AJML UPDATE – JANUARY 09 Your path to prosperity
Your path to prosperity
1)Read business nonfiction regularly. Make sure that you always in the middle of a pro-business biography. Use your local library, the internet, and other sources to locate works by and about people who loved business. Eventually you will come to find this enjoyable, and your soul will be infused with enthusiasm for the culture of business. Create your own small home library of this kind of material.
2)Start drawing up an inventory of your skills. No matter how irrelevant some skills might seem, write them down. Then alongside each skill or aptitude, write down the kinds of people who might benefit from those skills. Now brainstorm all the possible environments in which other people might encounter or seek those specific skills. Be open to the possibility that you are not currently deploying your most marketable skills to best or exclusive effect.
3)Induct your employees into the culture of your organization. Without this, your employees will never participate fully as members of a team, and they will fail to develop internal guidelines that will allow them to use their initiative in the absence of specific direction. Be crystal clear on exactly what you expect from those who look to you for leadership. Ensure that no employee languishes in loneliness. Provide skill training that will allow each employee to contribute to the bottom line. Finally, make sure all your employees have the ability to remain afloat when things get turbulent.
4)Do your best to avoid two or more simultaneous stress-inducing changes in your life. If you are planning on major move, say, to another city, don’t schedule your wedding for the same week. If you unexpectedly lose your job, postpone the surgery you had planned for the same period until you have had a chance to absorb and adjust to the career change.
5)Before looking forward, look backward. If thing are stable and steady, they will continue to be stable and steady unless acted on by some force. How likely is it for some force to materialize? If things are changing rapidly, they are already being acted on by some force. Find it, recognize it, and determine how that force is likely to behave. Will it continue? Will it strengthen or weaken? Examine the trend of the matter concerning you. What has it been doing up to the present? Once you have discovered the trend, you must ask yourself whether it has been behaving in this way because nothing has made it behave differently, or is it behaving this way only because something is preventing it from behaving differently.
6)isualize your future Whether you are contemplating an investment or planning on opening a new business, faith is paramount. If you are unable to clearly visualize what it will all look like were it to go well, you would be better off deferring the action until you can see it. Your chances of success are vastly enhanced if you spend a few moments first actively visualizing the conversation with your prospect as culminating triumphantly.
7)Prepare and maintain your own personal financial statements. Your statements don’t have to be of accounting firm quality. You need to know your money, and this is how to know it. You need to know your exact financial situation because that is what you are intending to improve. You can hardly measure improvement if you have no way of keeping score. Finally, examine your figures regularly or professionally for you.
8)Watch for patterns. There are always larger patterns and trends to watch and to try to understand. As business professionals, you should remain on high alert for these trends, and you should try to understand the underlying causes driving them, learn to foretell the future, and act now to take advantage of the future trend.
AJML UPDATE – FEBRUARY 09 Division 7A Loans
Division 7A Loans
1. What is the aim of Division 7A and why is it needed?
Division 7A of Part III of the ITAA 1936 is an integrity measure to ensure that private companies can no longer make tax free distributions of profits to shareholders or shareholders’ associates in the form of payments, loans and debts forgiven.
2. How does Division 7A work?
Division 7A treats three kinds of amounts as dividends paid by a private company:
amounts paid by the company to a shareholder or shareholder’s associate (section 109C)
amounts lent by the company to a shareholder or shareholder’s associate (sections 109D and 109E), and
amounts of debts owed by a shareholder or shareholder’s associate to the company that the company forgives (section 109F).
Treatment of the amounts as dividends makes the amounts assessable income of the shareholder or shareholder’s associate (section 44).
Amounts treated as dividends under Division 7A are generally not frankable, even though they are taken to be paid out of the private company’s profits.
Division 7A also contains provisions (subdivision EA) which are designed to ensure that a trustee cannot shelter trust income at the prevailing company tax rate by creating a present entitlement to a private company without paying it and then distributing the underlying cash to a shareholder (or their associate) of the company. These provisions apply to certain trustee payments, loans and debt forgiveness made in favour of a shareholder (or shareholders associate) of a private company with an unpaid present entitlement from the trust.
3. What were the June 2007 amendments to Division 7A?
Where a deemed dividend arises under Division 7A, the private company’s franking account will not be debited.
