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2010

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AJML UPDATE -jan2010-03-FBT-GENERAL

Fringe Benefit — General

A fringe benefit is a ‘payment’ to an employee, but in a different form to salary or wages. According to the fringe benefits tax (FBT) legislation, a fringe benefit is a benefit provided in respect of employment. A benefit that is not provided in respect of employment is not a fringe benefit. Benefits include rights, privileges or services. For example, a fringe benefit may be provided when an employer:

  • allows an employee to use a work car for private purposes
  • gives an employee a cheap loan
  • pays an employee’s gym membership
  • reimburses an expense incurred by an employee, such as school fees
  • gives benefits under a salary sacrifice arrangement with an employee.

WHO PAYS THE TAX?
FBT is paid by the employer. This is the case regardless of whether the employer actually provides the benefit or it is provided by an associate or under an arrangement with a third party. This tax is payable whether or not the employer are liable to pay other taxes such as income tax.
If the employer is an international organization and provide benefits to employees in Australia, these benefits are subject to FBT in Australia (but note that Australia has comprehensive double tax agreements with the United Kingdom and New Zealand which currently include FBT). The employer may claim an income tax deduction for the cost of providing fringe benefits and the amount of FBT he pays.

TYPES OF FRINGE BENEFITS
So that specific valuation rules can be used, fringe benefits have been categorized into 13 different types.

  • Car fringe benefit
  • Debt waiver fringe benefit
  • Loan fringe benefit
  • Expense payment fringe benefit
  • Housing fringe benefit
  • Living away from home allowance fringe benefit
  • Airline transport fringe benefit
  • Board fringe benefit
  • Entertainment
  • Tax-exempt body entertainment fringe benefit
  • Car parking fringe benefit
  • Property fringe benefit
  • Residual fringe benefit

REPORTABLE FRINGE BENEFITS
If an employee receives certain fringe benefits with a total taxable value of more than $1,000 in an FBT year (1 April to 31 March), you must report the grossed-up taxable value of the benefits on their payment summary for the corresponding income year (1 July to 30 June) as reportable fringe benefits amount.

THE GST CONSEQUENCES OF PROVIDING FRINGE BENEFITS

  • GST (input tax) credits
  • GST on employee contributions

The contribution or payment is the price of that supply, therefore one-eleventh of that amount is the GST payable by the employer.

The example below demonstrates how the GST is paid by the employer:
A hardware retailer provides their employee, with a car benefit, the FBT value of which is $7,000. Derek pays $5,500 to his employer on 15 April 2006, and $1,000 in petrol costs and $500 car

insurance during the year ending 31 March 2007. Because the total employee contribution of $7,000 equals the FBT value of $7,000, the FBT taxable value of the benefit is zero. As Derek has contributed $5,500 directly to his employer, the employer is liable for GST of one-eleventh of $5,500, that is, $500. Derek’s payments of $1,500 to third parties are not a contribution for the supply of the benefit for GST purposes and his employer does not have to remit on-eleven of this contribution.

SALARY SACRIFICE
It is a special fringe benefit in the form of an arrangement between an employer and an employee, whereby the employee agrees to forgo part of their future entitlement to salary or wages in return for the employer providing them with benefits of a similar value.
A salary sacrifice arrangement is commonly referred to as salary packaging or total remuneration packaging. The types of benefits employers generally provided in salary sacrifice arrangements include employer superannuation, fringe benefits and exempt benefits.

Requirements for an effective salary sacrifice arrangement:

  • It must be an arrangement between the employer and employee before services;
  • There should be no access to the sacrificed salary. Any benefit entitlements that are provided by way of cash payments of benefits may form part of normal salary or wages.

There will be more about the salary sacrifice arrangement in the next issue.

AJML UPDATE – FEB 2010 New foreign income tax offset rules

New Foreign Income Tax Offset Rules 

If you have assessable income from overseas, you must declare it in your Australian income tax return. If you have paid foreign tax in another country, you may be entitled to an Australian foreign income tax offset, which provides relief from double taxation.

From 1 July 2008, foreign tax credits have been replaced with a foreign income tax offset. Your excess foreign tax credits from the period 1 July 2003 to 30 June 2008 must be converted to an amount called pre-commencement excess foreign income taxbefore they can be utilised.

Unlike the previous system of foreign tax credits (applying up to 30 June 2008), in working out the amount of the offset, you no longer have to quarantine your foreign income into separate classes. All types of income are treated the same for the purposes of working out the foreign income tax offset.

WHEN A FOREIGN INCOME TAX OFFSET APPLIES

To be entitled to a foreign income tax offset:

  • you must have actually paid, or be deemed to have paid the foreign income tax, and

The offset is available in the income year in which the income or gain (on which the foreign income tax has been paid) forms part of your assessable income in Australia.

HOW TO CALCULATE YOUR FOREIGN INCOME TAX OFFSET

You claim the foreign income tax offset in your income tax return.

To claim a foreign income tax offset of up to $1,000, you only need to record the actual amount of foreign income tax paid on your assessable income (up to $1000).

If you are claiming a foreign income tax offset of more than $1,000, you have to work out your foreign income tax offset limit. This may result in your tax offset being reduced to the limit. Any foreign income tax paid in excess of the limit is not available to be carried forward to a later income year.

If you paid foreign income tax after the year in which the related income or gains have been included in your assessable income, you may amend your assessment for that year to claim the offset.

As a non-refundable tax offset, the foreign income tax offset reduces your income tax payable (excluding Medicare levy). Under the tax offset ordering rules, it is applied after all other non-refundable tax non transferable offsets. Once your tax payable has been reduced to nil, any unused foreign income tax offset is not refunded to you, nor can it be carried forward to later income years.

HOW TO CALCULATE YOUR OFFSET LIMIT 

If you are claiming a foreign income tax offset of more than $1,000, you will first need to work out your foreign income tax offset limit.

Step1

Work out the income tax payable by you for the relevant income year disregarding any tax offsets. This amount does not include Medicare levy, Medicare levy surcharge, penalties or interest.

Step 2

Work out the income tax that would be payable by you (excluding the Medicare levy and surcharge, penalties and interest), disregarding any tax offsets, if the following assumptions were made:

  • your assessable income did not include:
    • any amount included in your assessable income on which foreign income tax has been paid that counts towards your foreign income tax offset, and
  • any other income or gains from a non-Australian source, and
  • you were not entitled to the following:
  • debt deductions attributable to your overseas permanent establishment
  • any other deductions (other than debt deductions) that are reasonably related to any amount covered by the first dot point above, and
  • an amount of the foreign loss component of one or more tax losses deducted in the income year.

Step 3

Take away the result of step 2 from step 1. If the result is greater than $1000, this is your offset limit.

AJML UPDATE – MAR 2010 Work related travel expenses

2009-10 Work related travel expenses

General Provision

Taxpayer can claim travel expenses directly connected with your work as an employee.

What you can claim

  • 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.

If taxpayer’s travel did not involve an overnight stay, taxpayer cannot claim for meals even if taxpayer received a travel allowance.

  • 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

Cost of travel between two places of work

You can claim the cost of travelling directly between two separate places of employment. For example, when you have a second job.

You can claim the cost of travelling:

  • From your normal workplace to an alternative workplace. For example, a client’s premises: while still on duty and back to your normal workplace or directly home.
  • From your home to an alternative workplace for work purposes and then to your normal workplace or directly home.

Note: You can only claim costs incurred for direct operation expenses Examples of direct operation expenses are petrol, oil and repairs. However, you may be able to claim expenses linked to the car that are not related to its direct operation, such as parking fees and bridge tolls.

What you cannot claim 

You cannot claim a deduction for expenses incurred for you or your relatives’ exclusive use or any private purposes. If at any time you or your relatives were entitled to use the car for private purposes. This applies even if the expenses were work related.

