclusive) instead of having to claim the cost over a number of years.
The asset threshold is proposed to be increased to include assets costing up to $150,000 for businesses with a turnover of up to $500 million, if they are first used or installed ready for use between the date of the announcement and 30 June 2020.
The instant asset write off threshold is due to revert to $1,000 for businesses with a turnover of less than $10 million from 1 July 2020.

Investment Incentive

This is a time limited 15 month investment incentive for the purchase of new assets that are not eligible for the instant asset write off. This will apply to assets greater than $150,000 until 30 June 2020 and to assets greater than $1,000 from 1 July 2020. It will run until 30 June 2021 and businesses with a turnover of under $500 million will be eligible.

The incentive is a deduction of 50% of the cost with existing depreciation rules applying to the balance. There is no cost threshold for the assets in this incentive.

Temporary Relief for Financially Distressed Businesses

These are new measures that have been introduced in this package for the next 6 months:

• Temporary increase in thresholds – these measures will increase the thresholds from $2,000 to $20,000 at which creditors can initiate insolvency or bankruptcy and increase the time to respond from 21 days to 6 months.
• Director liability – this measure will provide temporary relief for directors for any personal liability for trading while insolvent – this is only in respect to debts incurred in the ordinary course of the company’s business
• There will also be some additional flexibility introduced in relation to provisions of the Corporations Act 2001 to assist in dealing with unforeseen events arising from the current crisis.

Assistance for individuals and households

Stimulus payment
More than 6 million welfare recipients, including pensioners, carers, veterans, families, young people and jobseekers will now get one tax free cash payment of $750 from 31 March 2020 and a second payment of $750 from 13 July 2020 and both will be paid automatically.

The Treasury website has the complete list of those eligible (including a handy table with clear guidance on what is in and out).

Deeming rates
The deeming rates for pensioners will be cut by a further 0.25% in response to the latest interest rate cut by the Reserve Bank of Australia. This should increase the fortnightly pension payments for pensioners affected by the income test.

Income Support
A new, time-limited Coronavirus supplement will be introduced at rate of $550 per fortnight on top of the normal fortnightly payments to eligible recipients. It will be paid to existing and new recipients of the eligible payment categories and will apply for the next 6 months.

The eligible recipients are those eligible for the Jobseeker Payment, Youth Allowance Jobseeker, Parenting Payment (Partnered and Single), Farm Household Allowance and Special Benefit recipients.

Income Support
Eligibility to the income support payments listed above is to be expanded and will be available for permanent employees who are stood down or lose their employment, sole traders, the self-employed, casual workers and contract workers who meet the income tests.

Asset testing for Jobseeker Payment, Youth Allowance Jobseeker and Parenting payment will be waived for the period of the Coronavirus supplement. The waiting times will also be reduced and the application processes will be made easier.

Early release of super
Eligible individuals will be able to apply online through myGov to access up to $10,000 of their superannuation before 1 July 2020 and a further $10,000 from 1 July for approximately 3 months. The withdrawals will be tax free and will not impact Centrelink entitlements.

This is available for those eligible for the Coronavirus supplement and people whose working hours or income has been affected by at least 20% since 1 January 2020

Minimum Drawdown requirements
The minimum pension amounts that must be drawn from superannuation pension accounts will be temporarily reduced by 50% for the years ended 30 June 2020 and 2021.

Waiting times for a government payment for eligible casual workers forced into self-isolation will be waived. 

State Government Assistance

Some of the State Governments have also responded to the crisis by announcing a series of measures to assist businesses. We have focused on the Victorian measures here but please contact us to discuss the state measures relevant to you.

The Victorian Government announced a $1.7 billion package includes:

Payroll tax refunds and relief – Businesses with a payroll of less than $3 million will receive payroll tax refunds from this Friday for all payroll tax paid for the first 3 quarters of the 2019/2020 financial year. The final quarter payroll tax liability will be waived. The same businesses will be able to defer payroll tax in the September 2021 quarter until 1 January 2021.