A ‘payment’ can be converted to a loan that can be either fully repaid before the private company’s lodgment day for the year of income or be placed on a qualifying commercial footing meeting the terms of section 109N of Division 7A.
Where minimum yearly repayments under a loan fall short of the required amount by the due date, the amount of the deemed dividend that arises is the amount of the shortfall in the income year.
4. What is the effect on the private company’s franking account if the company is taken to pay a dividend at the end of an income year?
In general, amounts treated as dividends under Division 7A are not frankable, even though they are taken to be paid out of the private company’s profits. Generally where amounts are treated as deemed dividends, a private company cannot allocate a franking credit to the dividend and you are not entitled to a tax offset in relation to the dividend.
5. What if the loan made during an income year is fully repaid before the lodgment day?
Generally Division 7A has no application for:
private company loans made in the 2004-05 year of income or a later year of income, or
trustee loans made on or after 12 December 2002.
The ‘lodgment day’ is the earlier of the due date for lodgment and the date of the lodgment of the lender’s tax return for the year of income. The ‘lender’ is the private company or trustee that made the loan that is subject to Division 7A.
6. What criteria must a loan meet so as not to be treated as a dividend in the year it is made?
Loans that meet all the following criteria will not be treated as dividends in the year the loan is made.
The loan is put under a written agreement. The written agreement must be in place:
The rate of interest payable on the loan in the income years after the year the loan is made equals or exceeds the Indicator Lending Rates – Bank variable housing loans interest rate last published by the Reserve Bank of Australia before the start of the private company’s or trustee’s income year.
The term of the loan does not exceed the maximum term prescribed by the legislation for that kind of loan (see below).
AJML UPDATE – MAY 2009 Tax planning Year end 30 June 2009
Tax planning – year ended 30 June 2009
Education tax refund
You might be entitled to claim the education tax refund (ETR) if, in the 2008-09 income year, all of the following applied. You:
had a child at primary or secondary school;
received family tax benefit (FTB) Part A for that child or received a payment for that child which stopped them from receiving FBT Part A;
had eligible education expenses
Independent students can also claim.
Clients can claim 50% of eligible expenses up to:
$750 for each eligible child in primary school – that is, a refund of up to $375;
$1500 for each eligible child in secondary school or for an independent student – that is, a refund of up to $750.
Eligible expenses include the purchase, lease, hire or hire-purchase costs, repairs and running costs of:
Laptops, home computers and associated costs;
Computer-related equipment such as printers, UBS flash drives
and disability computer aids for students;
Home internet connections;
Word processing, spreadsheet, database and presentation software, internet filters and antivirus software;
School textbooks, other paper-based school learning material and associated learning materials, such as stationery;
Trade tools and safety equipment for secondary school trade courses.
Family Tax Benefits (FTB)
Australian federal Government has announced new legislation to make FTB payments no longer payable through the Australian Taxation Office.
What does this mean for you?
You will no longer be able to claim a lump sum payment for FTB through the Australian Taxation Office, when you lodge your 2008-09 tax return and onwards.
FTB top-up payments will not be included on your taxation notice of assessment.
How to claim for the 2008-09 financial year?
You have two options for claiming FTB through Medicare Australia or Centrelink:
Lodge a lump sum claim after the end of the financial year for the 2008-09 year. It is important to remember you will not receive any payment until you and/or your partner have lodged your income tax return for the same financial year as claimed.
Lodge a claim for fortnightly payments, based on an estimate of your income.
You can claim FTB:
Online at www.family assist.gov.au or
By lodging a paper claim form in person at a Medicare Australia Office or a Centrelink Customer Service Centre.
AJML UPDATE – APR 2009 Home Based Business
A home-based business is one where you operate the business:
at home, that is, you carry out most of the business’ work at your home. For example, a dressmaker who does all their work at home, with clients coming to their home for fittings, or
from home, that is, the business does not own or rent any premises other than your home. For example, a tiler who does most of their work on clients’ premises but does not have any other business premises.
Claiming your business expenses
Running a business at or from your home is similar to running any other business. That is, if you operate a home-based business, you can generally claim similar expenses to a business that is not home-based.
However, two types of expenses that are specific to carrying on a home-based business are:
expenses related to the area of your home you use for business, and
motor vehicle expenses between your home and other business locations.