If If your travel was partly private and partly for work, you can claim only the part that related to work. For example, the cost of normal trips between home and workplace is regard as private travel expense.

You cannot claim it even if:

  • You did minor tasks. E.g. picking up the mail on the way to work or home
  • You had to travel between your home and your workplace more than once a day
  • You were on call. E.g. you were on standby duty and your employer contacted you at home to come into work
  • There was no public transport near where you worked
  • You worked outside normal business hours. E.g. shift work or overtime, or
  • Your home was a place of business and you travelled directly to a place of employment.

However, exceptions apply if:

– You used vehicle or had other travel expenses because you had to carry bulky tools or equipment that used for your work and could not leave at workplace. E.g.an extension ladder or cello.

– Your home was a base of employment,

– You had shifting places of employment; you regularly worked at more than one site each day before returning home.

For information on shifting places of employment, please read TR 95/34 http://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR9534/NAT/ATO/00001

General Provision2009-10 Work related travel expenses

Taxpayer can claim travel expenses directly connected with your work as an employee.

What you can claim

  • 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.

If taxpayer’s travel did not involve an overnight stay, taxpayer cannot claim for meals even if taxpayer received a travel allowance.

 

  • 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

Cost of travel between two places of work

You can claim the cost of travelling directly between two separate places of employment. For example, when you have a second job.

You can claim the cost of travelling:

  • From your normal workplace to an alternative workplace. For example, a client’s premises: while still on duty and back to your normal workplace or directly home.
  • From your home to an alternative workplace for work purposes and then to your normal workplace or directly home.

Note: You can only claim costs incurred for direct operation expenses Examples of direct operation expenses are petrol, oil and repairs. However, you may be able to claim expenses linked to the car that are not related to its direct operation, such as parking fees and bridge tolls.

What you cannot claim 

You cannot claim a deduction for expenses incurred for you or your relatives’ exclusive use or any private purposes. If at any time you or your relatives were entitled to use the car for private purposes. This applies even if the expenses were work related.

If If your travel was partly private and partly for work, you can claim only the part that related to work. For example, the cost of normal trips between home and workplace is regard as private travel expense.

You cannot claim it even if:

  • You did minor tasks. E.g. picking up the mail on the way to work or home
  • You had to travel between your home and your workplace more than once a day
  • You were on call. E.g. you were on standby duty and your employer contacted you at home to come into work
  • There was no public transport near where you worked
  • You worked outside normal business hours. E.g. shift work or overtime, or
  • Your home was a place of business and you travelled directly to a place of employment.

However, exceptions apply if:

– You used vehicle or had other travel expenses because you had to carry bulky tools or equipment that used for your work and could not leave at workplace. E.g.an extension ladder or cello.

– Your home was a base of employment,

– You had shifting places of employment; you regularly worked at more than one site each day before returning home.

For information on shifting places of employment, please read TR 95/34 http://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR9534/NAT/ATO/00001

 

 

 

 

AJML UPDATE – MAR 2010 Work related travel expenses

Work related travel expenses

Per section 8-1 of ITAA97, you may be able to claim the cost of travel as a tax deduction if it is directly connected with your work.

If your employer gives you an allowance for travel, you must show the allowance as income on your tax return. Note that just because you are paid an allowance it doesn’t mean that you can claim a deduction for the associated costs.

WHAT YOU CAN CLAIM

  • work-related running costs for a car owned or leased by somebody else – a borrowed car (expenses for using your own car are covered in car expenses)
  • expenses for vehicles other than cars – such as motorcycles, utility trucks or panel vans with a carrying capacity of 1 tonne or more, or any other vehicle with a carrying capacity of nine or more passengers
  • air, bus, train, tram and taxi fares
  • bridge and road tolls
  • parking and car hire fees
  • meals, accommodation and incidental expenses while travelling overnight for work – for example, going to an interstate work conference.

Generally, if your travel does not involve an overnight stay, you cannot claim for meals even if you received a travel allowance.

If your travel was partly private and partly for work, you can claim only the part that related to work.

You cannot claim the cost of normal trips between your home and your workplace as that travel is private.

COST OF TRAVEL BETWEEN TWO PLACES OF WORK

Following the High Court decision in FC of T vs Payne 2001 HCA 3, which denied a taxpayer a deduction under s8-1 for expenses incurred in travelling between two places of unrelated income-earning activity, s.25-100 was inserted into the ITAA97 to allow a deduction for ‘travel between workplaces’.

‘Travel between workplaces’ is a travel directly between two places where an individual gains or produces assessable income. This includes travel directly between:

  • Two places of employment
  • Two places of business; or
  • A place of employment and a place of business.

Example: Maria travels by tram from home to her work as a shop assistant, then travels directly by bus to her second job as a waitress. The bus fare is deductible under s25-100. However, if Maria were to break a trip to shop or obtain a meal, the cost of travel would not be deductible under s25-100 because she has not travelled directly from her first job to her second job.

Example: Jasmine maintains two properties: a residence in the city, where she resides during the week, and a farm in the country at which she carries on a business of primary production. Jasmine travels directly from her place of employment to the farm on Friday night after work, returning directly to work on Monday morning. The expenses incurred in travelling directly between work and the farm are not deductible under s25-100 because the farm is a place at which Jasmine resides.

RECORDS YOU NEED IN THE EVENT OF AN AUDIT

All taxpayers must obtain documentary evidence of their business/work related travel expenses if they are away from their ordinary residence for one night or more. Whether for overseas or domestic travel, if the travel is for six nights or more, additional records must be kept.

You must record in a diary (or similar document):

  • The nature of the activity
  • The day and approximate time it began
  • How long it lasted, and
  • Where you engaged in it.

For details of records required for domestic and overseas travel, please refer to the following link: http://www.ato.gov.au/individuals/content.asp?doc=/content/36017.htm

Receipts are also required for accommodation expenses. You do not need to record non-business activities.

Travel allowance must be included in assessable income unless:

  • A genuine overtime meal allowance or genuine travel allowance
  • The allowance is no more than the ‘reasonable amount’, and
  • The allowance has been fully expended on deductible expenses.

We will discuss further in our next newsletter regarding travel allowance, reasonable amounts and record keeping.

AJML UPDATE – APR 2010 Travel Expenses – Substantiation

Travel expenses – substantiation

In broad terms, the expression ‘travel expenses’ may cover all expenses associated with travel such as fares, food and drink costs and accommodation, but the substantiation treatment applicable to either the overall expense or its individual components may vary according to factors such as who incurs it, what it relates to, the manner of payment and/or any employment arrangements covering incurrence of such expenses. It is therefore necessary, for substantiation purposes, to categorize travel expenses according to a number of elements in order to determine whether substantiation is required and, if so, the form it must take.

Travel expenses fall into 2 categories: employee travel (which falls within the general substantiation rules relating to work expenses; and business travel (basically overnight travel in the course of earning income other than salary or wage income and for which a separate substantiation category exists. 

EMPLOYEE TRAVEL 

A travel diary or similar document must be maintained for travel within Australia or overseas if the employee is travelling away from their ‘ordinary residence’ for six night or more. No written evidence and no travel records are required for travel within Australia if the employee receives a travel allowance and claims no more than the amount considered reasonable by the Tax Office. If no travel allowance is received by an employee from their employer, or the employee claims more than the amount considered reasonable by the Tax Office, all travel expenses must be substantiated. Written records must be obtained for all expenses for accommodation, food and drink and incidental expenses incurred for travel away from an employee’s ordinary residence, in the course of their duties.

Employees travelling overseas who receive a travel allowance must still obtain written evidence of their accommodation expenses.

BUSINESS TRAVEL

A business travel expense is an expense incurred in producing assessable income other than salary or wages, which involves travelling away from home for at least 1 night: s900-95.

