What everyone selling a property valued at $750k or more needs to know

Every vendor selling a property needs to prove that they are a resident of Australia for tax purposes unless they are happy for the purchaser to withhold a 12.5% withholding tax. From 1 July 2017, every individual selling a property with a sale value of $750,000 or more is affected.

To prove you are a resident, you can apply online to the Tax Commissioner for a clearance certificate, which will remain valid for 12 months.

While these rules have been in place since 1 July 2016, on 1 July 2017 the threshold for properties reduced from $2 million to $750,000 and the withholding tax level increased from 10% to 12.5%.

The intent of the foreign resident CGT withholding rules is to ensure that tax is collected on the sale of taxable Australian property by foreign residents. But, the mechanism for collecting the tax affects everyone regardless of their residency status.

Properties under $750,000 are excluded from the rules. This exclusion can apply to residential dwellings, commercial premises, vacant land, strata title units, easements and leasehold interests as long as they have a market value of less than $750,000. If the parties are dealing at arm’s length, the actual purchase price is assumed to be the market value unless the purchase price is artificially contrived.

If required, the Tax Commissioner has the power to vary the amount that is payable under these rules, including varying the amounts to nil. Either a vendor or purchaser may apply to the Commissioner to vary the amount to be paid to the ATO. This might be appropriate in cases where:

The foreign resident will not make a capital gain as a result of the transaction (e.g., they will make a capital loss on the sale of the asset);The foreign resident will not have a tax liability for that income year (e.g., where they have carried forward capital losses or tax losses etc.,); orWhere they are multiple vendors, but they are not all foreign residents.

If the Commissioner agrees to vary the amount, it is only effective if it is provided to the purchaser.

The withholding rules are only intended to apply when one or more of the vendors is a non-resident. However, the rules are more complicated than this and the way they apply depends on whether the asset being purchased is taxable Australian real property or a company title interest relating to real property in Australia.

Does superannuation offer an avenue to help down-sizers and first home savers? The Government seems to think so. Late last month the detail of the housing initiatives announced in the Federal Budget were released for consultation. We explore what’s on offer and the implications.

Super concessions for down-sizers

If you are over 65, have held your home for 10 years or more and are looking to sell, from 1 July 2018 you might be able to contribute some of the proceeds of the sale of your home to superannuation.

The benefit of this measure is that you can contribute a lump sum of up to $300,000 per person to superannuation without being restricted by the existing non-concessional contribution caps - $100,000 subject to your total superannuation balance - or age restrictions. It’s a way of building your superannuation quickly and taking advantage of superannuation’s concessional tax rates. The $1.6 million transfer balance cap will continue to apply so your pension interests cannot exceed this amount. And, the Age Pension means test will continue to apply. If you are considering using this initiative, it will be important to get advice to ensure that you are eligible to use this measure and the contribution does not adversely affect your overall financial position.

The downsizer initiative applies to the sale of any dwelling in Australia – other than a caravan, houseboat or mobile home – that you or your spouse have held continuously for at least 10 years. Over those 10 years, the dwelling had to have been your main residence for at least part of the time. As long as you qualify for at least a partial main residence exemption (or you would qualify for the exemption if a capital gain arose) you may be able to access the downsizer concession. This means that you do not actually need to have lived in the property for the 10 year period being tested.

The rules also take into account changes of ownership between two spouses over the 10 year period prior to the sale. This could assist in situations where a spouse who owned the property has died and their interest is inherited by their surviving spouse. The surviving spouse can count the ownership period of their deceased spouse in determining whether the 10 year ownership period test is satisfied. This rule could also assist in situations where assets have been transferred as a result of marriage or de facto relationship breakdown.

In general, the maximum downsizer contribution is $300,000 per contributor (so, $600,000 for a couple) but must only come from the proceeds of the sale. The contribution/s need to be made within 90 days after your home changes ownership (generally, the date of settlement) but you can apply to the Tax Commissioner to extend this period. And, the initiative only applies once – you cannot use it again for future properties.

Using super to save for your first home

Saving for a first home is hard. From 1 July 2018, the first home savers scheme will enable first-home buyers to save for a deposit inside their superannuation account, attracting the tax incentives and some of the earnings benefits of superannuation.

Home savers can make voluntary concessional contributions (for example by salary sacrificing) or non-concessional contributions (voluntary after tax contributions) of $15,000 a year within existing caps, up to a total of $30,000.

When you are ready to buy a house, you can withdraw those contributions along with any deemed earnings in order to help fund a deposit on your first home. To extract the money from super, home savers apply to the Commissioner of Taxation for a first home super saver determination. The Commissioner then determines the maximum amount that can be released from the super fund. When the amount is released from super, it is taxed at your marginal tax rate less a 30% offset.

For example, if you earn $70,000 a year and make salary sacrifice contributions of $10,000 per year, after 3 years of saving, approximately $25,892 will be available for a deposit under the First Home Super Saver Scheme - $6,210 more than if the saving had occurred in a standard deposit account (you can estimate the impact of the scheme on you using the estimator).

If you don’t end up entering into a contract to purchase or construct a home within 12 months of withdrawing the deposit from superannuation, you can recontribute the amount to super, or pay an additional tax to unwind the concessional tax treatment that applied on the release of the money.

To access the scheme, home savers must be 18 years of age or older, and cannot ever have held taxable Australian real property (this includes residential, investment, and commercial property assets). Home savers also need to move into the property as soon as practicable and occupy it for at least 6 of the first 12 months that it is practicable to do so.

As with the concession for down-sizers, the first home saver scheme can only be used once by you.

While the capacity to voluntarily contribute to the first home savers scheme started on 1 July 2017 (with withdrawals available form 1 July 2018), it’s best to wait until the legislation is confirmed by Parliament just in case anything changes.

The Federal Budget announced that non-residents will no longer be able to access the main residence exemption for Capital Gains Tax (CGT) purposes from 9 May 2017 (Budget night). Now that the draft legislation has been released, more details are available about how this exclusion will work.

Under the new rules, the main residence exemption – the exemption that prevents your home being subject to CGT when you dispose of it – will not be available to non-residents. The draft legislation is very ‘black and white.’ If you are not an Australian resident for tax purposes at the time you dispose of the property, CGT will apply to any gain you made – this is in addition to the 12.5% withholding tax that applies to taxable Australian property with a value of $750,000 or more (from 1 July 2017).

Transitional rules apply for non-residents affected by the changes if they owned the property on or before 9 May 2017, and dispose of the property by 30 June 2019. This gives non-residents time to sell their main residence (or former main residence) and obtain tax relief under the main residence rules if they choose.

Interestingly, the draft rules apply even if you were a resident for part of the time you owned the property. The measure applies if you are a non-resident when you dispose of the property regardless of your previous residency status.

Special amendments are also being introduced to apply the new rules consistently to deceased estates and special disability trusts to ensure that property held by non-residents is excluded from the main residence exemption.

The rules have also been tightened for property held through companies or trusts to prevent complex structuring to get around the rules. The draft amends the application of CGT to non-residents when selling shares in a company or interests in a trust. The rules ensure that multiple layers of companies or trusts cannot be used to circumvent the 10% threshold that applies in order to determine whether membership interests in companies or trusts are classified as taxable Australian property.

The residency tests to determine who is a resident for tax purposes can be complex and are often subjective. Please contact us if you would like to better understand your position and the tax implications of your residency status. Simply living in Australia does not make you a resident for tax purposes, particularly if you continue to have interests overseas.

The Tax Commissioner’s hit list

Every so often the Australian Taxation Office (ATO) sends a ‘shot across the bow’ warning taxpayers where their gaze is focussed. Last month in a speech to the National Press Club, Tax Commissioner Chris Jordan did exactly that. Part of the reason for this public outing is the gap between the amount of tax the ATO collects and the amount they think should be collected – a gap of well over 6% according to the Commissioner.

