2010 Federal Budget
Welcome to the Budget Edition of the Kaizen Business Services Group Newsletter
Kaizen Business Services Group is pleased to announce the launch of our new website (www.kaizenbusiness.com)
The website is a significant upgrade and includes a secure client login where you can log into your own personalised area to access documents, files, reports and financial data as well as using it to send us files and documents in a safe and secure environment. If you would like to register for your own secure access, please go the Client Login section of the website.
In future, we intend to distribute all newsletters via the website, to register for this, please go to the “Latest News” tab on the Home page.
FEDERAL BUDGET HIGHLIGHTS
On 11 May the Treasurer handed down the 2010-11 Federal Budget. Following are some of the highlights we consider may be relevant to our clients.
BUSINESS TAXATION
Look-through Capital Gains Tax treatment for “earnout” arrangements
Earnout arrangements are often included as part of business or asset sales and acquisitions, whereby the agreed sale/purchase price varies depending on the future performance of the business. Currently, an earnout right is treated as a separate CGT asset. This treatment can result in inconsistent outcomes for taxpayers where the actual payments under the earnout right differ from the amounts estimated at the start of the arrangement (eg, by reducing access to the CGT small business concessions). Going forward, all payments under a qualifying earnout arrangement will be treated as relating to the underlying business asset.
Increased funding to counter the cash economy
The Government will provide $108m over 4 years to the Australian Taxation Office to address small business operators who use cash transactions to avoid tax.
GST MEASURES
Reforms to the GST financial supply provisions
The Government has announced changes to the financial supply rules (applying from 1 July 2012) which are aimed at reducing compliance and administrative costs for small business. The main changes include
· Increasing the Financial Acquisition Threshold from $50,000 to $150,000. (This should reduce the number of small businesses being caught up in the financial supply regime);
· Treating all elements of Hire Purchase transactions as a taxable supply. This is intended to remove the requirement to account for part of the supply as taxable and the other part as input taxed;
· It is also proposed that the attribution rules for hire purchase arrangements will be made the same for cash and non-cash taxpayers, thereby allowing taxpayers which account for GST on the cash basis to claim input tax credits on the same basis as taxpayers that account for GST on the accruals basis;
· The current special rules for borrowings will be amended to exclude bank deposit accounts;
· The range of expenses qualifying for a Reduced Input Tax Credit (RITC) will be expanded to include:
o acquisitions related to supplies of life insurance by superannuation funds to their members;
o lenders mortgage reinsurance and lenders mortgage insurance; and
o a new transactional fraud monitoring services.
· Preventing Trustee and Responsible Entity Service acquisitions from being used to claim RITCs for all acquisitions.
Changes to GST margin scheme rules
The Government has announced that it will clarify and simplify the margin scheme provisions. The Government states that it will restructure the margin scheme provisions to give prominence to the main principles with the exceptions set out separately and insert objects clauses for the key provisions so that the intention is clear. The Government has also stated that a minor technical amendment will be made to ensure that a valuation can be obtained for the purposes of using the margin scheme for subdivided land.
Revamp of GST-treatment for Australian taxes, fees and charges
Currently, in order for an Australian tax, fee or charge to be exempt from GST, it must be specifically included in a determination issued by the Treasurer. From 1 July 2011, this will be replaced by a principles-based approach. A detailed list of exempt taxes, fees and charges will no longer be produced.
It is intended that the proposed amendments will allow the GST-treatment of an Australian tax, fee or charge to be determined against legislative principles. It also intended that the proposed amendments will provide increased certainty to taxpayers and Government agencies as the tax treatment of the tax, fee or charge is not dependent on it being listed in a determination.
GST compliance program funding for the ATO
The Government will provide $337.5m over 4 years to fund additional activities which will promote voluntary GST compliance and will provide a level playing field for Australian businesses. The Government also states that the funding will address issues relating to fraudulent GST refunds, systematic under-reporting of GST liabilities, non-lodgement of GST returns and non-payment of GST debts.
Export of boats used for recreational purposes
The Government has proposed that, from 1 July 2011, the supply of a boat used for recreational purposes will be GST-free if the boat is exported from Australia by a purchaser within 12 months and only used for recreational purposes whilst in Australia. Currently, the GST law requires that the boat be exported within 60 days. This is aimed at assisting Australian boat builders overcome disadvantages they face relative to foreign competitors.