To deduct a business travel expense it must be substantiated by documentary evidence. The documentary evidence required by substantiation provision comprises a receipt, invoice or similar document from the supplier that sets out the name, the amount of expense, the nature of the goods/services, the date of expense and date of document. In addition, a travel diary is required if the travel involves an absence from home for 6 or more consecutive nights.

TRAVEL RECORDS 

Subdivision 900-F sets out the requirements for a travel diary. A travel diary is a record of activities undertaken during travel. Its purpose is to show which of the activities were related to income-producing purpose so that an appropriate allocation can be made between deductible and non-deductible expenses. A brief sample travel diary is provided below:

Sample travel diary

Date

Place

Time

Nature

Start

End

10/05/04

Syd

10am

8pm

Air flight to HK

11/05/04

HK

11am

5pm

Meeting with Mr X

DOMESTIC TRAVEL CLAIMS

The substantiation requirements do not apply to ‘travel expenses’ incurred by an employee who receives an allowance for travel costs within Australia and the claim for costs of accommodation, food, drink and incidental expenses does not exceed the reasonable amounts per the Tax Office. This can apply to company directors and office holders (TD 2004-19)

The Tax Office sets out these reasonable amounts in the Tax Determination every financial year. For example, the maximum amount for a taxpayer with salary of $93K to Melbourne is $279.80 per day. Please see link for full details: http://law.ato.gov.au/atolaw/view.htm?docid=TXD/TD200915/NAT/ATO/00001

OVERSEAS TRAVEL CLAIM

Claims for accommodation costs by non-employees on business trips overseas must be fully substantiated for claims to be deductible. You must keep receipts or other documentary evidence as well as a diary.

Special rules apply to employees only, provided a reasonable travel allowance was paid. For those employees there is no need to substantiate costs for food, drink and incidental expenses. If a deduction is claimed for more than the reasonable amount, the whole claim must be substantiated.

The Tax Office sets out these reasonable amounts in their Tax Determination every financial year. For example, the maximum amount for a taxpayer with salary of $93K to USA is $190 AUD per day. Please see link: http://law.ato.gov.au/atolaw/view.htm?docid=TXD/TD200915/NAT/ATO/00001

AJML UPDATE – APR 2010 Travel Expenses – Substantiation

2009-10 work related travel expenses

Keeping your travel records in important!

In order to claim your travel expense accurately and legally, travel records must be kept.

Be smart with travel records and reasonable amounts.

If your travel allowance is more than the reasonable amount, the whole claim must be substantiated with Written Evidence, not just the excess over the reasonable amount. 

If you travelled more than 6 or more nights in a row, a Travel Diary must be prepared for both domestic and international travel. 

However, if your claim does not exceed the reasonable allowance amount Travel diary is not required on domestic travel

Reasonable amount

For the 2010 income year the reasonable amount for overtime meal allowance expenses is $24.95.

Reasonable amounts for domestic travel

Types of expenses

The reasonable amounts are given for:

  • accommodation at daily rates;
  • meals (breakfast, lunch and dinner); and
  • deductible expenses incidental to travel.

Travel destinations

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 

Meal expenses

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.

Incidental expenses

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.

Different rates applies for truck drivers, Office holders covered by the Remuneration Tribunal and Federal Members of Parliament

Reasonable amounts for overseas

The reasonable amounts for overseas travel expenses are shown in Schedule 1 on page 9-11 of TD2009/15.

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.

http://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR20046/NAT/ATO/00001

AJML UPDATE – May 2010 Voluntary solvent liquidation or deregistration

Voluntary Solvent Liquidation or Deregistration

WHY IS THE DECISION SO IMPORTANT?

We often receive queries about the merits of winding up an unwanted company through a Members’ Voluntary Liquidation as opposed to deregistration of the company. The wrong choice may prove to be a very costly one.

The purpose of this news letter is to examine when the rules will allow you to deregister a company (rather than liquidate it), and by way of example, illustrate how important the correct choice of liquidation or deregistration can be, from a tax aspect.

RESTRICTIONS ON DEREGISTRATIONS OF COMPANIES 

The restrictions relating to the deregistration (rather than liquidation) of a company are fairly straightforward. In essence, before a company is deregistered, the Corporations Act requires the following:

  • All members of the company mustagree to the deregistration;
  • The company must not be carrying onbusiness;
  • The company’s assets must be worthless than $1,000;
  • The company must have paid all feesand penalties payable under the Act;
  • The company must not have anyoutstanding liabilities, and
  • The company must not be a party toany legal proceedings. 

BEWARE OF TAX ASPECTS

Despite the increased cost, a Members’ Voluntary Liquidation can often be the way to go. 

TAX IMPLICATION

The relative tax benefits of liquidation may become apparent where a company has significant net assets that are represented in shareholders’ equity by accumulated profits and capital reserves. The winding-up of the company will inevitably require a distribution of these profits and capital reserves to shareholders. Outside of a liquidation, these amounts will be fully taxable to shareholders as dividends. However, a liquidator’s distribution is not subject to the ordinary tax provisions dealing with dividends. A liquidator’s distribution is dealt with under specific income tax provisions and the capital gains tax regime. In some circumstances this distinction will provide definite tax advantages for shareholders.

Two common situations where shareholders may benefit on liquidation are as follows:

  • Shares acquired before 20 September

1985.

The principal benefit arises where the company has gains that were realized on the disposal of pre-CGT assets (i.e. assets acquired before 20 September 1985). Such gains can be distributed

to the relevant shareholders tax-free, on liquidation. A distribution of these

gains would otherwise be assessable to shareholders.

  • A company which has utilised the smallbusiness CGT concessions.

Often the sale of the business assets may qualify for a 50% CGT exemption if certain criteria are satisfied. If this tax-free gain is distributed to shareholders, then it will ordinarily be fully assessable as a dividend. By contrast, a liquidator is able to preserve a significant proportion of this tax concession for the benefit of shareholders.

EXAMPLE 

Beach House Pty Ltd was incorporated in 1982 with $2 in share capital. Neville and Joy were allotted one share each which they continue to hold. Neville and Joy lent $200,000 to the company to acquire a property in 1983. This property was sold recently for $700,000 realising a tax-free capital gain of $500,000. The company has approximately $500,000 in the bank after repaying the debt to shareholders. Neville and Joy wish to wind-up the company.

OPTION 1 – DEREGISTRATION

The company would need to distribute the cash to Neville and Joy prior to deregistration. All but $2 of this amount will be assessable as an unfranked dividend. A dividend of $500,000 will be liable for tax of up to $235,000 (based on the top marginal tax rate of 47%).

OPTION 2 – LIQUIDATION

The capital gain may be distributed tax free to Neville and Joy.

AJML UPDATE -MAY 2010-ATO catch GST cheats

ATO hits the streets to catch tax cheats

The Tax Office was not doing enough in previous year to rein in hard-core tax cheats who deprive government coffers of billions of dollars. The Auditor-General says that the Australian Taxation Office needs to pick up its act when it comes to major fraud investigations. The Tax Office also needs a better strategy of education and warnings to deter people from engaging in serious evasion and fraud in the first place.

An investigation by the Australian National Audit Office of how the ATO manages cases of serious non-compliance has found “significant scope for improvement”.

The Auditor acknowledges the ATO had been successful in achieving a high rate of successful prosecutions, but it says practices need to be improved. Estimates vary, but experts put the cost of serious fraud and evasion somewhere between $18 billion and $122 billion.

The Australian Tax Office will receive $ 420 million for increased business visits and presence on the streets, targeting non-active companies that are registered but not paying GST.

A crackdown on companies who do not paying goods and services tax and small business doing business for cash will raise a combined $3.7 billion for state and federal budgets over the next four years.

The GST compliance program, innocuously titled “Working together to increase voluntary compliance” will focus on business

activity statement, fraudulent GST refunds, systematic under-reporting of GST liabilities, non-lodgment of GST returns and non-payment of GST debts.