“The risks of non-compliance highlighted by our gap research so far in this market are mainly around deductions, particularly work related expenses. The results of our random audits and risk-based audits are showing many errors and over-claiming for work related expenses – from legitimate mistakes and carelessness through to recklessness and fraud. In 2014-15, more than $22 billion was claimed for work-related expenses. While each of the individual amounts over-claimed is relatively small, the sum and overall revenue impact for the population involved could be significant,” the Commissioner stated.

Individuals – the hit list

Claims for work-related expenses that are unusually high relative to others across comparable industries and occupations;Excessive rental property expenses;Non-commercial rental income received for holiday homes;Interest deductions claimed for the private proportion of loans; andPeople who have registered for GST but are not actively carrying on a business.

While small in value, the ATO are also concerned about the amount of people who appear to be claiming deductions by default for items such as clothing expenses. In 2014–15, around 6.3 million people made a claim for $150 for work related clothing - the level you can claim without having to fully substantiate your expenses. Those 6.3 million claims amounted to $1.8 billion in deductions.

Small business – the hit list

Those deliberately hiding income or avoiding their obligations by failing to register, keep records and/or lodge accurately;Businesses that report outside of the small business benchmarks for their industry;Employers not deducting and/or not sending PAYG withholding amounts from employee wages;Employers not meeting their superannuation guarantee obligations;Businesses registered for GST but not actively carrying on a business;Failure to lodge activity statements; andIncorrect and under reporting of sales.

If your business is outside of the ATO’s benchmarks, it’s important to be prepared to defend why this is the case. This does not mean that your business is doing anything wrong, but it increases the possibility that the ATO will look more closely at your business and seek an explanation.

Private groups – the hit list

Tax or economic performance not comparable to similar businesses;A lack of transparency in tax affairs;Large, one-off or unusual transactions, including transfer or shifting of wealth;A history of aggressive tax planning;Choosing not to comply or regularly taking controversial interpretations of the law;Lifestyle not supported by after-tax income;Treating private assets as business assets; andPoor governance and risk-management systems.

Property developers – the hit list

Developers using their SMSF to undertake or fund the development and subdivision of properties leading to sale;Where there has been sale or disposal of property shortly after the completion of a subdivision and the amount is returned as a capital gain;Where there is a history in the wider economic group of property development or renovation sales, yet a current sale is returned as a capital gain;How profit is recognised where related entities undertake a development (i.e., on the development fees as well as sales of the completed development);Whether inflated deductions are being claimed for property developments;Multi-purpose developments - where units are retained for rent in a multi-unit apartment, to ensure that the costs are appropriately applied to the properties produced.

These are just a small sample of the ATO’s area of focus. Other areas include tax and travel related expenses and self-education expenses. We’ll guide you through the risk areas pertinent to your individual situation but if you are concerned about any of the ‘hit list’ areas mentioned, please contact us on 49 409 400

The popular $20,000 instant asset write-off for small business entities, which enables small businesses to immediately write-off depreciable assets costing less than $20,000, is now accessible to 90,000 more businesses.

Until recently, this instant write-off was only accessible to businesses with an aggregated turnover of less that $2 million. But, a last minute deal struck between the government and Senator Nick Xenophon to pass the enterprise tax Bill - containing amongst other things the tax cuts for business and a change in the small business threshold – extends this concession. The Bill passed Parliament on 9 May 2017.

For businesses that have not previously accessed this concession, it’s important to understand how you can take advantage of it this financial year to maximise your deductions.

What is the $20,000 instant asset write-off?

A deduction is generally available for purchases your business makes. The instant asset write-off however changes the speed at which you can claim a deduction. Since 7.30pm, 12 May 2015, small businesses have been able to immediately deduct business assets costing less than $20,000. If your business is registered for GST, the cost of the asset needs to be less than $20,000 exclusive of GST. If your business is not registered for GST, it is $20,000 including GST.

Originally, the $20,000 deduction limit was to reduce back to $1,000 on 30 June 2017. However, Treasurer Scott Morrison announced on Budget night that the $20,000 limit would continue until 30 June 2018.

When we say “immediately deductible” we mean that your business can claim a tax deduction for the asset in the same income year that the asset was purchased and used (or installed ready for use). The deduction is claimed on the business’s tax return.

Assets costing $20,000 or more can be allocated to a pool and depreciated at a rate of 15% in the first year and 30% for each year thereafter.

The instant asset write-off only applies to certain depreciable assets. There are some assets, like horticultural plants, capital works (building construction costs etc.), assets leased to another party on a depreciating asset lease, etc., that don’t qualify - check with us first if you are uncertain.

Also, you need to be sure that there is a relationship between the asset purchased by the business and how the business generates income. You can’t for example just go and purchase multiple television sets if they have no relevance to your business.

How can you access the $20,000 instant asset write-off

There are a few issues to be aware of if you want to utilise the instant asset write-off:

Does your business qualify?

To access the instant asset write-off, your business needs to be a trading business (the entity buying the assets needs to carry on a business in its own right). It also needs to have an aggregated turnover under $10 million. Aggregated turnover is the annual turnover of the business plus the annual turnover of any “affiliates” or “connected entities”. The aggregation rules are there to prevent businesses splitting their activities to access the concessions. Another entity is connected with you if:

You control or are controlled by that entity; orBoth you and that entity are controlled by the same third entity.

Should you spend the money now?

If there are purchases and equipment that your business needs, that equipment has an immediate benefit to the business, and your cashflow supports the purchase, then in many cases it will make sense to go ahead and spend the money.

The $20,000 immediate deduction applies as many times as you like so you can use it for multiple individual purchases. But, your business still needs to fund the purchase for a period of time until you can claim the tax deduction and then, the deduction is only a portion of the purchase price.

Assets must be ready to use

If you want to access the $20,000 immediate deduction, you have to start using the asset in the financial year you purchased it (or have it installed ready for use). This prevents business operators from stockpiling purchases and claiming tax deductions for goods they have no intention of using in the short term. So, if your business purchases an asset on 20 May 2017, it needs to be used or installed and ready to use by 30 June 2017 to qualify for the immediate deduction this financial year.

Second hand goods qualify

The instant asset write-off does not distinguish between new or second hand goods. For example, second hand machinery may qualify if it meets the other requirements.

The immediate deduction can be used more than once

Assuming all the other conditions are met, an immediate deduction should be available for each individual item costing less than $20,000. Just be careful of cashflow.

Be careful of contracts

You need to ensure that any contract you sign makes your business the owner of the asset and that the asset can be used or installed and ready to use by the business on or before 30 June to claim it in this year’s tax return. The rules require you to “acquire” the asset before 30 June so the wording of the contract will be important.

Assets for business and pleasure

Where you use an asset for mixed business and personal use, the tax deduction can only be claimed on the business percentage. If you buy an $18,000 second hand car and use it 80% for business and 20% for personal use, only $14,400 of the $18,000 is deductible.

You don’t get $20,000 back on tax as a refund

The instant asset write off is a tax deduction that reduces the amount of tax your business has to pay. It enables your business to claim a deduction for depreciating assets in the year the asset was purchased and used (or installed ready to use). For example, if your business is in a company structure the most you will ‘get back’ is 27.5% (in 2016-17). If your business is likely to make a tax loss for the year then the bigger deduction might not provide any short-term benefit to you.

The problems that any Australian Government is expected to resolve and the wish list they are supposed to fulfil, is extensive regardless of which party is in power. As author John Lydgate wrote:

“You can please some of the people all of the time, you can please all of the people some of the time, but you can’t please all of the people all of the time.”