GST cross-border transactions
The Government intends to implement all the recommendations of the Board of Taxation from its Review of the application of GST to cross-border transactions, with effect from 1 July 2012. The amendments are aimed at significantly reducing the number of non-residents who are unnecessarily drawn into Australia’s GST system through:
· limiting the connected with Australia provisions;
· expanding the reverse charge provision;
· extending the GST-free rules for cross-border supplies; and
· removing the need for some non-residents to register for GST.
SUPERANNUATION
Some minor changes to superannuation and retirement incomes were announced. These included:
· permanently reducing the co-contribution matching rate to 100% (formerly 150% but reduced last year to 100% as a savings measure). As a result, the previously-legislated increase in the matching rate to 125% for 2012-13 and 2013-14 (and 150% for 2014-15 and later years) will not proceed.
· allowing the Commissioner to exercise discretion with respect to excess contributions tax before an assessment is issued;
· reviewing whether deductions should be available to superannuation funds providing benefits to a member against a terminal medical condition;
· introducing technical corrections to allow deductions for contributions made for former employees or where contributions are transferred to a successor fund.
INDIVIDUAL TAXATION
50% savings discount for interest income
From 1 July 2011, the Government will provide individuals with a 50% tax discount on up to $1,000 of interest earned, including interest earned on deposits held with any bank, building society or credit union, as well as bonds, debentures or annuities. The discount will be available for interest income earned directly as well as indirectly, such as via a trust or managed investment scheme.
Standard deduction for work-related expenses
The Government will introduce a standard deduction of $500 for work-related expenses and the cost of managing tax affairs from 1 July 2012 increasing to $1,000 from 1 July 2013. Those taxpayers with deductible expenses greater than the standard deduction amount will still be able to claim their higher expenses, in lieu of claiming the standard deduction amount. This measure is seen as an important step towards a “tick and flick” system of pre-filled tax returns that will make life easier for taxpayers at tax time. A standard tax deduction was recommended by the Henry Tax Report.
The standard deduction will reduce individuals’ and families’ adjusted taxable income for the purpose of determining their eligibility for transfer payments and other concessions (eg the Family Tax Benefit, Baby Bonus, Child Care Benefit, the Commonwealth Seniors Health Card and the Seniors Supplement). This will make some individuals and families eligible for transfer payments or eligible for a larger transfer payment.
Personal tax rates - no change to already legislated rates for 2010-11
The Government has not made any changes to the currently legislated tax rates for 2010-11.
For the year commencing 1 July 2010, the resident tax rates will be as follows:
Residents: rates and tax payable from 1 July 2010
|
Taxable income |
Tax payable |
|
$0 - $6,000 |
Nil |
|
$6,001 - $37,000 |
15% of excess over $6,000 |
|
$37,001 - $80,000 |
$4,650 + 30% of excess over $37,000 |
|
$80,001 - $180,000 |
$17,550 + 37% of excess over $80,000 |
|
$180,001+ |
$54,550 + 45% of excess over $180,000 |
|
(excluding the 1.5% Medicare levy) |
|
Low income tax offset
For the current income year, taxpayers are entitled to the low income tax offset where their taxable income is less than $63,750. For 2010-11, this upper threshold will increase to $67,500 to accommodate the increase in the offset to $1,500. The low income tax offset will continue to phase out at a rate of 4 cents in the dollar for every dollar of income in excess of $30,000.
As a result of the increases in the low income tax offset, the income level above which senior Australians (eligible for the senior Australians tax offset) begin to pay tax will increase. This will mean that eligible senior Australians will have no tax liability until their incomes reach:
· $29,867 for singles and $25,680 for each member of a couple in the 2009-10 income year; and
· $30,685 for singles and $26,680 for each member of a couple in the 2010-11 income year.