There will be $6.5 million in capital funding for the ATO to buy additional capacity to store and analyze data that is obtained from external agencies.

While the crackdown is designed to catch tax dodgers, the budget papers argue it will also encourage voluntary compliance and level the playing field for honest businesses.

The hard line on small business follows a period of relative leniency during the global financial crisis in which the ATO cut SMEs some slack.

The ATO has in recent years focused much of its attention on high-profile, high-net-worth individuals. Project Wickenby, launched four years ago, has been targeting tax fraud via offshore tax havens.

Funding the planned crackdown on GST is complicated because while the federal government must spend millions on beefing up the ATO’s resources, about $2 billion of the extra revenue will be GST and flow back to the states.

But in the course of scrutinizing business activity statements and GST, the ATO expects to unearth many other rorts on company profits and income tax and this is expected to produce an extra $1.7 billion in non-GST receipts.

The total amount spent on administration by the ATO on the GST crackdown will be about $337 million, but the federal government says almost all that cost will be deducted from its transfer of GST to the states.

The budget papers say the exact arrangements for funding the crackdown are yet to be settled with the states, but the deal will be based on an existing GST administration performance agreement.

It is understood that state governments have encouraged the crackdown by the ATO to combat what they see as a rise in non-compliance.

A relatively minor change to rules on financial supply under GST affecting companies that sell goods on credit is also expected to help fight tax avoidance, although its main purpose will be to cut red tape for small business.

The threshold for considering provision of credit a provision of a financial service will be raised from $50,000 to $ 150,000.

KEY POINTS 

  • The ATO is to get $420 million to target GST avoidance.
  • The TAX Office is to buy more capacity to store and analyze data

Crackdown is expected to encourage voluntary compliance.

AJML UPDATE – JUNE 2010 Director’s penalty notices

Directors Penalty Notices 

WHAT ARE THE RESPONSIBILITIES OF A COMPANY DIRECTOR?

As a director, you must:

  • be honest and careful in yourdealings at all times
  • know what your company is doing
  • make sure that your company can pay its debts on time
  • see that your company keeps proper financial records
  • act in the company’s best interests, even if this may not be in your own interests, and even though you may have set up the company just for personal or taxation reasons, and
  • use any information you get through your position properly and in the best interests of the company.

UNDER WHAT CIRCUMSTANCES DIRECTORS’ PENALTIES APPLY? 

Since June 1993 the ATO has had the power to collect outstanding deducted taxes (amounts deducted under the PAYG provisions) by making directors liable for a ‘penalty’ in the same amount as the unpaid taxes. These provisions create a separate parallel liability to the ATO in the name of the director, or more than one separate parallel liability if there is more than one director. Each director becomes separately liable for the full amount of the penalty. 

The Australian Taxation Office (ATO) can issue a Director Penalty Notice. under Section 222AOE of the Income Tax Assessment Act to any or all

directors in respect of PAYG withholding amounts – that is, the tax amounts deducted from employee wages and entitlements but not remitted to the ATO.

THE DEADLINE

Directors have 14 days from the day that the DPN is given, to ‘act’ to avoid personal liability. The options available to Directors consist of:

  • Paying the Company’s liability
  • Placing the Company into liquidation
  • Placing the Company intoadministration
  • Entering into a formal repayment arrangement with the Commissioner under section 222 of the Income Tax Assessment Act

If none of the above four events occur within the 14 days, then it is open to the Commissioner to commence proceedings to recover the amount of the penalty from the Director(s) personally.

It should be noted that there is no provision in legislation for the Commissioner to extend the 14 day period for compliance with a DPN.

A recent decision, Deputy Commissioner of Taxation v Meredith [2007] NSWSC 354 (the Meredith case) looked at the effect of these notices and is significant for two reasons:

  1. It looked at whether directors could relyon non-delivery or non-receipt of a DPN as a defense so that the director would not be held liable for the penalties.
  2. It looked at the current application ofSection 29 of the ACA. 

NON RECEIPT OF NOTICE

In the Meredith case, the director’s defence was that she had not received the DPN and therefore could not be held liable.

 

The NSW Court of Appeal held that Section 222AOF of the Income Tax Assessment Act 1936 provides for a self-contained means of satisfying the precondition to recovery. If the procedure as set out by Section 222AOF is followed (simply placing the DPN in the mail), service is deemed to have been effected and this deemed service may not be rebutted by any evidence of non-receipt or non-delivery!

It is important to note therefore that the Commissioner will satisfy the precondition of giving the Notice if it is simply sent by post to the director’s address as found in the Australian Securities and Investments Commission’s company database. There is no requirement that it be received by the director.

WHEN DOES THE 14 DAYS COMMENCE? 

A further outcome of the decision in the Meredith case is that the Commissioner is now entitled to maintain that a DPN is ‘given’ to a director at the time that it was sent by pre-paid post to the director.

Accordingly, where compliance with the DPN does not occur within 14 days after the DPN is posted to the director, the Commissioner will regard the relevant penalties as being recoverable from that director personally.

AJML UPDATE – JULY 2010 What is new in 2010 tax return

What is new in 2010 year tax return?

REMOVAL OF BABY BONUS

The baby bonus claim and ongoing baby bonus claim has been removed from 2009-10 and future years tax returns. You can claim it for past years (2002-2009) for which you have not already made a claim. 

INCOME TESTS

The new set of items called “Income tests” has been introduced in the individual tax returns. They will effect the eligibility of Pensioner and/or Senior Australian tax offset, Medicare levy surcharge, HELP/SFSS repayment amounts, eligibility to certain deductions and tax concessions. 

SAME SEX COUPLES

From 01 July 2009, the definition of spouse in 2009-10 and future years for individual tax returns have changed. All couples and families are to be treated the same way for tax purposes, regardless of gender. This means that:

  • Same sex couples will be treated the same way as married and opposite sex couples for tax purposes, including the ability to access the same tax concessions and tax offsets
  • The amount of income tax people are liable to pay may whether they are in a relationship (registered or de facto, including same sex couples) and whether they have dependent children or relatives.
  • The amending legislation can be found in the Same-Sex Relationships Act 2008.

EMPLOYEE SHARE SCHEMES ARRANAGEMENT

The new income Item 12 – “Employee share schemes” has been introduced. Discounts on shares and rights you acquire under and employee share scheme which will now be included in the assessable income.

If you are an employer, the key points:

  • The type of ESS offered by an employer will generally determine how tax applies to the ESS interests they provide to their employees.
  • Employers must now send annual statements detailing ESS interest to the ATO and their employees.
  • Employers must withhold tax on the ESS discount from employees who do not provide their TFN or ABN by the end of the financial year.

If you are an employee and members of an ESS, the key point:

  • The taxing point for ESS interests is now determined by the scheme itself. ESS interests are either taxed upfront or deferred for up to seven years.
  • You may have interests in several different types of ESS schemes. Each scheme may have different taxing point and conditions.
  • Depending on the type of schemes, you may be able to reduce your taxable discount income from an ESS by up to $1,000. This reduction is subject to an income test.
  • You will receive an annual statement from your employer, detailing your ESS interests, and report in your income tax return.

EXTENDING THE TFN WITHHOLDING ARRANGEMENTS TO FAMILY TRUSTS

In the 2009 Federal Budget, the government announced its plans to extend the current TFN withholding arrangements to closely held trusts, including family trusts, from 01 July 2010. This will ensure beneficiaries of those trusts correctly include their share of the net trust income their assessable income.

CHANGES TO NON-COMMERCIAL LOSS RULES

Changes to the operation of the non-commercial loss (NCL) rules apply for the 2009-10 and later income years. The new rules involve the introduction of an income requirement of $250,000. This will further restrict individuals from using losses from unprofitable business activities to offset other income.