This Budget delivers a series of measures to attempt to please as many people as possible. It tackles the issues currently in focus across the Australian community – gaps in healthcare, first home ownership, foreign workers, investment and bank accountability to name a few of the pressure points. It also delivers an economic ‘sugar hit’ in the form of $75 billion in infrastructure projects. Key measures include:

Business

Extension of the $20,000 immediate deduction until 30 June 2018Contractors in the courier and cleaning industries face greater complianceAccess to small business CGT concessions tightenedBanks slugged with ‘major bank levy’

Superannuation

Super concessions for over 65s to downsize – up to $300,000 per memberThe ability for would-be first home owners to salary sacrifice into super to save a deposit

Investors

An array of housing affordability measures including: a CGT discount increase to 60% for investments in affordable housing, and Managed investment Trust investment opportunities in affordable housing.Deductibility of investment property travel costs to end and restrictions on depreciation deductionsA series of restrictions on foreign property investments

Individuals & Families

Medicare levy increase to 2.5% from 1 July 2019.Help with energy bills for some social security recipientsDemerit system for jobseekers

Overall the 2017-18 Budget will not offend anyone (except perhaps the banks) and there are plenty of give-aways. The only danger is the level of optimism in the economic projections in a climate of uncertainty.

31st March is the end of the Fringe Benefits Tax year

If you are not sure whether your business is providing fringe benefits to its employees, here are some key questions you should ask yourself:

Does your business provide entertainment by way of food, drink or recreation to employees?Does your business provide employees with living-away-from-home allowances?Has your business forgiven or released any debts owed by employees?Has your business paid for, or reimbursed, any private expenses incurred by employees?Does your business provide a house or unit of accommodation to employees?Do any employees have a salary package (salary sacrifice) arrangement in place?

What is exempt from FBT?

Certain benefits are excluded from the scope of the FBT rules. The following work related items are exempt from FBT if they are provided primarily for use in the employee’s employment:

Portable electronic devices (e.g. laptop, tablet, mobile, PDA, electronic diary, notebook computer, GPS navigation device) that are provided primarily for use in the employee’s employment (limited to the purchase or reimbursement of one identical or similar portable electronic device for each employee per FBT year. Small business employers will be able to provide more than one identical or similar device to employees from 1 April 2016;An item of computer software;Protective clothing required for the employee’s job;A briefcase;A calculator;A tool of trade.

If you are registered for FBT or you think that you may need to register now is the time to start preparing the information for your accountant.

If you would like to know more about FBT for this year take a look at our next blog post. The detail around FBT - What employers need to know about FBT 2017

If you have any questions about FBT call Michael on 49409 400

From 1 January 2017 tax rates are changing for working holiday makers who hold 417 and 462 visas. These rates are known as working holiday maker tax rates.

What you need to do

If you employ a working holiday maker who is in Australia on a 417 or 462 visa, they:

must register with us to withhold at the working holiday maker tax rate

You can visit border.gov.au/vevo to check a worker has a 417 or 462 visa using the Visa Entitlement Verification Online service

You must withhold tax at 15% on income up to $37,000 and apply foreign resident tax rates on income over $37,000.

What happens next

The working holiday tax rates only apply to income earned from 1 January 2017.

If you currently employ working holiday makers you will need to issue two payment summaries this year:

One for the period to 31 December 2016 a second for any period to 30 June 2017.

Here's an easy summary the super changes and how they effect you.

If you are are waiting for the superannuation reforms announced in the Budget to pass Parliament before working out what they mean to you, you might miss out on any opportunities available.

When enacted, the reforms will represent the single biggest change to superannuation since its inception. While there has been a softening of the original Budget announcements, there are still some very big changes coming your way.

Accumulators: Under 65s

The reforms likely to impact on you are:

Reduction in non-concessional contribution caps

If you are close to retirement age and looking to build your super balance, this change is incredibly important. From 1 July 2017, the annual non-concessional contributions cap will be reduced to $100,000 (from the current $180,000).

This means that if you are approaching retirement age, you have until 30 June 2017 to use the current caps and contribute up to $540,000 this financial year. You can do this using the ‘bring forward’ rule. This rule allows you to bring forward up to three years’ worth of non-concessional contributions in one year (and then make no or limited contributions for the next two years until you reach your three year cap). The advantage of using the bring forward rule now is that your three years’ worth of contributions utilise the current caps. If you contribute more than $180,000 this financial year but not the full $540,000, you still trigger the bring forward rule but any further contributions from 1 July 2017 are subject to the new $100,000 cap. That is, instead of your cap being $540,000 across three years, it might be $460,000 or $380,000. And, if you wait until after 1 July 2017 to trigger the bring forward rule, you will only be able to contribute up to $300,000.

If you want to make in-specie contributions - that is, contributions to super that are not cash such as listed shares, etc., then you should look at whether the cap reduction affects your ability to do this.

People with Large Super Balances & High Income Earners

The Government thinks that you are not using superannuation for its intended purpose – to fund retirement. As a result, the reforms introduce a whole series of measures that pare back the tax advantages for people with large super balances:

Non-concessional contributions capped at $1.6 million

Once your super balance has reached $1.6m, from 1 July 2017 you will no longer be able to make non-concessional contributions to super. So, you have until then to maximise your contributions (see Reduction in non-concessional contribution caps). Going forward, your super balance will be assessed at 30 June each year.

Concessional contributions cap reduced

From 1 July 2017, the annual concessional contribution cap will be reduced to $25,000 for everyone (currently $30,000 for those aged under 50 and $35,000 for those aged 50 and over).

30% tax on super extended to more taxpayers

High income earners with incomes of $300,000 or more pay 30% tax on contributions they make. From 1 July 2017, this threshold will reduce to $250,000.

Retirees and those Transitioning to Retirement

The reforms likely to impact on you are:

Tax concessions limited to pension balances up to $1.6 million

The reforms introduce a $1.6m ‘transfer cap’ on the amount you can hold in a superannuation pension. This means that if you are in pension phase, the balance of your pension needs to be no more than $1.6m. If not, from 1 July 2017 the Tax Commissioner will direct your fund to reduce your retirement phase interests back to $1.6m and you will be subject to an excess transfer balance tax. Your overall super balance can be more than $1.6m but only $1.6m can be transferred into a tax-free pension. Keeping the excess balance in super may still be worthwhile because of the low 15% tax rate.

If your spouse has a low superannuation balance, it might be worth thinking about how you can maximise your returns as a couple.

Earnings on fund income no longer tax-free

From 1 July 2017, the income from assets supporting transition to retirement income streams will no longer be exempt from tax but included in the fund’s assessable income. For example, if your super fund earns interest from a term deposit, that interest is currently tax-free in a transition to retirement pension. From 1 July, that interest will be included in the fund’s assessable income.

Lump sum withdrawals no longer meet minimum pension requirements

The Government has closed a quirk in the superannuation system that allowed people under 60 to withdraw from their pension and in certain circumstances have that withdrawal treated as a tax-free lump sum. From 1 July 2017, the ability to take a lump sum from an account based pension will be removed. Generally, from age 60 these pension payments become tax-free.

Still Going: Over 65 and Still Working

Currently, if you are 65 or over, your superannuation fund can only accept contributions from you if you work at least 40 hours in a 30 consecutive day period in the financial year. The original Budget announcements abolished this work test. Unfortunately, this reform is not progressing and the work test will remain.

Contractors & Self-Employed

There is good news if you are partially self-employed and partially a wage earner. Currently, to claim a tax deduction for your super contributions you need to earn less than 10% of your income from salary or wages. From 1 July 2017, the 10% rule will be abolished.

This change will be useful for contractors who hold their insurance through super as they will be able to claim a personal tax deduction for these insurance premium contributions. The caveat here is that these contributions must remain within the reduced $25,000 concessional cap.

People with Low Super Balances and Broken Employment

There is a lot in the reforms for people who have not had the opportunity to build their super balances. The reforms likely to impact on you are:

‘Catch up’ super contributions

Normally, annual caps limit what you can contribute to superannuation. The reforms allow people with broken work patterns to ‘catch up’ their concessional super contributions. From 1 July 2018, people with super balances below $500,000 will be able to rollover their unused concessional caps for up to 5 years. Unused cap amounts can be carried forward from the 2018-19 financial year; which means the first opportunity to use these new rules will be 2019-20.