Business Support Fund – $500 million will be put into hardship payments, small grants and tailored support as part of a Business Support Fund and will be targeted at the hardest hit sectors, including hospitality, tourism, accommodation, arts and entertainment, and retail. The Government will work with the Victorian Chamber, Australian Hotels Association and AI Group to administer the fund which is intended to help businesses that may not be eligible for payroll tax refunds, to survive.

Liquor licensing fees – The Government will support the hospitality sector by waiving liquor licensing fees for 2020 for affected venues and small businesses.

Working for Victoria Fund – The Government will establish a $500 million Working for Victoria Fund in consultation with the Victorian Council of Social Services and Victorian Trades Hall Council. The fund will help workers who have lost their jobs find new opportunities, including work cleaning public infrastructure or delivering food.

Many Australians invest in property, financial markets and other assets, both here and overseas. In 2016-17, almost 4 million individuals received dividend income of $23.4 billion while 2.1 million reported rental income totalling $44 billion. $20 billion in capital gains were reported by almost 700,000 individuals, while more than 900,000 reported capital losses of $27 billion.

Assessable foreign source income of almost $6 billion was reported by 730,000 individuals.

The ATO’s data matching and information exchange capabilities continue to evolve and now cover many capital transactions and investment revenue streams.

It is therefore more important than ever to report investment income including from overseas, maintain accurate records, correctly calculate capital gains or losses on disposal, and to ensure you comply with the various rules and concessions available to investors.

RENTAL PROPERTIES

The ATO has received a large boost in funding to close the $8.7 billion individuals tax gap. Part of its focus is to ensure taxpayers are returning all rental income as well as claiming only the rental property expenses to which they are entitled. Some of this additional funding will go to improving the checking of claims in real time, additional audits and prosecutions.

TAX TIPS FOR SMALL BUSINESS

The ATO continues its focus on small business as part of its efforts to close the $10 billion tax gap indicated by the Commissioner earlier this year. The ATO has received additional funding through the Black Economy Taskforce and its enhanced enforcement covers lodgment, employee entitlements, mobile strike teams, tax system integrity and the use of data and technology. The new Tax Integrity Centre and whistleblower protections will allow the community to report suspected or known black economy, tax evasion and illegal phoenix activities to a Black Economy Hotline.

Small businesses need to ensure their bookkeeping and lodgments are correct and up-to-date. You should obtain professional tax advice, especially in areas where more complex tax issues arise. This includes structures, capital gains tax, personal services income, trust declarations and distributions, and private company loans.

PRE-1 JULY 2019 TO-DO LIST

Make trust resolutions
Document the streaming of trust capital gains and franked dividends
Review private company loans
Consider deferring certain income, and bringing forward certain deductible expenses
Write-off bad debts
Pay employee bonuses and employee superannuation entitlements

RECORD-KEEPING TIPS
Record cash income and expenses
Account for personal drawings
Record goods for your own use
Separate private expenses from business expenses
Keep valid tax invoices for creditable acquisitions when registered for the goods and services tax (GST)
Keep adequate stock records
Keep adequate records to substantiate motor vehicle claims

BE UP-FRONT AND HONEST WITH YOUR AGENT AND THE ATO
Getting the basics right has never been more important – good record keeping, substantiation, correct account codes, properly accounting for private use and declaring all cash transactions are essential to assure yourself, your tax agent and the ATO that your tax affairs are in order.

The ATO is getting smarter with its data, and taxpayers are increasingly being contacted regarding their income and expense claims. With a focus on discrepancies in returns when compared against pre-fill data or business benchmarks, and increased resources to deal with the cash economy, the onus is on business owners to correctly report their income, claim their expenses and have the appropriate records.

Your tax agent is required to take reasonable care when preparing your return, which means they may ask you detailed questions about your cashflow, business performance, personal use of assets and records.

If you’ve made errors or need to correct your business records, speak with a CPA Australia-registered tax agent who can work with you and the ATO to get things right.

MAXIMISE DEPRECIATION DEDUCTIONS
A key feature for small business in the 2019-20 Federal Budget on 2 April 2019 was the announcement that a small business entity (SBE) may potentially qualify for an asset write-off one under one of three varying caps during the year ended 30 June 2019.