Only individuals that meet the new income requirement will have access to the four tests, that is, the:

  • Assessable income test
  • Profits test
  • Real property test
  • Other assets test

Currently, passing one of these tests will allow an individual to use their losses to offset other income.

AJML UPDATE – AUGUST 2010 what is new in 2010 year tax return

What is new in 2010 year tax return?

ENTREPRENEURS’ TAX OFFSET – ADDITIONAL INCOME TEST

The entrepreneurs’ tax offset (ETO) is a reduction of 25% of the tax eligible entities are liable to pay on their business income if they have aggregated turnover of $50,000 or less. This tax offset starts to phrase out when the business’s aggregated turnover exceeds $50,000 and ceases when their aggregated turnover reaches $75,000.

Tax Laws Amendment (2010 measure No.1) Bill 2010 contains the changes to the ETO to apply additional income testing to the eligibility criteria for individuals.

The changes will apply for income years starting on or after 01 July 2009. They reduce the amount of ETO individuals can receive for their sole trader or partnership activities, or as beneficiaries of a trust, if their non-ETO income exceeds the relevant threshold. The new income test will ensure other sources of income, such as salary and wages, are considered. This means individuals with alternative sources of household income may not be eligible for the ETO.

Under the proposed income test, the ETO will be reduced where the non-ETO income exceeds the following threshold:

  • $70,000 for single individuals with no qualifying dependent
  • $120,000 individuals who had either of the following:
    • A spouse on the last day of the income year
    • A qualifying dependent on any day during the income year.

If a taxpayer does not meet the income test, the offset will be reduced by 20c for each dollar they earn above the relevant threshold. This reduction is in addition to the phase-out that begins where the aggregated turnover exceeds $50,000.

A taxpayer’s non–ETO income is the sum of their:

  • Taxable income
  • Total reportable fringe benefit amount
  • Reportable super contributions
  • Total net investment loss

A taxpayer’s non-ETO income does not include their net small business income (or share of) that is eligible for an ETO of greater than zero before applying the income test.

If you had a spouse on the last day of the income year, your non-ETO income will also include your spouse’s:

  • Taxable income
  • Total reportable fringe benefits amount
  • Reportable super contributions.
  • Total net investment loss. 

REMOVING ‘TRUST CLONING’ AND INTRODUCING A NEW LIMITED CAPITAL GAINS TAX ROLL-OVER

Recent changes to the Income Tax Assessment Act 1997 (ITAA 1997) remove the exception to capital gains tax (CGT) events E1 and E2, which allowed assets to be transferred between two trusts with the same beneficiaries and terms without triggering a CGT taxing point – commonly referred to as the ‘trust cloning’ exception. The changes also introduce a limited CGT roll-over for the transfer of assets between eligible trusts, provided certain conditions are met.

These change were made by Tax Laws Amendment (2009 Measures No 6) Act 2010, which received royal assent on 24 March 2010.

Parliament has recently enacted changes to the ITAA 1997 that:

  • Remove the trust cloning exception to the CGT events E1 and E2. This is because it could be used to change the ownership of an asset without a CGT taxing point. This potentially allowed taxpayers to eliminate their liabilities on accrued capital gains, which undermines the equity and integrity of the tax system
  • Insert a new CGT roll-over for the transfer of assets between eligible trusts – new subdivision 126G
  • Clarify that simply changing the trustee of a trust does not trigger a CGT taxing point

These changes apply to CGT events happening after 31 October 2008.

The roll-over disregards any capital gain or loss arising from the transfer of an asset from one trust (the ‘transferring trust’) to another trust (the ‘receiving trust’). It also ensures that if the asset was acquired by the transferring trust before 20 September 1985 (that is, it is a pre CGT asset), it will continue to be a pre-CGT asset following its transfer.

However, the roll-over cannot be chosen if either of the following apply:

  • The receiving trust is a foreign trust for CGT purposes and the transferred asset is not taxable Australian property
  • Either trust is a corporate unit trust or a public trading trust at anytime in the income year that the transfer occurs.

What is new in 2010 year tax return?

ENTREPRENEURS’ TAX OFFSET – ADDITIONAL INCOME TEST

The entrepreneurs’ tax offset (ETO) is a reduction of 25% of the tax eligible entities are liable to pay on their business income if they have aggregated turnover of $50,000 or less. This tax offset starts to phrase out when the business’s aggregated turnover exceeds $50,000 and ceases when their aggregated turnover reaches $75,000.

Tax Laws Amendment (2010 measure No.1) Bill 2010 contains the changes to the ETO to apply additional income testing to the eligibility criteria for individuals.

The changes will apply for income years starting on or after 01 July 2009. They reduce the amount of ETO individuals can receive for their sole trader or partnership activities, or as beneficiaries of a trust, if their non-ETO income exceeds the relevant threshold. The new income test will ensure other sources of income, such as salary and wages, are considered. This means individuals with alternative sources of household income may not be eligible for the ETO.

Under the proposed income test, the ETO will be reduced where the non-ETO income exceeds the following threshold:

  • $70,000 for single individuals with no qualifying dependent
  • $120,000 individuals who had either of the following:
    • A spouse on the last day of the income year
    • A qualifying dependent on any day during the income year.

If a taxpayer does not meet the income test, the offset will be reduced by 20c for each dollar they earn above the relevant threshold. This reduction is in addition to the phase-out that begins where the aggregated turnover exceeds $50,000.

A taxpayer’s non–ETO income is the sum of their:

  • Taxable income
  • Total reportable fringe benefit amount
  • Reportable super contributions
  • Total net investment loss

A taxpayer’s non-ETO income does not include their net small business income (or share of) that is eligible for an ETO of greater than zero before applying the income test.

If you had a spouse on the last day of the income year, your non-ETO income will also include your spouse’s:

  • Taxable income
  • Total reportable fringe benefits amount
  • Reportable super contributions.
  • Total net investment loss. 

REMOVING ‘TRUST CLONING’ AND INTRODUCING A NEW LIMITED CAPITAL GAINS TAX ROLL-OVER

Recent changes to the Income Tax Assessment Act 1997 (ITAA 1997) remove the exception to capital gains tax (CGT) events E1 and E2, which allowed assets to be transferred between two trusts with the same beneficiaries and terms without triggering a CGT taxing point – commonly referred to as the ‘trust cloning’ exception. The changes also introduce a limited CGT roll-over for the transfer of assets between eligible trusts, provided certain conditions are met.

These change were made by Tax Laws Amendment (2009 Measures No 6) Act 2010, which received royal assent on 24 March 2010.

Parliament has recently enacted changes to the ITAA 1997 that:

  • Remove the trust cloning exception to the CGT events E1 and E2. This is because it could be used to change the ownership of an asset without a CGT taxing point. This potentially allowed taxpayers to eliminate their liabilities on accrued capital gains, which undermines the equity and integrity of the tax system
  • Insert a new CGT roll-over for the transfer of assets between eligible trusts – new subdivision 126G
  • Clarify that simply changing the trustee of a trust does not trigger a CGT taxing point

These changes apply to CGT events happening after 31 October 2008.

The roll-over disregards any capital gain or loss arising from the transfer of an asset from one trust (the ‘transferring trust’) to another trust (the ‘receiving trust’). It also ensures that if the asset was acquired by the transferring trust before 20 September 1985 (that is, it is a pre CGT asset), it will continue to be a pre-CGT asset following its transfer.

However, the roll-over cannot be chosen if either of the following apply:

  • The receiving trust is a foreign trust for CGT purposes and the transferred asset is not taxable Australian property
  • Either trust is a corporate unit trust or a public trading trust at anytime in the income year that the transfer occurs.

AJML UPDATE – SEPTEMBER 2010 What is new in 2010 year tax return

What is new in 2010 year tax return?