Expenses for your home business area
If you operate a business at or from your home, you may be able to claim a deduction for some of the expenses relating to the area you use for business purposes. These expenses are either:
occupancy expenses, or
Occupancy expenses are those expenses you pay to own, rent or use your home even if you are not carrying on a home-based business. Occupancy expenses include:
rent or mortgage interest
house insurance premiums.
You must pass the interest deductibility test before you can claim occupancy expenses. This means you must have an area of your home set aside exclusively for your business activities (for example, an office or workshop). If you satisfy the interest deductibility test, you must account for any capital gain you make when you sell your home.
How capital gains tax applies
Generally, you can ignore a capital gain or loss you make when you sell your home. However, you may have to pay capital gains tax (CGT) when you sell your home if you have used any part of it for business purposes.
CGT will not apply if you:
operate your business from a rented home
do not have an area specifically set aside for your business activities, or
operate your business through a company or trust.
Running expenses are the increased costs of using facilities within your home because of your business activities.
Running expenses include:
the cost of using a room (such as electricity and gas costs for heating, cooling and lighting)
business phone costs
the decline in value of plant and equipment (for example, chairs, bookcases, computers, grinders)
the decline in value of furniture and furnishings (for example, curtains, carpets, light fittings)
the cost of repairs to furniture and furnishings, and
How much you can claim
You can claim the percentage of occupancy expenses that relate to the area of your home you use as a place of business.
A common method of working out how much to claim is to use the floor area you use for your business (as a proportion of the floor area of your whole home). For example, if the floor area of your home office is 10% of the total area of your home, you could claim 10% of your rent or mortgage interest, council rates and insurance.
For more information please download the following home-based business guide (NAT 10709) from ATO’s website: http://www.ato.gov.au/content/downloads/BUS43191n10709_07_08.pdf
AJML UPDATE – MAR 09 Your company and the law
Your company and the law
If you are a director or secretary of a small company, you need to follow the requirements set out in the Corporations Act 2001.
What does the law expect of you as a director?
As a director, you must:
Be honest and careful at all times
Know what your company is doing
Make sure that your company can pay its debts
See that your company keeps proper financial records
Act in the company’s best interests
Fully up to date on what your company is doing
Get outside professional advice when you need more details to make an informed decision
Take an active part in directors’ meetings
Can anyone be a director or secretary?
Directors must be older than 18
You must not act as a director or secretary (or manage a company) without court consent if you:
Have been declared bankrupt , or
Have been convicted of various offences such as fraud or offences under company law, such as a breach of your duties as a director or insolvent trading
What if your company can’t pay its debts?
You must stop your company trading if it is unable to meet its existing debts. You must prevent the company from taking on a new debt if that would mean that it could not meet that debt and its existing debts. Your company is ‘insolvent’ if it can’t pay its debts. You would be breaking the law if you let the company while insolvent.
Company housekeeping – records and registers etc
The officers of every company must make sure that the company attends to keeping of financial records. As a director, the law makes you personally responsible for keeping proper company records.
The Constitution for most companies is drawn up prior to the registration of the company. The Constitution has the effect of a contract between:
the company and each member;
the company and each director;
the company and the company secretary;
a member and each other member.
A company must provide an up-to-date copy of the Constitution (s.139) to any member who requests it within 7 days (or within 7 days of the fee being paid if a fee up to the prescribed amount set out in the Corporations Regulations 2001 (the Regulations) [1.1.01], is charged).It is not necessary to lodge the Constitution of a proprietary company (not being an unlimited company) with the application for registration but they must be kept with the company’s records and made available if required.
AJML UPDATE – JUNE 2009 Tax planning – year end 2009
Tax planning – year ended 30 June 2009
The entrepreneurs’ tax offset (ETO)
The entrepreneurs’ tax offset (ETO) is a tax offset equal to 25% of the income tax payable on your business income if you have aggregated turnover of $50,000 or less.
If your aggregated turnover is more than $50,000, the ETO is phased out so that the offset stops once your turnover reaches $75,000.
Entrepreneurs’ tax offset – family income test
In the 2008 Budget, the government announced that an additional income test will apply to the Entrepreneurs’ tax offset (ETO). For most taxpayers the change will apply from the 2008-09 income year and will further restrict access to the ETO for taxpayers with high alternative sources of income.