Tax offset for low income earners

A new tax offset will be available for people earning less than $37,000. The offset refunds any tax paid on super contributions.

Tax offset for topping up your spouse's super

Currently, if your spouse earns less than $10,800, you can claim a tax offset of up to $540 if you make super contributions on their behalf. This offset is being extended to spouses who earn up to $40,000.

Call Michael on 0413809111 to discuss your specific circumstances.

Uber is calling for drivers, Airbnb is seeking more hosts but what are the implications of becoming part of the sharing economy?

The basics of tax apply regardless of how you earn money. That is, even though you may be earning income from different sources or using different platforms to generate income, the fundamental tax issues remain the same. You don’t have to be carrying on a business to pay tax on income you earn.

And, given that so many of these services are through sharing platforms, the Australian Tax Office (ATO) has the capacity to data match money flowing through to financial institutions specifically from these platforms.

‘Sharing’ a room or an entire house Sharing a room or your house through services such as Airbnb can be a great way to earn income from an existing asset. The tax treatment of what you earn from these services is the same as any other residential rental property arrangement. This means you must include the rental income in your income tax return. For example, if a husband and wife jointly own a property that they rent out through a sharing service, whatever they earn needs to be declared on their income tax returns in the same proportion as the ownership of the house in the year they earned the income.

Hosts can also claim tax deductions for expenses associated to the rental, such as the interest on your home loan, professional cleaning, fees charged by the facilitator, council rates, insurance, etc. But, these deductions need to be in proportion to how much and how long you rent your home out. For example, if you rent your home for two months of the financial year, then you can only claim up to 1/6th of expenses such as interest on your home loan as a deduction.

This would need to be further reduced if you only rented out a specific portion of the home.

GST does not generally apply to residential rental income.

Be aware that renting out your home may have a direct impact on your tax-free main residence exemption for capital gains tax (CGT) purposes. In general, your home is exempt from CGT when you sell it. However, if you use your home to earn assessable income, then you might only qualify for a partial exemption on the sale unless special concessions apply. If you are renting out part of your home while still living in the property, then it is unlikely that any gain you make on your home will be fully CGT-free. You might also need to obtain a valuation of your home at the time it was first used to generate rental income.

Hosting for investors A number of investors are generating income from renting residential investment properties exclusively on sharing services rather than traditional longer-term rental arrangements – rental income can be higher for short-term accommodation and the host has the capacity to increase prices easily for peak periods. Just a quick look at properties available around the world on sharing sites shows how quickly this style of arrangement has attracted investors, particularly where the property is located in high demand tourist areas.

But what are the tax implications if you own one or multiple investment properties and rent them on a sharing service? Firstly, it’s important to get good advice as this can be a complex area and being on the wrong side of the tax law can have significant implications. For example, if the ATO deems you to be providing commercial residential accommodation, they will treat your activities in the same way as hotels and motels meaning that the rent could trigger a GST liability for you (although you might be able to claim back some GST credits on expenses you pay). Broadly, accommodation falling into this category would have multiple occupancies such as a block of apartments, central management of the properties, and provide services to the guests beyond the accommodation such as breakfast or room servicing.

Before becoming a host, as a minimum, it’s important to understand the tax implications of your arrangement, check if there are council restrictions, and ensure that you have the right insurance in place.Sharing property owned by your SMSF Can your SMSF become a host and rent residential property on sites such as Airbnb? There is nothing that prevents an SMSF from providing host services assuming that the investment strategy of the fund allows for the risks associated to this style of rental and the liquidity issues have been thought through by the trustees. In general, the rules apply the same way as other residential rental property arrangements, in particular no one associated to the fund including the members, their relatives, or their associates can use the property. And, because the fund is not using a commercial property agent, for audit purposes, it will be essential to keep excellent paperwork to prove how, when, and to whom the property was rented. Also check the insurance is appropriate to protect the fund’s assets.

Ride sharing & sourcing The ATO regards ride-sourcing services as a taxi service, which means that if you are providing these services, you need to register for GST regardless of how much you earn from driving.

Normally, taxpayers need to reach the $75,000 threshold before they are forced to register and remit GST but in the case of ‘taxi services’ this threshold does not apply. The ATO is definitive in its stance that ride-source drivers provide taxi services. The grace period for drivers to comply with the ATO’s strict stance expired on 1 August 2016 so all ride-source drivers should now be registered for GST.

If you already have an individual ABN, for example you might do IT contracting, then you can use the same ABN for ride-source services and register for GST using this ABN.

If you drive infrequently for a bit of cash on the side, you also need to declare any money you earn on your income tax return. But, you can also claim any expenses you paid for providing ride-sharing services if you own or lease the car you use for ride-sourcing (i.e., it’s owned or leased in your name). If you drive less than 5,000 kilometres in the financial year in the course of earning income, you could choose to simply claim a 66 cent per km deduction for the kilometres you travel while providing ride-source services. Or, you can keep a log-book for 12 weeks to work out your deductions that way. And, because you are registered for GST, you can also claim GST credits on expenses you incur in providing ride-source services. Just be aware that if the car is not used exclusively for ride-sourcing, you can only claim deductions and GST credits for the portion of expenses that apply to providing ride-source services – not everything you spend. Simply turning on the app is not enough – you need to be actually providing the service to claim a deduction.

If you are in the business of providing ride-sharing services – for example ride-sourcing is all you do and you have set up a business structure to support it, like any other business, you have access to a broader range of deductions. This might include access to a broad range of small business concessions including an immediate tax deduction on assets costing up to $20,000 (GST excl.). However, you could also be subject to some strict rules which apply to losses made from business activities.

Other sharing economy services There are a wide range of other services that could potentially be provided through the sharing economy. This could include using your ute or other commercial vehicle to provide removal or delivery services.

In each case, it is important to work through the basic rules to determine whether the activities amount to a business, the income and deductions that need to be declared on your tax return, the records that need to be kept in order to support the claims that are being made, as well as the ABN and GST issues that go along with providing services.

This is an area that is clearly on the ATO’s radar so it is important to ensure that all relevant tax obligations are identified and are being managed appropriately.

The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Create more success than you ever thought possible by following these simple steps.

Step 1. Access exactly where you are in the important areas of life. Accept that this situation is a result of the past decisions you have made and accept that it is NOT an indication of what is possible for the future.

Step 2. Be grateful. Be grateful for everything that you have in life. No matter where you are in regards to your money, your business, your health and your relationships. Find what you are most grateful for and make a decision to focus on that daily.YOU simply cannot attain great success if you are whinging and feeling sorry for yourself. If you focus on what you are grateful for it puts you in a positive frame of being that allows opportunities to be seen and possibilities to become clear.

Step 3. Put in writing what it is you really want. Spend the time setting out what it is that you really want to achieve. Be exact. If you want a new car put down the make, the year and the colour of the car you want. If you want more money be specific, how much do you want?. You could list things under the following headings. Money and “Things” Career, Health, Lifestyle and Relationships The clearer you get on what you want to achieve the easier it will be for your brain to start coming up with ideas on how to achieve it, opportunities will arise, ideas will come to you out of the blue. People you need to help you will show up in your life.

Step 4. Add to your list of “wants”. Why do you want to achieve these things? On the road to success there will always be obstacles (hidden opportunities) and yet, if we know why it is we want the things we do it’s easier to keep moving forward when things get tough.

Step 5. Create an Action Plan. You might not have all the answers regarding how you will achieve what you want.... but just make a start; more ideas will come. GO BACK AND BE GRATEFUL FOR WHAT YOU HAVE. It is important to remember; we all over estimate what we can achieve in 6 months or 12 months. And underestimate what we can achieve in the longer term, five years for example. Set realistic goals for the next 6 to 2 months and those goals will head you in the right direction. Before you know it you will be living the life of your dreams.

Step 6. Surround yourself with positive, supportive people. Get a coach, invest in great professional advice. ONLY ever share your dreams with people in your life who will encourage you and believe in you.