A medium sized business entity (MSBE) will also be able to claim the instant asset write-off in respect of a depreciating asset that is both first acquired for a cost of less than $30,000 on or after 7.30pm on 2 April 2019 which is used or installed ready for use by 30 June 2020.

The write-off amount will depend on the date the asset is first used or installed ready for use for a taxable purpose. For businesses registered for GST, the threshold is calculated on a GST-exclusive basis, but for businesses not registered for GST, the threshold is calculated on a GST-inclusive basis.

Asset cost threshold:

Small business entity From 7.30pm 12 May 2015 1 July 2018 – 28 January 2019 $20,000
Small business entity
From 7.30pm 12 May 2015 29 January 2019 – 7.30pm 2 April 2019 $25,000
Small business entity
From 7.30pm 12 May 2015 7.30pm 2 April 2019 – 30 June 2020 $30,000
Where the cost of the asset is not available for the instant asset write-off deduction, it will be allocated to the general small business pool and depreciated at a rate of 15 per cent regardless of the date of acquisition during the 2019 year, provided the asset starts to be used or is installed ready for use during the year ended 30 June 2019.

For assets included in the pool at the start of the 2019 year, the opening pool balance will be depreciated at the rate of 30 per cent. Where a balancing adjustment occurs during the year, the asset’s termination value must be deducted from the pool.

However, where the closing balance of the SBE’s general small business pool is less than $30,000 as at 30 June 2019, the SBE will be entitled to a full deduction for the amount of the pool’s closing balance.

MAKE SURE YOU PAY THE CORRECT COMPANY TAX RATE AND APPLY THE CORRECT RATE FOR IMPUTATION
Most companies with an aggregated annual turnover of less than $50 million will pay tax at 27.5 per cent in 2018-19. However, some companies with a turnover below $50 million will continue to pay tax at 30 per cent, especially companies that earn nearly all their income from passive investments such as rental income or interest income.

To qualify for the lower tax rate in 2018-19:
a company must have an aggregated turnover of less than $50 million, where aggregated turnover is the sum of the company’s ordinary income and the ordinary income of any connected affiliate or entity
no more than 80 per cent of their assessable income is base rate entity passive income (replacing the requirement to be carrying on a business).
The full company tax rate of 30 per cent applies to all companies that are not eligible for the lower company tax rate.
As a corollary to the base rate passive entity income rules in determining the tax rate of a company, there have also been changes to the dividend imputation rules that apply to the franking of dividends by a company.

The company tax rate for franking distributions needs to assume that the aggregated turnover, assessable income, and base rate entity passive income is the same as 2017-18.
Where the company did not exist in the previous year, its corporate tax rate for imputation purposes will be deemed to be at the lower corporate tax rate of 27.5 per cent for that initial year.

These differential rates create a number of complexities for companies, especially companies holding investments, as well as for the owners of companies. Your CPA Australia-registered tax agent is best placed to assist you with these issues.

SMALL BUSINESS INCOME TAX OFFSET
You will be entitled to the small business income tax offset for the year ended 30 June 2019 if you carry on business and your aggregated turnover for the 2019 year is less than $5 million. The offset rate is 8 per cent of the income tax payable on the portion of an individual’s taxable income that is their ‘total net small business income’.

The ATO will work out the offset based on the net small business income earned as a sole trader and share of net small business income from a partnership or trust, as reported in the income tax return.

SMALL BUSINESS CGT CONCESSIONS
There are significant tax savings potentially available where an eligible active asset used in a business is sold for a profit and the taxpayer can satisfy either the $6 million maximum net asset value test immediately before the CGT event or the $2 million CGT small business entity test for the 2019 year.

Additional conditions must now be met when a taxpayer disposes of an active asset being a share in a company or an interest in a trust on or after 8 February 2018.

Given the complexity of the small business CGT concessions, taxpayers should consult their CPA Australia-registered tax agent for advice.