The Government will apply a family income test to the eligibility criteria for the entrepreneurs’ tax offset (ETO) to more appropriately target the offset towards genuine small, micro and home-based businesses.
Currently, the ETO is claimed by many taxpayers for whom business is not a primary source of income and who have other, more significant, forms of income. The family income test will restrict access to the ETO for businesses with high alternative sources of household income.
The family income test will further limit access to the ETO by restricting eligibility for singles from $70,000 and families from $120,000 adjusted taxable income per year.
This measure will apply from 1 July 2008.
If you carried on more than one business activity (as a sole trader or within the same entity), to work out
your net small business income you need to:
combine your small business turnover from all business activities, and
reduce that amount by the deductions attributable to that turnover.
The ETO can only reduce the amount of tax you must pay this year. That is, we cannot:
refund any unused tax offset
defer it to reduce your tax in a later income year, or
transfer it to another taxpayer to reduce their tax.
The Government has announced an investment tax break for business.
The tax break, in the form of an investment allowance will provide:
Small business entities (turnover of less than $2 million a year):
An additional tax deduction of 50 per cent of the cost of eligible new tangible depreciating assets where the business commits to investing in the asset between 13 December 2008 and 31 December 2009 and first uses the asset, or installs it ready for use, or (in the case of new investment in an existing asset) brings the asset to its modified or improved state on or before 31 December 2010.
Other business entities (turnover of $2 million or more a year):
an additional tax deduction of 30 per cent of the cost of eligible new tangible depreciating assets where the business commits to investing in the asset between 13 December 2008 and 30 June 2009 and first uses the asset, or installs it ready for use, or brings the asset to its modified or improved state on or before 30 June 2010.
an additional tax deduction of 10 per cent of the cost of eligible new tangible depreciating assets where the business commits to investing in the asset between 13 December 2008 and 30 June 2009 and first uses the asset, or installs it ready for use, or brings the asset to its modified or improved state between 1 July 2010 and 31 December 2010.
an additional tax deduction of 10 per cent of the cost of eligible new tangible depreciating assets where the business commits to investing in the asset between 1 July 2009 and 31 December 2009 and first uses the asset, or installs it ready for use, or brings the asset to its modified or improved state on or before 31 December 2010.
Who can claim the Tax Break?
Provided all of the eligibility criteria are met, the Tax Break is to be claimed by the taxpayer that holds the asset for the purposes of Division 40. That is, the same person who claims capital allowance deductions in relation to the asset.
AJML UPDATE – JULY 2009 Industry benchmarks and ATO audits
Industry benchmarks and ATO audits
The Australian Taxation Office produces industry benchmarks and taxation statistics to help understand Australian businesses, the economy and ATO audits
Tradespeople can use the benchmarks to:
Compare their performance against the rest of the industry;
Check that their tax records accurately reflect their business practices;
Make adjustments necessary to get back on the right track.
For more information on the industry benchmarks, please visit ATO website.
ATO AUDIT CASE STUDY 1 – Melbourne based concreter
A Melbourne based concreter received a tax bill for $115,953 after an audit showed the omitted $142,000 from his tax returns.
The taxpayer came to the ATO’s attention because he had been reporting very low levels of income for a number of years.
During the audit, the taxpayer said his business was based on smaller suburban work, for which he received very little cash. He said he always issued tax invoices to his customers.
The concreting benchmark helped the ATO to understand the taxpayer’s business in the context of the industry.
The concreter had declared a taxable income of $18,000 for the year. He recorded only four concrete purchases during one of the quarters.
Data ATO obtained from his suppliers for that quarter showed eighteen concrete purchases – some paid for in cash. Other third party information showed he performed many of his jobs for cash; these were not recorded in his records and his customers did not receive tax invoices.
Using information the ATO gathered from all sources, the ATO formed the view that he had a lot of unreported cash income and expenses.
As the taxpayer’s record keeping was inadequate, the auditors worked out his income by applying his normal sale price square metre to his actual purchases of concrete.
The audit resulted in tax liabilities of close to $67,000 and additional penalties of nearly $50,000.