Step 7. Believe it is possible to achieve the things you want. Believe in yourself and believe that you deserve to have everything you want. If you don’t believe it’s possible to achieve everything you desire then it simply won’t happen. YOU’LL SEE IT WHEN YOU BELIEVE IT. Belief, for many, is the hardest step. Work on it .... you can build belief, it just takes effort.

LIVE THE LIFE OF YOUR DREAMS…. ITS MORE FUN THAT WAY.

If you have any success story that you would like to share please post on our Facebook page or email Helen@HARTACCOUNTANTS.com.au

We use specialist checklists and bench mark guidelines to ensure that all of the deductions that you are legally entitled to are identified.

At Hart Accountants your return will be processed by fully qualified tax specialists.

We are up to date with all Tax Office guidelines and benchmarks as well and specific areas that the tax office are targeting; so you can be sure that you are working within acceptable benchmarks. The Tax Office has in place a comprehensive list of “averages of deductions” for many job roles and these should be considered when preparing your return.

We offer guidance aimed at provided you knowledge on how the all tax laws apply to your specific situation. With this information you are prepared for the coming financial year.

The most important thing you can do is to make sure that you've got all your documentation in order.

Ensure that you are well aware of what you can claim as work expenses, motor vehicle and travel expenses then make sure you've got all your receipts and documentation in place.

Below is a checklist of the information you need to provide us so we can do your return.

Payment Summaries for the current financial year

Details of any investments income received such as:- interest received from personal bank accounts, cash management accounts or other investments

Details of any dividends or distributions received (including tax statements and dividend summaries), and details of any sales or redemptions of shares, or units (including initial cost and sale amount)

Details of any Rental Income from property ownership including the following:-

Annual Rental summary from Managing agentRental expenses including insurance, council rates, strata, repairs, water etcInterest paid for full financial year on the property debtDepreciation schedule for property (if you do not have one please discuss with us)

Details of the sale of any Property (excluding your main residence) or the sale of any other business or investment asset (including the original cost)

Copy of Private Health Insurance annual statement

Details of Motor Vehicle expenses relating to your work including all of the following:-

Total number of km’s travelled for work purposes for the year (up to 5,000 maximum)Cost of vehicle & purchase date

If you have a logbook % available (i.e. what % of km’s was for work as evidence by a 12 week logbook), we also need the following information:-

Finance costs (Loan or Hire purchase interest) if relevantRunning costs (eg. Repairs, Fuel, Rego, Insurance, CTP etc)

Details in respect of any of the following allowable deductions:

Interest paid associated with borrowing to acquire any investmentsDonationsAny study / education expenses relating to your workAny travel costs (accommodation / flights etc) relating to your workPurchase of any work uniforms / protective clothingIncome Protection InsuranceMobile Phone expenses relation to work (including % which is work related)Home Internet usage (including % which is work related)Home office usage (advise number of hours per annum where you used home office)Any other work related expenses.

Details of any income or expenses from business activities or other sources

Please advise the number of dependent children (if any) and any Child Support paid

Any other information relevant for the current financial year

Here is some additional information you may be interested in ...

INDIVIDUALSTAX RATES ARE

0 to $18,200 Nil

$18,201 to $37,000 9c for each $1 over $18,200

$37,001 to $80,000 $3,572 plus 32.5c for each $1 over $37,000

$80,001 to $180,000 $17,547 plus 37c for each $1 over $80,000

$180,001 and over $54,547 plus 47c for each $1 over $180,000

Medicare Levy As part of your ordinary tax planning, understand your Medicare Levy and consider any opportunities that may reduce this levy.

Private health insurance rebate please note that the private health insurance rebate is now adjusted for on the lodgement of your income tax return. This can either increase or decrease the total amount payable on lodgement of your individual return.

Keep track of InterestAll the interest earned on your saving is your income and therefore part of your assessable income. Keep track of your interest and provide tax file numbers to your bank so that you don’t have tax deducted until you file your return.

Rebates and offsets a large number of different rebates and offsets are available to reduce taxable income. You should consider the availability of these items for the current year. Tax offsets directly reduce your payable tax and can add up to a sizeable amount. So it pays to know all the offsets you are entitled too. Eligibility for offsets will generally depend on your income level, family circumstances and satisfying specific conditions for each rebate.Most common examples of tax offsets include the dependent spouse rebate, low-income rebate, mature aged worker rebate, the senior Australian tax offset, the medical expenses offset, the private health insurance offset and the offset for superannuation contributions made on behalf of a low income spouse.

Work expenses and substantiation Documentation of expenses higher than $300 must be substantiated. Check Internet, Phone, Computer etc.

Work related car expenses Do you need a log book. Record your odometer readings for 30 June 2016.

Work related travel expenses Check deductibility and substantiation

Work related clothing, laundry and cleaning Consider whether you can claim a deduction for the cost of buying or cleaning: occupation specific or protective clothes; or unique, distinctive uniforms.

Other work related expenses Consider the deductibility of other work related expenses including home office expenses, occupancy expenses, work related development and support, tools and equipment and overtime meal allowance expenses. If you work in a specific industry, you should consider the ATO’s guide on work related expenses that applies to that industry.

Self-education expenses Consider whether you can prepay certain expenses before 30 June 2016 to bring forward deductions to the current income yearSalary sacrifice Check limits and plan for next year.

Non-work related deductions the fees you pay a registered tax agent to prepare your return or to manage your tax affairs are allowable in the year the fee is paid.

Income Protection Insurance If you have income protection insurance, the ATO allows you to claim this as a work-related expense.

Non-commercial losses NOTE: If you adjust wages payments to yourself when you do your tax and DON’T have a self-managed super fund, with super stream becoming a requirement this year we will need to make those decisions prior to June 30th and pay the super.Also if you have a super contribution plan in place it should be reviewed in light of the budget changes.Call Michael on 0413809111 to discuss your specific circumstances.

New rules to prevent foreign residents avoiding tax when they sell Australian property will affect everyone buying or selling property with a market value of $2 million or more from 1 July 2016. Many transactions involving shares in a company or units in a trust will also be caught.

From 1 July, a 10% withholding tax will apply when foreign residents sell certain types of Australian property. However, if you are selling Australian property, the new rules assume you are a non-resident unless you have a clearance certificate from the ATO. Without this clearance certificate, the purchaser can withhold 10% of the purchase price and pay this to the ATO. For purchasers, if you do not withhold the tax and do not have a clearance certificate, you are liable for the tax (on a $2 million property, that’s $200,000).

You can probably already see the problem here. Until everyone gets used to this new system there are likely to be quite a few issues where property contracts don’t mention the withholding tax, no clearance certificate is provided, and no tax is withheld on settlement.

The good news is that the withholding tax does not apply to real property that has a market value of less than $2 million. This exclusion can apply to residential dwellings, commercial premises, vacant land, strata title units, easements and leasehold interests as long as they are below the $2 million market value threshold.

Where there is more than one purchaser, the market values of all of the interests to be acquired need to be aggregated to determine whether the $2 million threshold applies. For example, if mum and dad are buying a property as joint tenants with a total market value of $3 million, the rules could be triggered even though their individual interest in the property is only worth $1.5 million.

The $2 million exclusion does not apply to indirect interests in Australian real property such as shares in a company or units in a trust that hold real property in Australia. However, the exclusion can apply to company title arrangements, where someone holds shares in a company which provides them with a right to occupy part or all of the property that is owned by the company. This ensures that company title arrangements are treated in the same way as properties held under strata title.

The other main exception is when the foreign resident vendor is under external administration (for a company) or is bankrupt (for an individual). This is to ensure that the withholding tax rules do not disturb the priority of other creditors.

What ‘property’ is affected by the new rules?