EXPANDED HECS-HELP BENEFIT FOR ELIGIBLE GRADUATES

If you have a Higher Education Loan Program (HELP) debt who are teaching or nursing (including midwifery) graduates, you may be eligible for the HECS-HELP benefit. The benefit is available to eligible graduates from 01 July 2010 for the 2009-10 income year, and may reduce your overall tax debt or increase your tax refund, depending on your individual circumstances.

This is an extension of the benefit introduced last year for maths or science graduates, and early childhood education teachers.

The HECS-HELP benefit reduces eligible teachers’ and nurses’ compulsory HELP repayment included on the notice of assessment.

The benefit amount you can claim depends on the number of weeks you were employed in an eligible occupation. You can claim a maximum of 52 weeks each income year, with a life time entitlement of 260 weeks.

The maximum annual benefit for the 2009-10 income year is $1,558.50. 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 cannot be processed unless you have lodged your income tax return. 

NEW SUPER CO-CONTRIBUTION LABELS IN THE INCOME TAX RETURN

From the 2009-10 income year, new super con-contribution labels will be added to income tax returns.

If you are eligible for the super co-contribution, you may need to complete one or more new labels in the ‘adjustments’ section of your 2010 income tax return.

The new labels are:

  • Label F – income from investment, partnership and other sources
  • Label G – Income from employment and business
  • Label H – Deductions from business.

Completing the new labels will gie ATO all the income information that they need to accurately determine your super co-contribution entitlement.

It’s not compulsory for you to complete the new labels but if you don’t, you may not receive your full super con-contribution entitlement.

The ATO will use the figures reported at the new labels instead of figures provided at income labels such as ‘interest, dividends, and rent’ and ‘partnership distributions’.

The eligibility requirements for the super co-contribution have not changed.

TARGETING EMPLOYER OBLIGATION – MAKING SUPER CONTRIBUTIONS FOR CONTRACTORS

Many employers aren’t aware they need to make super contributions for contractors. This is particularly evident in certain industries, for example the transport, road freight and automobile industries.

Employers must make super contributions for contractors they engage under a contract for labour because they are considered employees for super guarantee purposes.

A contract may be considered wholly or principally for labour if all of the following apply to the worker:

  • They are paid wholly or principally for their personal labour and skills
  • They must perform the contract work personally
  • They paid for hours worked rather than to achieve a result

The ATO will focus on ensuring employers are paying super contributions for contractors where required.

If an employer has not made all the super contributions they are liable to make, they are required to pay a super guarantee charge.

Example: David owns a transport business has secured a large job. The complete the job on time, he asks his friend Steve to work with him.

David pays Steve an hourly rate. Steve undertakes all the labour required within 20 working hours. Despite Steve having an ABN, David still has to make super contributions for Steve because in this arrangement:

  • Their contract is wholly for labour and skills.
  • Steve performed the work personally
  • David has the right to control the work
  • Steve was paid according to the number of hours he worked.

What is new in 2010 year tax return?

EXPANDED HECS-HELP BENEFIT FOR ELIGIBLE GRADUATES

If you have a Higher Education Loan Program (HELP) debt who are teaching or nursing (including midwifery) graduates, you may be eligible for the HECS-HELP benefit. The benefit is available to eligible graduates from 01 July 2010 for the 2009-10 income year, and may reduce your overall tax debt or increase your tax refund, depending on your individual circumstances.

This is an extension of the benefit introduced last year for maths or science graduates, and early childhood education teachers.

The HECS-HELP benefit reduces eligible teachers’ and nurses’ compulsory HELP repayment included on the notice of assessment.

The benefit amount you can claim depends on the number of weeks you were employed in an eligible occupation. You can claim a maximum of 52 weeks each income year, with a life time entitlement of 260 weeks.

The maximum annual benefit for the 2009-10 income year is $1,558.50. 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 cannot be processed unless you have lodged your income tax return. 

NEW SUPER CO-CONTRIBUTION LABELS IN THE INCOME TAX RETURN

From the 2009-10 income year, new super con-contribution labels will be added to income tax returns.

If you are eligible for the super co-contribution, you may need to complete one or more new labels in the ‘adjustments’ section of your 2010 income tax return.

The new labels are:

  • Label F – income from investment, partnership and other sources
  • Label G – Income from employment and business
  • Label H – Deductions from business.

Completing the new labels will gie ATO all the income information that they need to accurately determine your super co-contribution entitlement.

It’s not compulsory for you to complete the new labels but if you don’t, you may not receive your full super con-contribution entitlement.

The ATO will use the figures reported at the new labels instead of figures provided at income labels such as ‘interest, dividends, and rent’ and ‘partnership distributions’.

The eligibility requirements for the super co-contribution have not changed.

TARGETING EMPLOYER OBLIGATION – MAKING SUPER CONTRIBUTIONS FOR CONTRACTORS

Many employers aren’t aware they need to make super contributions for contractors. This is particularly evident in certain industries, for example the transport, road freight and automobile industries.

Employers must make super contributions for contractors they engage under a contract for labour because they are considered employees for super guarantee purposes.

A contract may be considered wholly or principally for labour if all of the following apply to the worker:

  • They are paid wholly or principally for their personal labour and skills
  • They must perform the contract work personally
  • They paid for hours worked rather than to achieve a result

The ATO will focus on ensuring employers are paying super contributions for contractors where required.

If an employer has not made all the super contributions they are liable to make, they are required to pay a super guarantee charge.

Example: David owns a transport business has secured a large job. The complete the job on time, he asks his friend Steve to work with him.

David pays Steve an hourly rate. Steve undertakes all the labour required within 20 working hours. Despite Steve having an ABN, David still has to make super contributions for Steve because in this arrangement:

  • Their contract is wholly for labour and skills.
  • Steve performed the work personally
  • David has the right to control the work
  • Steve was paid according to the number of hours he worked.

AJML UPDATE – OCTOBER 2010 What is new in 2010 year tax return

What is new in 2010 year tax return?

REPORTING EMPLOYEES’ EXTRA SUPER

For the 2009–10 and all future years, if you make super contributions under an effective salary sacrifice arrangement or extra super contributions to a super fund for an employee, you may need to report those contributions on your employee’s payment summary.

These contributions are called reportable employer superannuation contributions.

Reportable employer superannuation contributions are not included in your employee’s assessable income. However:

  • you must report them to us as part of your payment summary reporting
  • your employee must report them to us in their income tax return.

Reportable employer superannuation contributions affect a range of government entitlements and obligations for individuals.

There are new payment summaries to be used by employers for the 2009-10 year. Please do not use the old ones if you have them archived.

WHAT ARE REPORTABLE EMPLOYER SUPERANNUATION CONTRIBUTIONS?

Reportable employer superannuation contributions are those contributions you make for an employee where all of the following apply:

  • your employee influenced the rate or amount of super you contribute for them
  • the contributions are additional to the compulsory contributions you must make under any of the following:
    • the superannuation guarantee law
    • an industrial agreement
    • the trust deed or governing rules of a super fund
    • a federal, state or territory law.

The new requirements to report the extra employer super contributions do not change how salary sacrifice arrangements or employer super contributions are treated. It is simply that extra contributions you make for an employee must be reported on your employee’s payment summary along with any reportable fringe benefits.

NEW TAX RETURN LABEL – DIVIDEND DEDUCTIONS

This question is about expenses the taxpayer incurred in earning any dividend and similar investment income they declared at assessable income item 11.

You must also complete this item if the taxpayer had a listed investment company (LIC) capital gain amount in their dividends.

The taxpayer’s expenses may include:

  • management fees, and fees for investment advice relating to changes in the mix of the taxpayer’s investments
  • interest charged on money borrowed to purchase shares or similar investments
  • costs relating to managing the taxpayer’s investments, such as travel and buying specialist investment journals or subscriptions.