ATO AUDIT CASE STUDY 2 – plumber
The ATO selected a plumber for audit after he lodged income tax returns with net business losses of $84,000 over a two-year period. He also declared net losses one two rental properties during this time.
Separated from his wife, the plumber remained in the family home while his wife and three of their five children moved into a second property that he also owned.
During an audit review, the plumber admitted to overstating expenses by including personal amounts of $245,000. We also found he was inflating purchases then claiming input tax credits and business deductions on the higher amount. Overstated expenses totaled $284,000 over two years.
Further analysis showed the plumber had not recorded and reported all cash transactions, and was reporting income based only on his records of invoices paid. A review of his bank account revealed that deposits were $71,500 more than the total income he reported in activity statements.
When we analyzed the plumber’s private living expenses we found that his lifestyle could not supported by his declared income. however, when the bank account deposits were added back as income and the inflated expenses were excluded, his net business income was sufficient to cover personal living expenses.
Auditors also discovered a number of invoices listed as unpaid. The ATO contacted several of his customers and found that income of these payments had been made in cash.
The plumber then admitted to another $44,000 in unreported cash over the two-year period.
On completion of the audit we found that the plumber had understated his net business income by $394,000 over two years. This led to:
A GST adjustment if $46,000
An income tax adjustment of $102,000, and
A 75% administration penalty.
The ATO is currently considering the case for prosecution.
AJML UPDATE – AUGUST 2009 Year end tax tips – individuals
Year-end tax tips –
As the 2009 financial year draws to a close, it is timely for individuals and small businesses to consider the following year-end tax tips:
Records are normally required to be retained for tax purposes for at least five years, but special requirements apply in some areas. For example, in the case of capital gains tax and the substantiation rules, records have to be held for longer periods.
WORK RELATED EXPENSES
The Australian Taxation Office’s compliance program for 2009 again focuses on over claiming of employee’s work related expenses. Such expenses typically include employee claims for expenditure incurred on items such as travel, uniforms, subscriptions, union fees and self education.
The Tax Office is maintaining its strong focus on this area because of the large amount of revenue involved. The types of thing the Tax Office looks out for are repairs vs improvements, ensuring the property was really a rental property (and not just your weekender), and that interest on any property loans has been correctly claimed.
Certain building capital works (including construction and improvement costs) may be written off as a tax deduction over a 40 year period, i.e. 2.5 per cent per annum.
DVIDIENDS AND INTEREST
To ensure that interest and dividends are returned by taxpayers, the Tax Office matches information provided in tax returns with information from external sources, But don’t forget to put in your imputation credits. The best way to avoid trouble here is to include all such income in your return and retain supporting documents such as bank and company dividend statements.
Any capital gain on the disposal of an asset can be reduced by ensuring that all eligible items are included in the asset’s cost base including capital improvements and incidental cost such as stamp duty, legal costs and commission fees, and by applying available capital losses.
You may also be able to further reduce the balance of any net gain under the general 50 per cent discount and, if you are a small business owner, the various small CGT concessions.
However, the Tax Office advised, in its 2008 compliance program, that it will closely scrutinize asset transactions. In particular, it has expanded its data matching projects to ensure that there is no underreporting of capital gains as it now has access to data on asset sales from state title and revenue offices, securities exchange and share registries as well as reports from managed funds. Therefore, you should keep all relevant records to support the details provided in your return.
Tax rebates (or offsets) can reduce your tax bill, so it pays to know that you are entitled to. What you can claim depends on the level of your income and family circumstances. Examples of rebates, subject to satisfying certain criteria, include private health insurance, medical expenses, superannuation contribution for a low income spouse and a dependent spouse, as well as tax offsets for low income earners and senior Australians.
Entrepreneurs’ tax offset is also available to taxpayers who have chosen to enter the Small Business Entity (SBE) system.
However, the child care rebate is no longer paid through the tax system but is instead separately calculated and paid by the Family Assistance Office.
THE SBE SYSTEM
The SBE system commenced on 01 July 2007, being a concessional tax regime for small business taxpayers whose aggregate turnover is less than $2 million. Its key attractions include an immediate write-off for new depreciating assets costing less than $1000, and accelerated depreciation on such assets costing $1000 or more. SBEs are also able to access the CGT small business concessions, car parking FBT exemptions and certain GST and PAYG concessions. In addition, SBEs subject to a reduced audit review period of two years.