The new withholding rules capture:

Taxable Australian real property – such as residential property, commercial property, land etc., situated in Australia as well as certain mining, quarrying or prospecting rights;Indirect Australian real property interests (i.e., shares in a company or units in a trust where certain conditions are met). This is generally where most of the value of the company or trust relates to real property holdings in Australia; andOptions or rights relating to the points above.

I’m selling a property what do I need to do?

If you are selling real property affected by the new rules after 1 July and that property is likely to have a market value of $2 million or more, you need to apply for a clearance certificate from the ATO. Without this certificate, the purchaser of your property must assume you are a foreign resident and will be permitted to withhold 10% of the purchase price and remit it to the ATO.

When a certificate is issued by the ATO it remains valid for 12 months. The ATO has been developing an automated process for issuing a clearance certificate. The vendor (or an agent) will be able to complete an online application form. In straightforward cases the ATO expects that certificates will be issued within a matter of days.

I’m buying a property what do I need to do?

If you are buying real property affected by the new rules after 1 July and that property has a market value of $2 million or more, you need to ensure that you receive the clearance certificate from the vendor before settlement occurs. While the tax rules allow you to withhold 10% of the purchase price if the clearance certificate is not provided, it might also be a good idea to have this built into the sale contract to avoid any uncertainty.

If the sale proceeds and you don’t have a clearance certificate and have not withheld the tax, the tax liability rests with you, the purchaser.

Buying or selling indirect property interests – shares in a company or unit trust

If you are buying or selling shares in a company or units in a trust then a withholding obligation can also be triggered, even if the company or trust does not hold any real property interests in Australia. In this case the process of validating whether or not a withholding obligation exists is slightly different.

Withholding will be required if either:

The purchaser knows or has reasonable grounds to believe that the vendor is a foreign resident; orThe purchaser does not have reasonable grounds to believe that the vendor is an Australian resident and either the purchaser has a foreign address for the vendor or they are authorised to make payment to a place outside Australia.

In these circumstances the vendor can make a declaration to the purchaser confirming that they are an Australian resident to ensure that the withholding tax does not apply. In general you would expect to see these declarations in the sale agreements as warranties.

A vendor can also make a declaration confirming that shares in a company or units in a trust are not classified as an indirect Australian real property interest. Shares or units that are not classified as an indirect Australian real property interest and do not relate to company title arrangements are outside the scope of the withholding rules.

Can we vary the withholding tax?

The Commissioner has the power to vary the amount that is payable under these rules. Either a vendor or purchaser may apply to vary the amount to be paid to the ATO. This might be appropriate in cases where:

The foreign resident vendor will not make a capital gain as a result of the transaction (e.g., they will make a capital loss on the sale of the asset);The foreign resident will not have a tax liability for that income year (e.g., where they have carried forward capital losses or tax losses etc.,); orWhere there are multiple vendors, but they are not all foreign residents.

If the Commissioner agrees to vary the amount, it is only effective if it is provided to the purchaser before settlement occurs.

With only 3 weeks until the end of the financial year, now is the time to get your tax planning in order.

Below is detailed information about tax planning, what it means and a summary of the process….call Michael on 0413809111 to discuss your specific circumstances.

Tax planning is the art of arranging your affairs in ways that postpone or minimise taxes.

Michael Hart and the team run through a 57 point checklist to ensure that all opportunities to save tax are identified.

A great tax plan will cover the following:

A forecast of your profit for the current financial year.A strategy to legally minimise your tax.With tax minimisation strategies explored, we will plan for the resultant tax liability.A plan to cover the lodgement of returns and the timing of cash flow.Alerts you to your taxation compliance obligations before they become due so that you are able to comply with all these obligations ensuring all matters are dealt with accurately and in a timely manner.

The following is a summary of the things that should be considered…

BUSINESS STRUCTURE

Is it still the most appropriate for you?Do any trust deeds need to be reviewed?

ASSESS EXPECTED PROFITS FOR THE YEAR

Prepare forecast and review

CHECK THE FOLLOWING

Prior lossesFranking account balanceDivision 7ASuperannuationProfit distribution and dividend paymentsPAYG instalments and variationsResolutions to be documented

REVIEW OPPORTUNITIES

DEFERRING ASSESABLE INCOME

Cash or Accruals On the cash basis, taxable income is the net of amounts that are actually received less amounts actually paid at year end. The proceeds of pre 30th of June sales which have not yet been received, are excluded from income for the current year.Unearned income – Make sure that you exclude any income that you may have received but not yet earned. Defer the income until the next year.Defer Billing – Think about deferring your invoicing until after 30 June. Interest and rent – Consider the basis on which interest or income is earned and the scope for deferral.Postpone the realisation of an asset until after year endReview Extraordinary items

BUSINESSES DEDUCTIONS

Bad debts – Trade Debtors should be reviewed prior to 30 June to identify and write off any bad ones.Scrap assets – Review your asset ledger and write off all assets that have been scrapped or which have outlived their useful economic lives.Low value pool – Assets which have been written down to where their value is quite low can be pooled together and depreciated at a higher rate.Low value assets – Assets costing $20000 or less can be written off immediately under certain conditions.Obsolete stock and slow moving stock– Obsolete trading stock with no value can be written off and a tax deduction claimed this year. Slow moving stock can be written down to net realisable value.Stock Valuation – Stock can be written down from cost to a lower replacement value if applicable.Maintenance – The work car is due for a service or some new tyres, why not get it done pre-June rather than just after. Bring forward expenditure for businessPrepay expensesEligibility for $20,000 assets to be written offRealisation of assets that will produce a capital or revenue loss.Superannuation – Employees’ superannuation contributions should be actually paid before 30 June to obtain a deductionPersonal Superannuation – You can claim a deduction for personal superannuation contributionsCheck Payroll Tax Grant for employeesCheck eligibility for Small Business Grant

CAPITAL GAINS TAX

Small Business Concessions – You should consider the availability of other small business CGT concessions which have the effect of reducing or deferring a capital gain arising from the disposal of a business asset.CGT Discount – The CGT discount is not available when you sell an asset that you have held for less than 12 months. Consider deferring the disposal of these assets until the 12 months threshold has past.The small business 15 year exemptionThe small business 50% reductionThe small business retirement exemption

COMPANIES

Tax Losses – Check to see if your company has any tax losses carry forward from prior years. Check whether there is a deficit franking account balanceCheck Fringe Benefits TaxDivision 7A – check loans, payments or debt forgiveness by company to shareholderTax Consolidation Personal Services Income

TRUSTS

Review the trust deedHow income is to be distributed.Check beneficiariesDivision 7APlan distributions and make and document resolutions

SUPERANNUATION

Co-contribution – Let’s start with the easy money. Low-income earners should think about making a personal superannuation contribution so that they qualify for the government’s superannuation co-contribution payment.Re-contributions – Currently, strategies exist that allow you to draw a pension from your fund and re-contribute amounts to the funds, reducing tax significantly, while maintaining your same net cash. These must be reviewed – Budget 2016Contribution caps – Make sure that you don’t contribute more than the annual concessional contribution cap of $30,000 on $35,000 depending on your age. Consider proposed changes Budget 20016 for future contributions.

INDIVIDUALS

TAX RATES ARE

0 to $18,200 Nil

$18,201 to $37,000 19c for each $1 over $18,200

$37,001 to $80,000 $3,572 plus 32.5c for each $1 over $37,000

$80,001 to $180,000 $17,547 plus 37c for each $1 over $80,000

$180,001 and over $54,547 plus 47c for each $1 over $180,000

Medicare Levy As part of your ordinary tax planning, understand your Medicare Levy and consider any opportunities that may reduce this levy.

Private health insurance rebate please note that the private health insurance rebate is now adjusted for on the lodgement of your income tax return. This can either increase or decrease the total amount payable on lodgement of your individual return.

Keep track of Interest

All the interest earned on your saving is your income and therefore part of your assessable income. Keep track of your interest and provide tax file numbers to your bank so that you don’t have tax deducted until you file your return.