NEW TAX RETURN LABEL – EXPENSE FROM FINANCIAL ARRANGEMENT (TOFA)

The Taxation of financial arrangements (TOFA) rules, introduced by the Tax Laws Amendment Act 2009, determine when gains and losses from financial arrangements are assessable and deductible for tax purposes. The key provisions are found in Division 230 of the ITAA97

Do the TOFA rules apply to you? The TOFA rules will apply to you if you meet any of the following three thresholds:

  • You have an aggregated turnover of $20 million or more for authorized deposit-taking institutions, securitization vehicles and other financial sector entities.
  • Your assets are valued at $100 million or more for superannuation entities with a similar status to a MIS under foreign law

You have an aggregated turnover of $100 million or more, assets of $300 million or more, for financial assets of $100 million or more for other taxpayers.

AJML UPDATE – JANUARY 2010 Your path to prosperity

Your path to prosperity

  1. Set aside a short period each day during your sole purpose is to become your own harshest critic. Rigorously maintain an utterly private record of each day’s success and failures in winning the struggle. Create a confidential file in your laptop computer, your personal digital assistant, or your paper organizer that you update without fail each weekday night before retiring. Briefly record each decision confronted during the day that demanded a courageous or noble response. Detail whether or not you rose to the challenge. In the event that you did not, candidly examine the conflicting tugs you experienced, and write a few sentences describing what would have been the superior decision. Finally, analyze whether there is any corrective action for you to take in the near future. Do this at the end of every single weekday. It only takes about five minutes maximum, but the impact of this little exercise is impossible to overestimate. You will begin feeling the difference in no more than a week.
  2. Find out how you really spend your time. Keep in mind the old adage ‘time is money.’ This is part of the secret of compound interest. Time is truly the only

commodity of which you are genuinely in short supply. You must now start taking charge of your time, and you do this by finding out just how you are spending it.

First chart how you use your time for a period of a week, two weeks, or even a month; it depends on what works best for you.

Then carefully tabulate the 8 to 10 hours that you have available each day for economic productivity. Find out whether your efforts were driven by your plans and your agenda or whether you were responding haphazardly to random stimuli. Determine the difference between important things that many not be urgent and urgent thing that may not be important.

Discover how your time is being spent, and you may be surprised, even horrified. Now accustom yourself to seeing yourself as your own boss. As your boss, don’t you want your employee (that is you) to put in a full day’s work? Sure you do, so make sure that the hours set aside for wealth creation each day are dedicated to just that. Later on, you will see more clearly how to organize your time productively for things that count. You will learn which activities are worth focusing on and which are expendable.

3.Regardless of your past performance in the area of knowing your money, turnover a new leaf and starting developing your trustworthiness. Trust is essential to any monetary system and to successful wealth creation. Always do more for other people than they expect. Not only will you surprise and delight them, but you will be setting the stage for enhancing your business effectiveness.

For example, establish an almost inviolable rule for yourself that you always return calls within 24 hours. Respond carefully and specifically to questions and requests from family members and associates. Some people hope to postpone unpleasant confrontation by responding vaguely and ambiguously to a request, instead of simply saying ‘no’. Their family members or associates misinterpret the verbal waffling to have meant the agreement or the concession they sought. When you later attempt clarification, you come across as evasive and untrustworthy. It is just important for you to appear trustworthy in your own eyes as it is appear so in the eyes of others. You must think of yourself as an upright kind of person, which you can do only if you really are trustworthy.

AJML UPDATE – NOV 2010 – Exempt foreign employment income

Exempt foreign employment income

 

 

If you are an Australian resident for tax purposes, you pay tax in Australia on your employment income from foreign service unless it is exempt from Australian tax.

From 1 July 2009, the exemption for foreign employment income derived by an Australian resident working overseas as an employee for a continuous period of 91 days or more is limited to income from particular employment.

IS YOUR FOREIGN EMPLOYMENT INCOME EXEMPT FROM TAX?

Your foreign employment income is exempt from tax if all of the following apply:

  1. you are a resident of Australia
  1. you are engaged in continuous foreign serviceas an employee for 91 days or more
  1. your foreign earnings are not excluded from exemption by the non-exemption conditions.
  1. your foreign service is directly attributable to any of the following:
  1. delivery of Australian official development assistanceby your employer
  1. activities of your employer in operating a public fund declared by the Treasurer to be a developing country relief fund, or a public fund established and maintained to provide monetary relief to people in a developing foreign country that has experienced a disaster

(a public disaster relief fund)

  1. activities of your employer as a prescribed charitable or religious institution exempt from Australian income tax
  1. because it is located outside Australia or the institution is pursuing objectives outside Australia
  1. deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force

If your foreign service is not directly attributable to the activities mentioned above, it will not be exempt under the foreign employment exemption. You will need to include the foreign employment income in your tax return as assessable income.

You may be entitled to a foreign income tax offset for amounts of foreign tax you have paid.

WHAT IF YOUR FOREIGN EMPLOYMENT IS NOT EXEMPT FROM TAX?

Australian resident individuals are taxed on their worldwide income. This means you must include all foreign-source income in your income tax return. If you have paid foreign tax on this income, you may be entitled to a non-refundable foreign income tax offset for the foreign tax you paid.

If your Australian employer is still paying you while you are working overseas, they must withhold tax from any non-exempt foreign employment income. This also applies to any

foreign employer that is registered for Australian pay as you go (PAYG) withholding.

If you were employed by a foreign employer that is not registered for Australian PAYG withholding, it is unlikely that any amount will be withheld for Australian tax purposes. If

the income is assessable, the foreign income will form part of your PAYG instalment income and you may be entitled to a non-refundable foreign income tax offset for the foreign tax that you paid.

COMPLETING YOUR TAX RETURN

Generally, you must declare foreign employment income you earn that is exempt from Australian tax as it is taken into account to work out the amount of tax you have to pay on your assessable income. In other words, whilst your exempt foreign employment income is not taxed in Australia, it will affect the tax you are liable to pay on any other income you earn.

You are not entitled to a foreign income tax offset for any foreign tax you pay on your exempt foreign employment income.

For more details: http://www.ato.gov.au/individuals/content.asp?doc=/content/28908.htm

AJML UPDATE -jan2010-03-FBT-employee

Fringe Benefit —
For You as Employee

A fringe benefit is a benefit either you or an associate, such as your spouse or children, receive because of your employment. You can be a current, former or future employee.

WHO PAYS FBT
Your employer pays FBT on the value of the fringe benefits they provide to you

REPORTING FRINGE BENEFITS ON YOUR PAYMENTS SUMMARY
If the value of certain fringe benefits (other than excluded fringe benefits) you receive is more than $2,000 in an FBT year, your employer must record that amount on your payment summary for the income year in which you receive them. This applies even if your employer is not liable to pay FBT and is eligible for FBT concessions.

GROSSED-UP TAXABLE VALUE
The grossed-up taxable value of a benefit you receive is the gross salary that you would have to earn in order to purchase the benefit from your after tax income.
This amount is reported to ensure the value of the benefits is consistent with other forms of income on your payment summary.
Your employer calculates this amount using the FBT rate equal to the highest marginal rate of income tax, plus Medicare levy. For the FBT year ended 31 March 2010, this is 46.5%. For example, a fringe benefit with a taxable value of $2,000.01 is a reportable fringe benefit amount of $3,738.

Example: working out amounts for payment summaries
Between 1 April 2009 and 31 March 2010 (the 2009-10 FBT year), Tim’s employer provided him with a work car. The taxable value of Tim’s car fringe benefits is $2,500. Tim and his partner also stay in company coastal accommodation several times a year, with a taxable value of $800. The taxable value of Tim’s fringe benefits total $3,300. The grossed-up taxable value of these benefits will appear on his payment summary for the income year ending 30 June 2009.
The rate of FBT for the year ended 31 March 2009 is 46.5%, so the grossed-up amount to be reported on Tim’s payment summary would be $3300/(1-0.465)= $6,168.

