Medicare levy surcharge changes
The Government has announced that the thresholds at which the Medicare levy surcharge is imposed will be increased (for the first time since 1997).
From 1 July 2008, the Medicare levy surcharge thresholds will be increased for singles (from $50,000 to $100,000) and for those who are members of a family (from $100,000 to $150,000).
However, in making decisions about whether to retain private health insurance, taxpayers should remember that:
-
the Government's 30% private health insurance rebate (up to 40% for older individuals)will remain;
and
-
the Government's Life Health Cover (LHC) initiative, which encourages individuals to take out and keep private health insurance while they are young, remains unchanged. To avoid paying extra under the LHC, individuals generally need to take out Hospital cover by the 1st of July following their 31st birthday. For each year they delay, they will pay 2% more for their premium, up to a maximum of 70%.
Super co-contribution reminder
Super fund members who are eligible to receive the super co-contribution need to make personal contributions before 30 June 2008.
Note that eligibility for the super co-contribution was extended from 1 July 2007 to self-employed people who make after-tax contributions.
Editor: To be eligible to receive the super co-contribution, a tax payer's 'total income' (assessable income plus reportable fringe benefits) must be less than $58,980, and at least 10% of that total income must be from eligible employment (e.g. salary and wages) or business activities.
ATO data matching programs
The ATO will be undertaking a number of data matching programs to identify taxpayers who
may not be meeting their taxation (including CGT, income tax and GST) obligations, and will require:
§
identity and transaction details relating to securities held in
all
ASX listed entities be approximately 2.8 million individuals;
§
owner builder licence registration information from Victorian and NSW authorities, relating to approximately 75,000 entities in the building and construction industry; and
§
details of approximately 600,000 individuals or entities that have purchased or acquired a motor vehicle valued at $57,009 or higher from the road and transport authorities in each of the States and Territories.
The cash economy - still in ATO's sights
The Commissioner of Taxation has given some insights into how the ATO intends to tackle the cash economy.
Compliance action - Letters
For those that 'need a nudge along', the ATO often provides advisory letters to individual businesses where it's thought they might be involved with the cash economy, and last year:
§
sent more than 9,000 letters to people who had applied for an owner/builder's licence in NSW and Victoria, informing them about tax obligations of the people they were likely to employ: and
§
sent 3,000 letters to shopping centre retailers, advising them that the centre owners had provided the ATO with information about their business turnover and rental payments.
Compliance action - data matching
The ATO is using new strategies, including:
§
data matching to identify people whose lifestyles appear conspicuously out of step with their reported income;
§
cross matching data from Centrelink, child support agencies and state fair trading agencies; and
§
increased use of computer assisted risk evaluation processes to more accurately identify high risk cash economy participants
The obtain records of purchased of luxury goods like cars and boats, and compare them against income declared by the purchaser.
They also drill deeper into areas that seem more prone to cash economy activity - building and construction, the taxi industry, restaurants and cafes and some areas of retailing and transport.
Data matching example
The Commissioner detailed an example of the ATO discovering that taxpayers were hiding income through data matching.
A Husband and wife were selected for an audit in February 2008, as the purchase of their $65,000 BMW seemed to be at odds with ATO records indicating net household income of $17,000 p.a.
The ATO examined their funds and expenditure as well as information provided by third parties, and found that the couple had undeclared incomes of $225,000 over four years, which led to income tax and GST adjustments, the imposition of an administrative penalty, and possible criminal prosecution.
Personal super contributions and income tax/ SMSF returns
Self employed taxpayers are entitled to claim a tax deduction for superannuation contributions if they comply with a number of requirements.
The ATO has advised that, where such taxpayers have made a contribution to their own self managed super fund (SMSF), the need to ensure:
§
they have advised their fund in writing of their intent to claim a deduction and the amount they intend to claim;
§
they have an acknowledgement from the SMSF that it has received their notice to claim a deduction
before
lodging their individual tax return and;
§
they complete the correct items and labels in their individual tax return, in the fund's income tax return, and when completing their member contribution statement.
Editor: We can obviously assist in getting all of these right. It's important, because the ATO matches the data between individual returns, member contribution statements and find income tax returns when looking at who it will audit.
Child Care Benefit and Child Care Tax Rebate from 1 July
From 1 July 2008m the Child Care Tax Rebate (CCTR) will increase from 30% to 50% of out of pocket costs.
The maximum payment will increase from $4,354 to $7,500 per child, and payments will be made quarterly, rather than annually.
The first of these payments will be made in October 2008.
Also, from 1 July 2008 there will no longer be a minimum rate of Child Care Benefit (CCB) (before that date the amount of CCB reduced to a minimum rate, depending on the family's income, but now it will continue to reduce until family's rate is zero).
The income level at which CCB will cut out completely depends upon the number of children in approved care.
For example:
§
the rate if CCB a family with one child in approved care receives will be reduced if their combined income is above $111,000 and will cut out completely at around $126,000: or
§
the rate of CCB a family with two children in approved care receives will be reduced if their combined income is above $119,000 and cut out completely at around $131,000.