Rebates and offsets a large number of different rebates and offsets are available to reduce taxable income. You should consider the availability of these items for the current year. Tax offsets directly reduce your payable tax and can add up to a sizeable amount. So it pays to know all the offsets you are entitled too. Eligibility for offsets will generally depend on your income level, family circumstances and satisfying specific conditions for each rebate.

Most common examples of tax offsets include the dependent spouse rebate, low-income rebate, mature aged worker rebate, the senior Australian tax offset, the medical expenses offset, the private health insurance offset and the offset for superannuation contributions made on behalf of a low income spouse.

Work expenses and substantiation Documentation of expenses higher than $300 must be substantiated. Check Internet, Phone, Computer etc.

Work related car expenses Do you need a log book. Record your odometer readings for 30 June 2016.

Work related travel expenses Check deductibility and substantiation

Work related clothing, laundry and cleaning Consider whether you can claim a deduction for the cost of buying or cleaning: occupation specific or protective clothes; or unique, distinctive uniforms.

Other work related expenses Consider the deductibility of other work related expenses including home office expenses, occupancy expenses, work related development and support, tools and equipment and overtime meal allowance expenses. If you work in a specific industry, you should consider the ATO’s guide on work related expenses that applies to that industry.

Self-education expenses

Consider whether you can prepay certain expenses before 30 June 2016 to bring forward deductions to the current income year

Salary sacrifice Check limits and plan for next year.

Non-work related deductions the fees you pay a registered tax agent to prepare your return or to manage your tax affairs are allowable in the year the fee is paid.

Income Protection Insurance If you have income protection insurance, the ATO allows you to claim this as a work-related expense.

Non-commercial losses

NOTE: If you adjust wages payments to yourself when you do your tax and DON’T have a self-managed super fund, with super stream becoming a requirement this year we will need to make those decisions prior to June 30th and pay the super.

Also if you have a super contribution plan in place it should be reviewed in light of the budget changes.

Call Michael on 0413809111 to discuss your specific circumstances.

We want to ensure that you receive Family Tax benefits if you are eligible.

If you wish to claim family assistance payments for the 2014-15 financial year you and your partner must lodge your tax returns with the Australian Taxation Office, and your lump sum claim with Centrelink by 30 June 2016.

Family assistance payments include Family tax benefit, child care benefit and single income family supplement.

If you don't need to lodge a ITR for 2015 you must still notify Centerlink by 30th June 2016.

A delay in lodging the 2015 ITR or notifying Centrelink that a return is not necessary, even by one day, will result in your clients missing out on some or all of their family assistance payments for the 2014–15 financial year.

Please call Sophie on 4940 9400 to make an appointment now to see Michael to prepare your returns.

PLEASE NOTE: If you have a superannuation strategy in place in relation to contributions of any kind, are in a transition to retirement pension or have more than 1.6 million in your fund and are retired or near retirement please contact us to discuss as the information below is general information and shouldn’t be relied upon as specific advice

The 2016/2017 Federal Budget which was released last Tuesday has made significant changes to superannuation, arguably the largest changes since the 2006/07 Budget.

The super reforms announced will not take effect until July 1 2017, although changes to non-concessional contributions are effective immediately, subject to legislation.

It is important to note that these changes are ALL subject to being legislated. This is further complicated by the upcoming election on the 2nd July.

It will be a while before we know which changes have become law.

Proposed super changes in summary

Annual concessional contribution caps to be reduced to $25,000 per annum but with an ability to carry forward unused caps for up to 5 years.Ability to make personal before-tax contributions, if your company doesn't offer salary sacrifice or you don't have an employer. Previously this was only available to the self-employed.Ability for everyone up to age 75 to make contributions to super, without having to meet a work test.Non-concessional contribution cap lifetime limit of $500,000 to replace the annual caps and bring-forward rules.Pension phase balances will be limited to $1.6 million per person (for new and existing income streams).Increased eligibility for the spouse super tax offset.Removal of earnings tax exemptions for transition to retirement income streams.

Annual concessional contribution caps. Proposed change 1st of July 2017

Current contribution caps are $30,000 for under 50’s and $35,000 for over 50’s.

From the 1st of July 2017 the total concessional contributions you can make, including the superannuation guarantee paid by your employer, will be $25,000.

For people with balances under $500,000, there is the ability to accumulate any unused amount of the cap each year, for up to five years. For example, in year one if you contributed $20,000, in year two your contribution cap would be the set $25,000 plus the unused amount of $5,000 from year one.

You will also be able to make personal before-tax contributions. If your employer doesn't offer salary sacrifice, or you have the opportunity to put in more money than you had originally planned through salary sacrifice, you will now be able to make these additional contributions and claim a tax deduction. Previously this was only available to the self-employed.

Things to consider

This financial year and the next the existing concessional caps apply.

$30,000 for under 50’s and $35,000 for over 50’s.

If it is appropriate for you, make sure to maximise your super contributions for this year to take advantage of these additional limits.

Non-concessional contribution cap lifetime limit of $500,000 to replace the annual caps and bring-forward rules. Proposed effective date 3rd May 2016.

A new lifetime non-concessional cap of $500 000 will replace the existing annual caps, which currently allow annual non-concessional contributions of up to $180,000 per year or $540,000 over three years.

This rule will commence from 3 May 2016 and will take into account all non-concessional contributions made after 1 July 2007. Contributions made before May 3 2016 cannot result in an excess, however any excess contributions made after that date will need to be withdrawn.

This will affect many people, especially those planning to sell an asset when close to retirement and contribute the money to super. It will also effect many plans previously put into place to balance spouse’s superannuation and increase the non-taxable component of the members account balances.

There is suggestion that this may be relaxed, so we will have to wait and see.

For small business people who rely on the sale of their business to provide for their retirement, we are awaiting clear direction as to whether the sale of business contribution of up to $500,000 will be allowed on top of the $500,000 lifetime non concessional cap.

Things to consider:

If you have already made non-concessional contributions in excess of $500,000 since 1 July 2007, you can’t make any more. If you are unsure how much you have contributed, we suggest that you contact your superannuation fund, or you can contact the ATO, who will have a record of previous contributions.

If this cap affects you, options include utilising the concessional caps as they are going to be more flexible from 1st July 2017, looking at other tax effective investments or considering borrowing arrangements to build capital in superannuation

Ability for everyone up to age 75 to make contributions to super. Proposed effective date 1st of July 2017

Currently people between the age of 65 and 74 have to satisfy the “work test” in order to make contributions to superannuation.

Lifting this restriction will simplify superannuation for older Australians and allow them to increase their retirement savings, especially from sources that may not have previously been available to them.

Pension balances in superannuation will be limited to $1.6 million per person (for new and existing income streams). Effective date 1st of July 2016.

The government has proposed a ‘transfer balance cap’ of $1.6 million on the total amount of accumulated superannuation an individual can transfer into the retirement phase. The aim behind this measure appears to be to limit the extent to which the tax-free benefits of retirement phase accounts can be used by high wealth individuals.

If an individual accumulates amounts in excess of $1.6 million in superannuation, they will be able to transfer up to $1.6 million to pension phase and can maintain the excess amount in an accumulation phase account (where earnings will be taxed at the concessional rate of 15 per cent).

Individuals already in the pension phase with balances above $1.6 million will be required to reduce their pension balance to $1.6 million by 1 July 2017. Excess balances for these members may be transferred into accumulation phase accounts.

Subsequent growth on these pension balances will not be restricted. This means that as at 1 July 2016, or at the time when you transfer to pension phase, your balance in pension phase must be no more than $1.6million, however if the balance of that account subsequently grows due to earnings, this excess amount can remain in your pension account.

Things to consider:

If you are already in pension phase with an account balance of more than $1.6 million, you will need to get some advice as to whether you should pro-rata the income between accumulation and pension phase, or otherwise segregate the fund by deciding which assets should remain in pension phase and which should be transferred to your accumulation account.