MAKE TRUST RESOLUTIONS BY 30 JUNE
As always, trustees of discretionary trusts are required to make and document resolutions on how trust income should be distributed to beneficiaries for the 2018-19 financial year by 30 June.

If a valid resolution is not executed by 30 June, any default beneficiaries under the deed will become presently entitled to trust income and subject to tax (even where they do not receive any cash distribution), or the trustee will be assessed at the highest marginal tax rate on any taxable income derived but not distributed by the trust.

A trustee must be able to show how an effective resolution was made through minutes, file notes or an exchange of correspondence documented before year end. However, the trust’s accounts do not need to be prepared by 30 June.

As a corporate trustee may need time to notify its directors that a meeting must be convened to pass and record a resolution, such a notice should be sent out well before the 30 June deadline.

DOCUMENT THE STREAMING OF TRUST CAPITAL GAINS AND FRANKED DIVIDENDS TO BENEFICIARIES
Broadly, trustees of discretionary trusts can stream capital gains and franked dividends to different beneficiaries if the trust deed allows the trustee to make a beneficiary “specifically entitled” to those amounts. The trustee must document this resolution before 30 June and the beneficiary receives or is entitled to receive an amount equal to the net financial benefit of that gain or dividend.

These streaming rules are complex, and taxpayers should consult their CPA Australia-registered tax agent for advice.

CLAIM DEDUCTIONS FOR PROFESSIONAL ADVICE WHEN STARTING A BUSINESS
Professional expenses associated with starting a new business, such as legal and accounting fees, are deductible in the financial year those expenses are incurred rather than deductible over a five-year period as was the case previously.

If you established a business during the year, you should speak to your CPA Australia-registered tax agent about claiming professional advice fees as an expense.

CONSIDER TAX IMPACTS FROM ANY RESTRUCTURING
Small businesses can change the legal structure of their business without incurring any income tax liability when active assets are transferred by one entity to another.

This rollover applies to active assets that are CGT assets, trading stock, revenue assets and depreciating assets used, or held ready for use, in the course of carrying on a business.

However, caution must be exercised – business restructuring is complex, so you should first speak to your CPA Australia-registered tax agent.

REVIEW YOUR PRIVATE COMPANY LOANS
The income tax laws can potentially treat the following as an unfranked deemed dividend for a taxpayer unless an exemption applies:

a payment or a loan by a private company to a shareholder or an associate (like a family member)
the forgiveness of a shareholder’s or associate’s debt
the use of a company asset by a shareholder or their associate
the transfer of a company asset to a shareholder or their associate.
The most common exemption is to enter into a written loan agreement requiring minimum interest and principal repayments over a specified loan term, which may be seven or 25 years depending on whether or not the loan is secured.

There are various things a private company can do before its 2018-19 income tax return needs to be lodged to minimise the risk of a shareholder or an associate deriving a deemed dividend.

Depending on the circumstances, these strategies may include repaying a loan, declaring a dividend or entering a complying loan agreement before the return needs to be lodged.

The rules around private company loans are complex and changing, therefore you should consult your CPA Australia-registered tax agent on this.

PREVENT DEEMED DIVIDENDS IN RESPECT OF UNPAID TRUST DISTRIBUTIONS
An unpaid distribution owed by a trust to a related private company beneficiary that arises on or after 1 July 2016 will be treated as a loan by the company, if the trustee and the company are controlled by the same family group. In these circumstances, the associated trust may be taken to have derived a deemed dividend for the unpaid trust distribution in 2018-19.

However, a deemed dividend may be prevented if the unpaid distribution is paid out, or a complying loan agreement is entered into before the company’s 2018-19 income tax return needs to be lodged.

Alternatively, a deemed dividend will not arise if the amount is held in an eligible sub-trust arrangement for the sole benefit of the private company, and other conditions are satisfied.

Trustees and beneficiaries should consult their CPA Australia-registered tax agent on the full implications of these very complex rules if applicable.

INCREASED ACCESS TO COMPANY LOSSES
The ‘same business test’ for losses has been supplemented with the ‘similar business test’ for losses made in income years starting on or after 1 July 2015. The new test will expand access to past year losses when companies enter into new transactions or business activities.