Medicare levy
The Medicare levy threshold for individuals eligible for the senior Australians tax offset will increase to $30,685 from 1 July 2010 (up from $29,867 for 2009-10). The Medicare levy threshold for certain couples eligible for the senior Australians tax offset, where the threshold for single senior Australians is not sufficient to ensure that they incur no Medicare levy liability until they incur an income tax liability, will increase to $44,500 from 1 July 2010 (up from $43,500 for 2009-10). The Medicare levy phase-in limit for individuals eligible for the senior Australians tax offset will also increase to $36,100 from 1 July 2010 (up from $35,137 for 2009-10). The Medicare levy phase-in limit that applies to certain couples eligible for the senior Australians tax offset, will also increase to $52,353 from 1 July 2010 (up from $51,177 for 2009-10).
Medical expenses rebate threshold raised
The medical expenses rebate threshold will increase from $1,500 to $2,000 from 1 July 2010. Taxpayers are entitled to receive a rebate equal to 20% of net unreimbursed eligible medical expenses above the threshold. From 1 July 2011, the threshold will be indexed annually in line with the Consumer Price Index.
OTHER MEASURES
Registration of business names
The Government intends to establish a national system of registering business names. Currently, businesses are required to register separately in each State and Territory and pay registration fees to each government. Under the proposed measures, businesses will need to register only once and pay only one fee. The administration of business names will be transferred from the States to ASIC. The proposal aims to provide:
· a single, national online registration system for business names and ABNs;
· a business-friendly way of searching for trademarks;
· a Business Licensing Information Service to provide businesses customised information about their regulatory requirements including licences, registrations and permits; and
· online accounts that will allow businesses to access registrations, monitor compliance requirements and access regulatory change notifications from all governments.
Non Budget News
SMSF Meeting Minimum Pension Payments
Superannuation funds sometimes fail to pay the correct pension amounts to members. Where this occurs, the fund loses its tax exempt status with respect to the underpaid pension. We suggest that prior to 30th June each year, trustees of SMSF which are paying pensions review the amount of pension paid during the year and ensure that the minimum requirements for the member have been satisfied.
Excess Super Contributions
One of the great things about superannuation is the concessional tax rate. Concessional contributions, which come from pre tax income, are taxed at 15%.
There are caps imposed on how much you can put into super and still get the concessional tax rate. In the 2007/2008 and 2008/2009 financial years, the concessional contributions cap was $50,000 for those under 50 years of age and $100,000 for those who were 50 or older on 30 June 2007. The concessional contributions cap for the current financial year is $25,000 for those under 50 and $50,000 for those 50 or over (subject to the members fund balance). The non-concessional contributions threshold is $150,000 (which can be averaged across three years - allowing you to exceed the cap in one year and reduce your contributions in others giving you a total of $450,000 over three years).
Excess contributions are not uncommon and many taxpayers inadvertently breach their contribution limits. The problem is that if you breach the concessional contributions cap, the tax on the contributions over the cap is an additional 31.5% on top of the initial 15% paid by the super fund. And, it’s very difficult to do anything about it once you have put the cash into the superannuation account. Where both the concessional and non-concessional caps are breached, the excess contributions tax could be as high as 93%.
The problem with making excess contributions is that under the law, once the contribution has been accepted by the fund the preservation rules apply (meaning that you can only get the money out once you meet the conditions of release – for example, you turn 60).
We are aware that the ATO is constantly matching data it receives to identify potential breaches. If you are unsure what your contribution limits are or if you consider that they may have been inadvertently exceeded, please contact this office.
Investment Allowance
The Investment Allowance (or tax break) was part of the Government’s stimulus package designed to ensure that business investment remained consistent, despite the dwindling economy.
Small business entities (businesses with an aggregated turnover below $2 million) are entitled to the 50% Investment Allowance as long as they entered a contract to buy the asset between 12.01am 13 December 2008 and 11.59pm 31 December 2009.
The year the Investment Allowance deduction is claimed is determined by the year the asset is first used or installed ready for use. In order to claim the Investment Allowance in the 2009/10 income year, the contract for the acquisition of the asset (or the addition) must have been in place by 31 December 2009 and the asset’s first use time must be before 30 June 2010.
If you intend to claim the investment allowance in the year ending 30th June 2010, you will require documentation showing that the assets were ordered within the appropriate timeframe.
Motor Vehicle Log Books
If you intend to claim a deduction for motor vehicle expenses using the log book method or calculate fringe benefits tax using the operating cost method, you are required to have a valid log book. A log book is only valid for five years, after which a new one must be maintained.
If you have any questions or require assistance with any of the items discussed, please contact this office.