Various options being discussed are;

to keep in pension phase those assets that are expected to grow stronglyincrease pension payments up until 1 July 2016 to reduce the pension account balancereduce pension payments to the minimum and withdraw excess cash requirements from accumulation account as lump sum withdrawals?

As there are many things to take into consideration please, seek advice to plan for this possibility.

Transition to retirement pensions. Removal of earnings tax exemptions. Proposed effective date 1st of July 2017

Currently the transition to retirement strategy has allowed individuals who have reached preservation age and are still working to benefit from reducing their marginal income tax rate with the lower superannuation tax rates.

The strategy is to draw income from your superannuation fund (by starting a pension) while also contributing pre-tax income into super. The marginal income tax rate that would have been paid on the pre-tax income is replaced by the lower superannuation contributions tax rate.

Currently there is no tax on earnings for a pension account for the superannuation fund, and, for over 60s there is no tax payable on the pension income in your personal name. But the budget changes that. Transition to retirement pension accounts will no longer be exempt from tax on earnings and will attract 15% tax, the same as on an accumulation account.

The measure is designed to restrict use of the strategy to only those who are genuinely transitioning in retirement; that is, those who are moving from full-time work to part-time work.

Things to consider

If you currently have a TTR in place you will need get advice as to whether it remains an effective strategy for you. Not only will the removal of the tax exemption on earnings effect the attractiveness of this strategy, but the reduction of the concessional contribution caps will also have an impact.

High Income earners will have to pay more super contributions tax.

Currently individuals with incomes over $300,000 pay an additional 15% tax, on top of the standard 15% for a total of 30%, on superannuation contributions. From 1 July 2017, the income threshold for this additional contributions tax is dropping from $300,000 to $250,000.

Low income superannuation contribution scheme

The government will continue Labor's low income superannuation contribution scheme but have renamed it as the low income superannuation tax offset (LITSO).

Workers earning less than $37,000 a year who pay an average marginal tax rate of less than 15 per cent on their income, but pay 15 per cent contributions tax on their compulsory superannuation contributions will continue to receive an automatic rebate up to $500 annually, paid directly into their super accounts.

Co-contribution scheme

The co-contribution scheme has been left unchanged in the budget.

Spouse contributions

The Government plans to increase access to the low income spouse superannuation tax offset by increasing the income threshold for the low income spouse from $10,800 to $37,000.

The low income spouse tax offset provides up to $540 per annum for the contributing spouse.

If you would like more information about any of the proposed changes to super call Michael on (02) 4940 9400.

Budget 2016

Below we have set out a summary of the 2016 Federal Budget.

Some elements of the budget require further analysis to clarify how they will be implemented and to determine the strategies we can utilise to benefit you.

These will be published on our website and our Facebook page.

The full budget papers are available at www.budget.gov.au

Summary

Business

The positives:-

The company tax rate for small business (under $2m annual turnover) will be reduced from 28.5% for the 2016 financial year to 27.5% effective for the 2017 financial year with further cuts earmarked as outlined below.

For businesses with a current annual turnover of between $2m and $10m will be reclassified effectively at 1 July 2016 to be small businesses. This will see their current tax rate fall from 30% to 27.5% effectively for the 2017 financial year.

The reclassification of businesses with up to $10m turnover as small businesses will, in addition to allowing them the reduced tax rate, will also allow them access to:-

- immediate deductions for assets under $20,000 until 30th June 2017

- The option to account for GST on a cash basis and pay GST installments if they choose

- Simplified trading stock rules avoiding businesses having to do stock takes if the movement is less than $5,000

For non company businesses such as sole traders turning over less than $2m annually who currently receive a 5% tax offset will, from 1st July 2016 have this increased to 8%, but this remains capped at a maximum of $1,000

Changes apply to allow self-correction for inadvertent errors relating to shareholder loans in private companies (Div 7A) and safe harbour provisions which allow simplification and certainty for companies with shareholder loan arrangements

From 1st January 2017, employers will receive a wage subsidy of up to $10,000 for job seekers under 25 years old with barriers to employment and up to $6,500 for the most job‑ready job seekers. Job seekers must be registered with ‘Jobactive’ or ‘Transition to Work’, and have been in employment services for at least six months for employers to be eligible for the wage subsidy.

Internship (trial employment) placements of up to twelve weeks from 1st April 2017, will be offered each year to enable businesses and job seekers to trial their employment fit. Job seekers will receive a $200 fortnightly incentive payment and businesses will receive $1,000 upfront to host an intern.

The negatives:-

Any business with a turnover of between $2M to $10M now classified as small business does not receive small business Capital Gains Tax concessions. This means that a business with a Capital Gains tax event (the sale of an asset whereby a profit is made), where turnover exceeds $2m and net assets exceed $6m will not receive Capital Gains Tax concessions.

ATO are adding 1,000 staff to compliance activities predominantly targeting large businesses and multinational tax avoidance.

Goods under $1,000 previously imported without GST will in future likely have GST attributed to them.

Superannuation

The positives:-

Between the age of 65 up to but not including 75 an opportunity exists to continue to contribute to superannuation after 1st July 2017, without the need to satisfy the work test.

For those with individual balances under $500,000 in Superannuation, if you do not make the full $25,000 per annum concessional Superannuation contribution in a year after 1 July 2017, then any unused amount each year will carry forward for up to 5 years so that you can make additional contributions up to those previously unused limits in the future.

From 1st July 2017 the 10% test (where an individual who received more than 10% of their income from employment), which restricted individuals who received employment income from contributing to super personally and claiming a tax deduction has been removed. This will allow anyone to top up their super and claim a deduction without it having to be done as a salary sacrifice.

From 1st July 2017 low income spouses with incomes up to $40,000 can benefit from having superannuation contributions made on their behalf of which up to $540 of tax offsets can be claimed by their higher income earning spouse. This also now applies for those up to and including age 74.

Those with incomes under $37,000 who pay superannuation tax of 15% on contributions will have this rebated to the superannuation fund up to a maximum of $500 offset. (this was otherwise scheduled to end on 30 June 2017)

The negatives:-

The current concessional contributions cap (i.e. how much super you can pay into the fund and claim a tax deduction for doing so) will reduce to $25,000 from 1st July 2017.

Where previously $180,000 could be contributed per annum as a non concessional contribution, now a lifetime limit of $500,000 replaces it entirely, and for those that have already contributed up to $500,000 non concessional contributions since the 2008 financial year, they will be locked out from contributing anything further after 3rd May 2016.

Those with individual balances in excess of $1,600,000 in superannuation pension phase, will be required to move any excess into an accumulation phase account after 1st July 2017, resulting in tax at 15% applying on the earnings on that balance (compared with a nil tax rate applicable on the balance in the pension phase account). The $1.6m cap is indexed with inflation in $100,000 increments.

Those who have started a transition to retirement pension (i.e. are over preservation age but not retired) will have the income generated within their superannuation pension account taxed at 15% after 1 July 2017 instead of nil as it is currently.

Those on packages exceeding $250,000 including all concessional super contributions (including employer contributions of 9.5%), will now be subjected to 30% tax on their concessional superannuation contributions (rather than 15%) from 1st July 2017. This formerly applied only to those on packages exceeding $300,000.

Individuals

The positives:-

The 32.5% personal income tax threshold will increase from $80,000 to $87,000 from 1st July 2016. The new tax rates from 1st July 2016 will be as follows (plus medicare):

From 1 July 2017 The budget repair levy surcharge of 2% that applied to those earning in excess of $180,000 will be removed.

The negatives:-

Tobacco excise to increase tax on smokers by 12.5% p.a. from 2017 - 2020

Read the FULL REPORT

Michael Hart has commenced trading as HART ACCOUNTANTS operating from new premises at

Level 1, 196 Union Street, The Junction NSW 2291

HART ACCOUNTANTS

Phone 49 409 400

www.hartaccountants.com.au

Our focus is to help you.

Save tax, increase profits and grow your business

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