Note families who no longer receive the minimum CCB will still be eligible fpr the CCTR.
Education Tax Offset now available
Parents are being advised to 'keep their receipts' for education expenses in light of the commencement of the Education Tax Offset from 1 July 2008.
How much can be claimed?
Eligible families (generally parents entitled to Family Tax Benefit (FTB) Part A) will be able to claim a 50% tax offset every year (in their tax return) for key education expenses up to:
q $750 for each child undertaking primary studies (i.e., maximum refund of $375 per child, per year); and
q $1,500 for each child undertaking secondary studies (i.e., maximum refund of $750 per child, per year).
What items are covered?
Eligible expenses include:
n laptops, home computers and associated costs;
n printers;
n home internet connections;
n education software;
n trade tools for use at school;
n school text books; and
n stationery.
Minor benefits exemption may apply to benefit provided every year
Editor: The provision of a 'minor benefit' (which must be less than $300) to an employee or their associate can be exempt from fringe benefits tax (FBT) if it meets the relevant criteria. One of those criteria requires a consideration of the infrequency and irregularity of the provision of associated, identical or similar benefits.
The ATO recently confirmed that the provision of a Christmas party to employees and their associates every year would still be considered 'infrequent and irregular', and may, therefore, be exempt from FBT.
It has now confirmed that the same rationale can apply to the provision of other benefits.
That is, the fact that a benefit is provided only once each year, but in more than one year, does not mean that the benefit cannot be considered as a minor benefit.
For example, an employer may not need to pay any FBT when it provides each of its employees with a reimbursement of $295 p.a. towards a local gym membership.
However, this would not be the case if the gym membership was included in an employee's salary package under a salary sacrifice arrangement.
Resident minors' 2008/09 tax-free threshold
The increase in the low-income tax offset to $1,200 in 2008/09 (from $750 in 2007/08) effectively means that minors (i.e., persons under the age of 18) can receive $2,666 tax-free in the 2008/09 year (e.g., distributions from discretionary trusts).
The table below shows that, without the offset, once a minor's income exceeds $1,308, the entire amount of 'unearned income' is taxed at 45%. Note that this does not apply to some receipts, e.g., salary and wages.
However, applying the low-income tax offset of $1,200 means that no income tax will be payable unless the minor's taxable income exceeds $2,666, i.e., $1,200 divided by 0.45 = $2,666.66
2008/09 Resident Minors' Rates of Tax
Unearned Income (Div.6AA )
|
Div.6AA Income
$
|
Tax payable
$
|
|
0 – 416 |
Nil |
|
417 – 1,307 |
66% of excess over $416 |
|
1,308+ |
45% of the entire amount |
Self Managed Super Funds (SMSFs): Investment rules
The ATO has recently released two rulings, which consider some of the important investment rules that set out how the ATO expects SMSF trustees will use superannuation money.
Editor: Because the superannuation laws allow for very concessional tax treatment of money invested in a superannuation environment, there are very strict rules about what trustees can and can't do.
Two of these investment rules are:
u The 'sole purpose test' (i.e., basically, the SMSF must be run solely to provide benefits on members retirement or death); and
u The prohibition on SMSFs using fund resources to provide financial assistance to a member, or a relative of a member.
The rulings provide a number of examples regarding these two investment rules, three of which are reproduced below.
Example 1 – Separately negotiated benefit: more than an incidental benefit
An SMSF trustee invests in a non-related company that owns a block of holiday apartments at a popular tourist destination.
The members of the SMSF holiday in this area every year and prior to making the investment owned a separate holiday house nearby.
The trustee, when undertaking the investment, negotiated for members of the SMSF to be able to stay at the apartments for free. This is not a standard feature of the investment.
In return, the SMSF was required to accept a reduction in dividends payable by the company.
The members of the SMSF sell their holiday house immediately after the SMSF makes the holiday apartment investment.
The separate negotiation of the benefit, which materially affects the return on the SMSF's investment, demonstrates that the benefit is purposeful and not incidental.
The facts reveal that the SMSF is being maintained for a purpose of providing benefits other than those specified by the superannuation law and, therefore, indicate a contravention of the sole purpose test .
Example 2 – Selling an asset for less than market value
Robert is a trustee and member of an SMSF. The SMSF's portfolio of assets includes a block of land located in an inner city suburb where land values have risen significantly in recent years.
Robert sells the asset to his son for $210,000. Two months prior to the sale, the block of land was independently valued at $300,000.
The sale of the land by Robert to his son for less than market value contravenes the prohibition on SMSFs providing financial assistance to a relative of a member ( Editor: And probably the sole purpose test, as well ).
Example 3 – Purchase of an asset by an SMSF for greater than market value
Andrew is a member and trustee of an SMSF. Andrew needs to raise $100,000 for personal reasons.
He owns a block of land that qualifies as business real property and has been independently appraised as having a market value of $80,000.
As trustee of the SMSF, Andrew agrees for the SMSF to purchase the land for $100,000.
The purchase of the land by Andrew as trustee of the SMSF for greater than its market value is the giving of financial assistance to himself (a member) and therefore contravenes the superannuation law.