WORKING OUT YOUR SHARE OF A BENEFIT
If you share a fringe benefit with other employees, your employer must work out what portion of the benefit applies to you.

Example: allocating the benefit – holiday package
An employer gives two employees a holiday package as a fringe benefit. The package is for two people and cannot be taken as two single holidays. The taxable value of the package is $5,000.
It is reasonable for the employer to allocate half the taxable value of the holiday package to each employee, so each employee’s share is $2,500.
The employer could calculate each employee’s share as $4500/10=$450

REDUCING YOUR REPORTABLE FRINGE BENEFITS
Ways you can reduce the amount of fringe benefits shown on your payment summary for future years include:

  • arranging with your employer to swap or modify your fringe benefits for cash salary
  • making employee contributions that reduce the taxable value of a fringe benefit by the amount you have contributed.

HOW REPORTABLE FRINGE BENEFITS AFFECT YOU
Even though a reportable fringe benefits amount is included on your payment summary and is shown on your tax return, it is not included in your assessable income. However, it is included in a number of income tests, including for:

  • the Medicare levy surcharge
  • deductions for personal super contributions
  • the super co-contribution
  • the tax offset for contributions to your spouse’s super
  • the mature age worker tax offset
  • the Higher Education Loan Program  and Financial Supplement repayments
  • your child support obligations
  • your entitlement to certain income-tested government benefits.

MEDICARE LEVY SURCHARGE
The MLS is calculated as 1% of your taxable income for MLS purposes, which includes your total reportable fringe benefits. If your or your family’s taxable income for Medicare levy surcharge (MLS) purposes exceeds the MLS thresholds, you are liable to pay the MLS and you must pay this amount in addition to the Medicare levy.

Changes to Foreign Loss Quarantining rules-December 2010

There have been some significant changes in the treatment of foreign losses during the last financial year.
WHAT CHANGES AFFECT FOREIGN INCOME DEDUCTION?
A foreign loss occurs when deductions which relate to assessable foreign income exceed the amount of income derived for that class. Where expenses exceed income for a particular class of foreign income, the tax law prevents the loss from being deducted against income of other classes or from domestic assessable income. This is referred to as foreign loss quarantining. The quarantined foreign loss can still be offset against income of the same class in a later income year
For income years commencing on or after 1 July 2001, debt deductions are no longer subject to foreign loss quarantining. Instead, debt deductions can now be claimed against total assessable income. Under the changes, the definition of ‘foreign income deduction’ to which the foreign loss quarantining provisions apply, now excludes debt deduction, to the extent they are not attributable to any overseas permanent establishment of the taxpayer A permanent establishment is essentially a place through which a
business is carried on, such as a branch.
Debt deductions are, broadly, deductible costs in obtaining and maintaining debt finance. Examples of debt deductions include interest, amounts in the nature of interest and fees in respect of debt.
EXAMPLE
John, an Australian resident taxpayer, has a rental property overseas and has borrowed in Australia to buy that property. In a given income year he has:
Income: $7,000
Expenses: Deductible repair $3,000 and interest $5,000.
UNDER OLD LAW:
John’s foreign income deductions amount to $8,000 (the interest expense and repairs).
This exceeds the foreign income of $7,000 by $1,000. The $1,000 loss would have been quarantined.
This $1,000 loss could be carried forward and applied to offset future foreign sourced income of the same class.
UNDER NEW LAW:
John’s foreign income deductions amount to $3,000 (the interest expense is a debt deduction and therefore no longer a foreign income deduction).
Because John’s total foreign income deductions do not exceed his foreign income of $7000, no amount is quarantined.’
The $5,000 interest expense (a debt deduction) can be offset against John’s total assessable income.
FOREIGN INCOME TAX OFFSETS
This is now determined on a whole-of-income basis and not on a class-of-income basis (that is, quarantining into separate baskets has been repealed).
A foreign income tax offset is available to a taxpayer for foreign income tax paid on an amount that is all or part of an amount included in assessable income. Entitlement to the tax offset arises only to the extent that the foreign income tax has been paid on an amount included in assessable income.
The foreign income tax offset is subject to an offset limit. If the total foreign income tax paid is less than or equal to $1,000, or the taxpayer wishes to limit their tax offset to $1,000 (the $1,000 de minimis cap), they are not required to do a foreign income tax offset limit calculation – the tax offset equates to the total foreign income tax paid on the amount included in assessable income (up to $1,000).

AJML UPDATE -jan2010-03-FBT-employer

Fringe Benefit —
For You as Employers

A fringe benefit is a ‘payment’ to an employee, but in a different form to salary or wages, such as giving benefits under a salary sacrifice arrangement with an employee.
FBT (Fringe Benefit Tax) is paid by you as an employer.

REDUCING YOUR FBT LIABILITY
You can reduce an FBT liability in the following ways.

  • Replace fringe benefits with cash salary
  • Provide benefits that are exempt from FBT
  • Provide tax deductible benefits
  • Use employee contributions

WHAT IS NOT SUBJECT TO FBT
Not all benefits provided in respect of employment are fringe benefits. The FBT legislation excludes certain benefits from being fringe benefits, and these are outlined below.

  • Salary or wages
  • Employee share acquisition schemes
  • Superannuation
  • Eligible termination payments
  • Payments of a capital nature
  • Dividends
  • Payments to associates

THE IMPLICATIONS OF AN EFFECTIVE SALARY SACRIFICE ARRANGEMENT FOR EMPLOYERS

  • FBT – you having FBT obligations for those non-cash benefits.
  • GST – For fringe benefits which are subject to GST and where you hold a valid GST invoice, you are entitled to claim the GST credit when submitting your activity statement.
  • PAYG – The employee’s PAYG payment summary should show the gross amounts of all salary and wages (excluding salary-sacrificed amounts) and the relevant total amount of PAYG tax withheld for the year. Note! Where an employee’s individual fringe benefits amount is more than $2,000, you must report the grossed-up value on their payment summary.
  • Employee contributions

The taxable value of a benefit may be reduced through the payment of employee contributions. The amount sacrificed does not count as an employee contribution when determining the taxable value of any fringe benefits the employee receives. Employee contributions must be paid out of the employee’s after-tax income.

CALCULATING FBT

  • FBT YEAR
    The FBT year is the 12 months beginning 1 April and ending 31 March.
  • RATE OF TAX
    The rate of FBT may vary from year to year but the Tax Office will advise you of the rate each year. Currently, the FBT rate is 46.5%.

HOW IS THE AMOUNT OF TAX DETERMINED?
Where you provide taxable fringe benefits to employees, there are some distinct steps involved in calculating your FBT liability. With the introduction of GST, there are two separate gross-up rates used

to calculate fringe benefits taxable amounts – a higher (type1) and a lower (type2) gross-up rate.

EXAMPLE: Using gross-up rates
An employer provides the following benefits to an employee.

Car fringe benefit (GST) $7,700

Restaurant meals valued $1,100
as expense payment fringe
benefits (excluded fringe
benefit with an entitlement
to GST credits)

School fees valued as $6,000
expense payment fringe
benefits (GST-free)

Remote area rent $3,000
Reimbursement
(excluded fringe benefit
with no entitlement to
GST credits).

Type 1 individual fringe benefits amount
           $7,700
          +
Type 1 excluded fringe
benefits amount $1,100

Employer’s type 1 aggregate fringe benefits amount $8,800

Type 2 individual fringe benefits amount $6,000
            +
Type 2 excluded fringe
benefits amount $3,000

Employer’s type 2 aggregate fringe benefits amount $9,000

If the FBT rate is 46.5% and the GST rate is 10%, the
employer’s fringe benefits taxable amount is calculated as follows:
$8,800 × ( 46.5% + 10%)__
(1 – 46.5%) × (1 + 10%) × 46.5%= $8,800 × 2.0647 = $18,169
Plus,

$9,000 × 1 _


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