The similar business test allows a company (and certain trusts) to access losses following a change in ownership where its business, while not the same, is similar, having regard to a number of considerations.

The ‘same business test’ and the ‘similar business test’ will be collectively known as the ‘business continuity test’.

The rules around losses can be complex and taxpayers should consult their CPA Australia-registered tax agent for advice.

WRITE-OFF BAD DEBTS
Businesses can only obtain income tax deductions for bad debts when various conditions are met.

A deduction will only be available if the debt still exists at the time it is written off. Thus, if the debt is forgiven or compromised before it is written off as bad in the accounts, no deduction will be available.

The debt must also be effectively unrecoverable and written off in the accounts as bad in the year the deduction is claimed. The bad debt must have been previously brought to account as assessable income or lent in the ordinary course of carrying on a money-lending business.

Certain additional requirements must be met where the creditor is either a company or trust.

CHECK IF THE PERSONAL SERVICES INCOME RULES APPLY
Personal services income (PSI) is income produced mainly from your personal skills or efforts as an individual. You can receive PSI even if you’re not a sole trader. If you’re producing PSI through a company, partnership or trust and the PSI rules apply, the income will be treated as your individual income for tax purposes.

If the PSI rules apply, they affect how you report your PSI to the ATO and the deductions you can claim.

PAYING EMPLOYEE BONUSES
If you pay staff bonuses and you want to bring expenses into the 2018-19 year, ensure they are quantified and documented in a properly authorised resolution – for example, board minutes – prior to year-end to enable a deduction to be incurred for employee bonuses where such amounts are not paid or credited until the subsequent year.

PAY ANY OUTSTANDING SUPERANNUATION ENTITLEMENTS
Ensure superannuation guarantee payments for employees are up-to-date, and report and rectify any missed payments to the ATO.

From 1 April 2019, there are new powers and offence penalties related to the payment of superannuation guarantee obligations.

Employers can also claim deductions for superannuation contributions made on behalf of their employees in the financial year they are made.

PREPARE FOR SINGLE TOUCH PAYROLL
Single touch payroll (STP) reporting has been extended to all employers from 1 July 2019. A number of options are available depending on the number of employees you have, whether they are closely held and whether you report via your tax or BAS agent.

Check with your payroll software provider to find out if your software is STP compliant.

If you don’t currently use payroll software, you should consult your CPA Australia-registered tax agent for advice.

SEEK INDEPENDENT ADVICE ON INVESTMENT PRODUCTS PROMOTED AS BEING TAX EFFECTIVE
The end of the financial year often sees the promotion of investment products that may claim to be tax effective.

If you are considering such an investment, seek independent advice before making a decision, particularly from your CPA Australia-registered tax agent.

ADDITIONAL TIPS FOR PRIMARY PRODUCERS
Farm management deposits

One of the best tax planning measures available to primary producers is effectively utilising the farm management deposits scheme (FMDs). They are an effective business and cash flow planning tool.

Primary producers can deposit up to $800,000 in a FMD account, they can have early access to their FMD account during times of drought, and they may be able to offset the interest costs on primary production business debt.

Income averaging

Tax averaging enables primary producers to even out their income and tax payable over a maximum of five years to allow for good and bad years. This ensures that farmers don’t pay more tax over time than taxpayers on comparable but steady incomes.

Primary producers who opted out of income tax averaging for 2008-09 will be automatically reinstated in 2018-19 but can choose to withdraw from averaging and pay tax at ordinary rates for 10 years.

Other primary producer-specific tax specific concessions

Don’t forget to consider:

the uncapped immediate write-off for capital expenditure on water facilities and fencing assets
the deduction for the full cost of a fodder storage asset if the expense was incurred or it was first used or installed ready for use on or after 19 August 2018
the outright deduction for capital expenditure for landcare operations and carbon sink forests
the accelerated write-off for horticultural plants and grapevines.

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 [email protected]

 

EOFY resolutions for your small business

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.

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.