If you are not already in the SBE system, consider if you qualify and whether you should elect into it. To obtain the SBE benefits for 2008 the necessary election must lodged
AJML UPDATE – SEPTEMBER 2009 Year end tax tips – small businesses
Year-end tax tips – Small Business
As the 2009 financial year draws to a close, it is timely for individuals and small businesses to consider the following year-end tax tips:
It is important to ensure that private company loans that extend beyond the end of the income year are properly documented, to ensure that a tax liability is not triggered under the tax rules set out under Division 7A.
Adequate annual repayments of a properly documented loan are also required. It should also be noted that taxpayers with prior year loan or other exposures under Division 7A which arose between 2002 and 2007 have until 30 June 2008 to take corrective action put such transactions on a Division 7A compliant basis where the exposure arose due to an honest mistake or inadvertent omission.
Where such action is taken by year end the Tax Office will not treat the prior year exposure as a deemed dividend under Division 7A. Further details on such corrective action are set out in Practice Statement PS LA 2007/20 on www.ato.gov.au
CAN I JUST MAKE AN ESTIAMTE OF MY STOCK?
It is not sufficient to simply make an estimate of your stock, or to take a guess. Each year you need to include a value in your accounts of stock in hand and work-in-progress at 30 June. Closing stock can be valued at cost, replacement or market value or less if obsolete, but you have to document which method you use.
WHY SHOULD I REVIEW MY ASSETS?
It’s too easy to carry assets on your books that have no real value, are obsolete or have been scrapped. The only way to get a write-off deduction for them is to review your asset register and take the necessary action before 30 June. The asset register is the list you should be keeping of all plant, equipment, furniture, fittings and any other assets, including all items bought, sold and disposed of during the year.
For a business to be commercial under these rules, it needs to meet certain prescribed tests. If the tests are not met, any losses arising from the activities will have be carried forward and offset in a later year, against future income of the same type or source.
PERSONAL SERVICES INCOME (PSI)
The PSI measures are designed to limit the level of deductions available to certain contractors, whether they are operating as a sole trader or through a company, trust or partnership, and to also extend the PAYG withholding rules in such cases.
A taxpayer that meets certain special tests such as the ‘results’ test will be treated as carrying on a personal services business and will be able to claim a wider range of deductions. But such taxpayers need to be aware of the Tax Office’s strict approach to income retention and income splitting (with some exceptions such as for standard ‘mum and dad’ partnerships).
If you want to claim for bad debts, remember that they must be bad and written off before the end of the financial year. To do this, the debt must generally have been brought to account as assessable income and you must have given up all hope, and more importantly, all action for recovery. Bad debts cannot be claimed by taxpayers who recognize income on a cash basis.
SALARY PACKAGING AND FRINGE BENEFITS
This can be a useful way to obtain some tax savings, particularly if you are on the top marginal tax rate and your employer offers it. Some of the most common and tax-effective items to consider include superannuation, laptop computers and motor vehicles. Employees should ensure that an effective salary sacrifice arrangement foregoing salary or a bonus for fringe benefits or additional superannuation contributions are entered into before the applicable salary or bonus had been earned. Note that your employer will include the reportable fringe benefit amount on your payment summary, which must be included in your tax return. This may impact on your liability for the Medicare levy and entitlement to certain benefits. Business owners should note that fringe benefits tax (FBT) may be applicable to entertainment expenses (from business lunches to tickets for sporting events), company motor vehicles, some directors’ loans or a range of other benefits received by employees and directors.
AJML UPDATE – OCTOBER 2009 Changes to medicare levy surcharge and HECSHELP
Changes to medicare levy surcharge and HECS-HELP
INCREASED MEDICARE LEVY SURCHARGE THRESHOLD
The medicare levy surcharge threshold for singles and members of a family has been increased to $70,000 and $140,000 respectively. There is a transition rule for taxpayers who may have stopped their private health cover on the basis of the originally announced threshold of $100,000 and $150,000.
The transition rule means you will be taken to have held private health cover for the whole period 01 July 2008 to 31 December 2008 if you:
Had appropriate private health cover at any time during the period 01 July 2008 to 31 December 2008.
Still had the same private health cover on 01 January.
If you meet the transitional rule then the tax statements issued by the private health funds will not have the information the ATO needs to work out the correct number of days you are exempt from paying the surcharge.
Please contact your tax agent for a pre-filling report, they will provide you with a report of the actual start and finish dates of policies, which means that you will be able to work out the correct number of days that you are exempt from the surcharge. If you are an early lodger, you may need to supply the start and end dates for your private health insurance policy. This is because the pre-filling data will be made progressively available during July 2009.
Ben’s taxable income for the 2008-09 year is $85,000. He is single with no dependent children. After the Government made the original Budget announcement that his Medicare levy surcharge threshold would increase to $100,000, Ben stopped his private health insurance policy on 01 July 2008. As a result of the threshold being changed to $70,0000, Ben took out new private health insurance on 13 December 2008 and maintain the same policy for the rest of the 2008-09 income year. Ben annual private health insurance statement shows 201 days at label A.
As Ben meets the transitional rule – he has the same health insurance cover on 01 January 2009 that he had for any part of the period 01 July 2008 to 31 December – he is exempt from the surcharge for the whole year as he also had appropriate cover the period 01 January 2009 to 30 June 2009. Ben should complete item M2 on his tax return by stating ‘Y’ (Yes) at label E and completing the ‘Private Health Insurance Policy Details’ on Ben’s tax return.
NEW HECS-HELP BENEFIT FOR GRADUATES
If you have a Higher Education Loan Programme (HELP) debt and is either a maths or science graduate or an early childhood education teacher, you may be eligible for the new HECS-HELP benefit. The benefit is available from 01 July 2009 for the previous income year. It may reduce your overall tax debt or increase your tax refund, depending on your individual circumstances.
The HECS-HELP benefit either reduces the eligible person’s:
Compulsory HELP repayment included on your notice of assessment
Accumulated HELP debt, if they are an early childhood education teacher who does not have to make a compulsory HELP repayment.
The HECS-HELP benefit is one of the initiatives of the Government’s education revolution.
The benefit amount you can claim depends on the number of weeks you were employed in an eligible occupation and or location. You may claim a maximum of 260 weeks. The maximum annual benefit for the 2008-09 income year is:
$1,500 for maths and science graduates.
$1,600 for early childhood education teachers.
The amount of the benefit is indexed each year.
Eligible clients can apply annually for the HECS-HELP benefit by completing the HECS-HELP benefit application. You have two years from the end of the income year you are applying for to submit your application. The application is not valid unless if you have lodged your income tax return or told the
AJML UPDATE – NOV 09 Foreign income – General
Foreign income – general
Per Section 6-5 of ITAA97, if you are an Australian Resident for tax purpose, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
If you were an Australian resident and you received income from overseas, you must declare your assessable foreign income even if tax was taken out in the country from which the income came. Foreign income that is exempt from Australian tax may still be taken into account to work out the amount of tax you have to pay on your other income.
If you received lump sum payment from a foreign superannuation fund, some of these payments are taxable and some are exempt from Australian tax. Please phone the Superannuation infoline or our financial planner for details.
WHAT YOU MAY NEED?
Payslips; foreign tax assessments; and company, partnership and trust distribution advices.
Details of any expenses you incurred in earning your foreign income.
Details of any allowable foreign losses from previous years.
Notepaper to help you to work out the amounts you need to show on your tax return.
GUIDES FROM THE AUSTRALIAN TAX OFFICE WHICH COULD HELP
You and your shares (NAT 2632 http://www.ato.gov.au/content/downloads/IND00191825n26320609.pdf )
Guide to foreign income tax offset rules (NAT 72923 http://www.ato.gov.au/corporate/content.asp?doc=/content/00192127.htm)
Taxation Ruling TR96/15 – Income tax: foreign tax credit system: issues relating to the practical application of section 23AG. If you received income from foreign employment, you may need this ruling to work out whether we consider that you were continuously employed if you took a break in foreign employment. This is important in working out whether the income is exempt from tax. (http://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR9615/NAT/ATO/00001)
HOW YOUR ASSESSABLE FOREIGN INCOME IS CALCULATED FOR YOUR TAX RETURN?
All foreign income, deductions and foreign tax paid must be translated (converted) to Australian dollars before you complete your tax return. You can either use the exchange rates prevailing at specific times or an average
exchange rate, depending on your circumstances. Foreign exchange rates are published monthly on the Tax office website.
Assessable foreign income is the total amount of any foreign income you earned which is not exempt from tax in Australia. If you had foreign tax taken away from this income, add it back to the amount you received.
Add all the income you received from foreign sources into a single amount.
Take away from this assessable amount any deductible expenses incurred in earning your foreign income.
DIVIDENDS FROM NEW ZEALAND COMPANIES
If you were an Australian resident you must show the following amounts on your tax return:
an assessable dividend (or non-share dividend) from a New Zealand company and any attached Australian franking credits
a supplementary dividend from a New Zealand company and any attached Australian franking credits
an assessable distribution from a trust or partnership (or share of a partnership loss) that includes Australian franking credits attached to a dividend (or non-share dividend) from a New Zealand company
AJML UPDATE – NOV 26 – WORK TRAVEL EXPENSE GENERAL
2009-10 Work related travel expenses
Taxpayer can claim travel expenses directly connected with your work as an employee.
Public transport – including air travel and taxi fares
Bridge and road tolls, parking fees and short-term car hire
Meal, accommodation and incidental expenses you incur while away overnight for work
e.g. going to an interstate work conference
Expenses for motor cycles and vehicles (other than cars) with a carrying capacity of one tonne or more, or nine or more passengers – such as utility trucks and panel vans
Actual expenses – such as any petrol, oil and repair costs – you incur to travel in a car that is owned or leased by someone else
Note: If your travel was partly private and partly for work, you can claim only the part that related to work. You cannot claim a deduction for expenses incurred for you or your relatives exclusive use or any private purposes. Taxpayer can only claim costs incurred for direct operation expenses.
Taxpayer cannot claim the cost of normal trips between home and workplace as the travel is private.
For information on shifting places of employment, please read TR 95/34
AJML UPDATE – NOV 26 – WORK TRAVEL EXPENSE SPECIFIC
2009-10 Work related travel expenses
If deduction claimed is more than the reasonable amount, the whole claim must be substantiated with written evidence, not just the excess over the reasonable amount.
Exception: No written evidence required if you received a travel allowance and your claim does not exceed the reasonable allowance amount
A travel diary must be prepared by the taxpayer for both domestic and international travel if you travelled more than 6 or more nights in a row.
Exception: Travel diary is not required if your claim does not exceed the reasonable allowance amount on domestic travel
For the 2009-10 income year the reasonable amount for overtime meal allowance expenses is $24.95.
Reasonable amounts for domestic travel allowance expenses
Types of expenses
The reasonable amounts are given for:
• accommodation at daily rates;
• meals (showing breakfast, lunch and dinner); and
• deductible expenses incidental to travel.
These amounts are given for the following travel destination:
• each Australian State and Territory capital city;
• certain specified high cost regional and country centres (at individual rates);
• other specified regional and country centres (at a common rate);
• all other regional and country centres (at a common rate); and specified overseas locations (selected countries).
Type of accommodation
The accommodation rates shown for domestic travel apply only for stays in commercial establishments like hotels, motels and serviced apartments. If a different type of accommodation is used the rates do not apply
The reasonable amount for meals depends on the period and time of travel. That is, the rates only apply to meals (that is breakfast, lunch, dinner) that fall within the time of day from the commencement of travel to the end of travel covered by the allowance.
The reasonable amount applies in full to each day of travel covered by the allowance, without the need to apportion for any part-day travel on the first and last day.
Note: Different rates applies for truck drivers, Office holders covered by the Remuneration Tribunal and Federal Members of Parliament
Reasonable amounts for overseas travel allowance expenses
The reasonable amounts for overseas travel expenses are shown in Schedule 1 on page 9-11 of TD2009/15.
For more information and specific rates on reasonable amounts, please read:
TD 2009-15: Income tax: what are the reasonable travel and overtime meal allowance expense amounts for 2009-10? http://law.ato.gov.au/atolaw/view.htm?docid=TXD/TD200915/NAT/ATO/00001
Domestic rates: pg 4-7;
Overseas rates: pg 9-11 schedule1 (Table 1 & 2)
TR 2004/6: Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses.