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Who Gets a Tax Cut From 1 July 2018?

Posted on 20 June 2018

1 July 2018 is the start date for the seven year income tax plan announced in the recent 2018-19 Federal Budget. The seven year plan benefits low and middle income earners in the first few years before expanding out to a broader restructure of the tax rates and brackets for everyone.

From 2018-19, the top threshold of the 32.5% personal income tax bracket will increase from $87,000 to $90,000. Dovetailing into the tax bracket change is the introduction of the Low and Middle Income Tax Offset for those with taxable incomes up to $125,333. The offset is a non-refundable tax offset that you receive when you lodge your income tax return.

If your annual taxable income is $80,000 in 2018-19, then the personal income tax changes provide an annual tax reduction of $530 per year. If your annual taxable income is $120,000, then the changes give you an annual reduction of $215.

The legislation enabling the personal income tax cuts and the new tax offset is not yet law and currently before the Senate.

Assuming the legislation comes into effect, further changes are planned from 1 July 2022 culminating in the removal of the 37% tax bracket from 1 July 2024. The changes will allow you to earn more before facing a higher tax bracket.

*Change has been announced but has not become law at the time of writing.

Posted in: Tax  

What's changing on 1 July 2018?

Posted on 13 June 2018

INDIVIDUALS

  • Personal tax bracket changes - The top threshold of the 32.5% personal income tax bracket will increase from $87,000 to $90,000*.
  • Introduction of the Low and Middle Income Tax Offset* providing a tax offset for those with taxable income of up to $125,333.
  • GST on property developments and residential subdivisions - The way GST is collected on sales of newly constructed residential properties or new subdivisions will change from 1 July. Purchasers will be required to remit the GST directly to the ATO as part of the settlement process. If you are buying a property, it is essential that you check the details to ensure that these new requirements have been managed.

BUSINESS

  • Single touch payroll - Employers with 20 or more employees at 1 April 2018 must use standard business reporting-enabled software from 1 July 2018 to report payments such as salaries and wages, PAYG withholding and superannuation. Single touch payroll is expected to be compulsory for businesses with 19 or less employees from 1 July 2019.
  • The $20k instant asset write-off for small business has been extended until 30 June 2019.
  • GST on low value goods - GST will apply to overseas sales of goods supplied to Australian consumers with a value under $1,000.
  • GST on property developments and residential subdivisions - The way GST is collected on sales of newly constructed residential properties or new subdivisions will change from 1 July. The vendor will no longer collect and remit GST on the purchase price of the residential premises. Instead, the vendor must notify the purchaser in writing that the GST needs to be paid to the Commissioner and advise the amount that must be paid. In most situations, the amount will be 1/11th of the contract price. Where the margin scheme is used, it is 7% of the contract price. Where the transaction is between associates, it is 10% of the GST-exclusive market value. Notification rules will also apply to the vendor, even if the transaction does not trigger a GST liability.
  • R&D changes* - the way the R&D tax incentive is managed will change with caps introduced on cash rebates and for large companies, a refocussing of R&D to high intensity R&D activities.
  • Changes to the Wine Equalisation Tax the rebate cap will reduce from $500,000 to $350,000 and the eligibility criteria tightened.
  • Significant global entity definition change* - Special reporting requirements are in place for significant global entities (SGE) - large global entities with revenues in excess of $1bn or a member of their group. Many smaller companies that are related to or subsidiaries of these large entities are also affected. This definition will be broadened further to include members of large multinational groups headed by private companies, trusts and partnerships; and members of groups headed by investment entities.Personal tax bracket changes - The top threshold of the 32.5% personal income tax bracket will increase from $87,000 to $90,000*.
  • Introduction of the Low and Middle Income Tax Offset* - providing a tax offset for those with taxable income of up to $125,333.
  • GST on property developments and residential subdivisions - The way GST is collected on sales of newly constructed residential properties or new subdivisions will change from 1 July. Purchasers will be required to remit the GST directly to the ATO as part of the settlement process. If you are buying a property, it is essential that you check the details to ensure that these new requirements have been managed.

SUPERANNUATION

  • Event based reporting for SMSFs - A new reporting regime commences for SMSFs. All SMSFs must report events that affect their members' transfer balance accounts (for example, when an SMSF member first starts to receive a pension from their fund). Timeframes for reporting are determined by the total superannuation balances of the SMSF's members. Where all members of the SMSF have a total superannuation balance of less than $1 million, the SMSF can report this information at the same time as the annual return. SMSFs that have any members with a total superannuation balance of $1 million or more must report events affecting members' transfer balances within 28 days after the end of the quarter in which the event occurs.  
  • Carry forward concessional contributions - 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.
  • Downsizer contributions - if you are over 65, have held your home for 10 years or more and are looking to sell, you might be able to contribute some of the proceeds of the sale of your home to superannuation.
  • First home saver scheme -  First home savers are able to withdraw voluntary, after-tax superannuation contributions they have made to put towards their first home.
  • Changes to protect employees against inadvertent breaches of concessional caps* - Individuals whose income exceeds $263,157 and have multiple employers will be able to nominate that their wages from certain employers are not subject to the superannuation guarantee (SG).
    *Change has been announced but has not become law at the time of writing.
Posted in: Tax Business Advice  

One-Off Super Guarantee Amnesty

Posted on 6 June 2018

Employers that have fallen behind with their superannuation guarantee (SG) obligations will have 12 months to "self-correct" under a new amnesty announced late last month.

The ATO estimates that $2.85 billion is currently owed in late or missing SG payments. Running from 24 May 2018 for 12 months, the amnesty encourages employers to reduce this SG gap by providing relief from the punitive penalties that normally apply to late payments. Even if you do not believe that your business has an SG underpayment issue, it is worth undertaking a payroll audit to ensure that your payroll calculations are correct, and employees are being paid at a rate that is consistent with their entitlements under workplace laws and awards.

Qualifying for the amnesty

The amnesty applies to employers that have underpaid or not paid SG for any period from 1 July 1992 up to 31 March 2018. To qualify for the amnesty, employers must disclose the outstanding SG to the Tax Commissioner using the SG Amnesty ATO payment form or the SG Amnesty Fund payment form where the payment has been made directly to the employee's fund. You either pay the full amount owing, or if the business cannot pay the full amount, enter into a payment plan with the ATO. If you agree to a payment plan and do not meet the payments, the amnesty will no longer apply. Bear in mind that the amnesty only applies to "voluntary" disclosures. The ATO will continue its compliance activities during the amnesty period so if they discover the underpayment first, full penalties apply. The amnesty also does not apply to amounts that have already been identified as owing or where the employer is subject to an ATO audit.

What do employers pay under the amnesty

Normally, if an employer fails to meet their quarterly SG payment on time they need to pay the SG charge (SGC) and lodge a Superannuation Guarantee Statement. The SGC applies even if you pay the outstanding SG soon after the deadline.

Employers pay:

  • The SGC comprised of:
    - The outstanding SG entitlements (although this component might be higher than what it would have been had the entitlements been paid on time)
    - Interest of 10% per annum, and
    - An administration fee of $20 for each employee with a shortfall per quarter
  • Penalties of up to 200% of the amount of the underlying SG charge
  • A general interest charge if the SGC or penalties are not paid by the due date
On top of this, the SGC amount is not deductible - even if you pay the outstanding amount. That is, if you pay SG late, you can no longer deduct the SG amount even if you bring the payment up to date. Under the quarterly superannuation guarantee, the interest component is calculated on an employer's quarterly shortfall amount from the first day of the relevant quarter to the date when the SG charge would be payable (not from the date the SG was overdue).
Under the amnesty, employers pay:
  • The SGC:
    - The outstanding SG entitlements
    - Interest of 10% per annum
    - No administration fees
  • No penalties
  • A general interest charge.

An extra benefit of using the amnesty period to catch up is that the SGC amount is deductible. The ability to deduct SGC and the reduction in penalties could be significant for employers that have fallen behind with their SG obligations. Special provisions exist within the legislation to automatically protect employees from inadvertently breaching concessional contribution cap limits if the unpaid SG is paid to the Commissioner and then transferred to the employee's superannuation fund. Where the employer makes the payment directly into the employee's fund, the individual would need to apply to the Commissioner requesting the exercise of discretion to either disregard the concessional contributions or allocate them to another financial year.

Where to from here?

Legislation enabling the amnesty is currently before Parliament and will not become law until at least June 2018. Despite this, the clock is ticking.

If your business has fallen behind on its SG obligations and is eligible for the amnesty, you need to start working through the issues now or contact us to work through the issues for you. There are several calculations that need to be completed and these may take some time to complete. If your business has engaged any contractors during the period covered by the amnesty, then the arrangements will need to be reviewed as it is common for workers to be classified as employees under the SG provisions even if the parties have agreed that the worker should be treated as a contractor. You cannot contract out of SG obligations. If you have not undertaken a payroll audit or an audit of rates paid to employees, you should do this within the next 12 months.If a problem is revealed, you can correct it without excessive penalties applying. If you are uncertain about what Award and pay rates apply to employees, the FairWork Ombudsman's website has a pay calculator or you can contact them online or call them on 13 13 94.

Posted in: Tax Business Advice  

Your Essential EOFY Checklist

Posted on 6 June 2018

No one wants to pay more tax than they need to or face unnecessary risks. We've compiled a list of our top tips for you.

Donate - If you are going to donate to charity, now is the time. Any donations you make to deductible gift recipients can be deducted this year. Remember, if you received something in return for the money, like goods purchased at a charity auction, you may not be able to claim a deduction for the full payment. There are special rules dealing with this situation that need to be taken into account.
 
Work related deductions - you can claim a deduction for business expenses you have incurred that have not been paid by your employer. But be careful, you need to be certain that what you are claiming is a legitimate business expense and able to be claimed. For example, you cannot claim the cost of dry cleaning the clothes you wear to work unless it is protective clothing, a uniform required by the business, or occupation specific clothing (like the checked pants some chefs wear). To be legitimate, the expense must be for something you need to do your job. Items like laptop bags have been in the news lately because some handbags can be used to carry laptops. This does not mean that your Gucci bag is suddenly deductible. It is really up to you to justify the deduction that you are claiming, keeping records of the actual usage of the item can help with this.
 
Home office expenses - if you work from home as part of your employment, you may be able to claim items such as phone expenses, running costs for your home, and equipment. Just bear in mind that expenses need to be in proportion to your use of the home for work purposes. If your home is a place of business and you are entitled to claim a deduction for interest expenses or rent, then this will generally impact on your ability to claim the full main residence exemption from CGT when you sell the home.

Uber - If you drive for Uber or a similar service, the income you earn needs to be declared on your income tax return. Plus, you need to be registered for GST. You can claim expenses for your car that relate to transporting passengers (relative to the kilometres travelled with passengers).

Earning extra cash from AirBNB style services - The tax treatment of what you earn by renting all or part of your house through AirBNB and similar services is the same as any other residential rental property arrangement. You must include the rental income in your income tax return, but you 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, and insurance. Expense claims need to be in proportion to the rental, that is, how much of the house is used and for how long. Also, beware that this type of activity can restrict your ability to claim the CGT main residence exemption when you sell the property if it is or has been your home.

 
DANGER ZONES - Expense claims that are high on the Australian Taxation Office (ATO) hit list include:

Travel expenses - Problems arise when people make claims for expenses that they did not actually incur. Typically, this happens when someone receives an allowance for travel but does not spend it (they might stay with family or friends instead). While the ATO publishes some reasonable rates each year for food and accommodation expenses, these only provide limited relief from the full record keeping rules. You cannot claim a deduction for the ATO reasonable rate amount if you spent less than this on food and accommodation.

Self-education expenses - Any study you claim as self-education must be connected to the income you are currently earning (either to maintain or improve your specific skills or knowledge) or is likely to result in increased income from existing income earning activities. Merely doing a course while working full time does not make the course deductible. Be careful of excessive claims for travel overseas and luxury courses. You need to prove that these expenses are essential to your current work.  

You can no longer claim  If you are a property investor, you can generally no longer claim the cost of travelling to and from your investment property.

Posted in: Tax  

Tax stats reveal the state of the Australian community

Posted on 24 May 2018
Every year, the Australian Taxation Office (ATO) compiles the tax data they collect. The recently released 2015-16 'tax stats' encapsulate the data from 16 million income tax returns lodged for the 2016 income year for 13.5 million individuals, 940,000 companies, as well as superannuation funds, partnerships, and trusts.

Here's some of what they found:

Highest earning job roles

The occupation with the highest average salary is a surgeon on $393,467, followed by anaesthetists, internal medicine specialists, and psychiatrists. Legal practitioners came in seventh on an average taxable income of $198,219. Chief executives and managing directors came in ninth.

It's worth pointing out that these salary statistics are the average taxable income of a particular occupation category so, any deductions or losses the individual is able to claim have already reduced the salary represented. It's not the salary that someone would be paid. These figures would also pick up a mixture of full time and part time workers.

The wealthiest Australian suburbs


If you live in Darling Point, Edgecliff, or Point Piper (the 2027 postcode) you are in Australia's wealthiest suburb with an average taxable income of $192,500. By contrast, postcode 2387, covering Bulyeroi and Rowena in far North East NSW, had the lowest average taxable income of around $12,000. Victoria has five of the bottom 10 postcodes with 3482 recording the second lowest average incomes nationally.


Who contributes the most tax?

Individuals contribute 52.7% of all tax collected, companies 18.9%, and superannuation funds 4.2%.

The sectors that contribute the most tax dollars were the financial and insurance sector (9%), followed by wholesale trade (8%), manufacturing (6%) and professional, scientific & technical services that's accountants, lawyers, managers, scientists, etc (6%). Mining only contributed 0.2% of the tax take.

When it comes to individuals, out of a working population of around 15 million individuals, less than 11 million of us pay tax (27% don't pay any tax). Those on taxable incomes of $80,001 to $180,000 pay 39.8% of the tax paid by all individuals, averaging $30k per person. The highest income bracket ($180,001 and above) pay over four times more than the income tax bracket below them averaging $135,000 per person and contributing over 30% of the tax collected from all individuals.

Over $6.5 bn in capital gains tax was collected from individuals in 2015-16. As you would expect, the majority of this was from real estate (40.6%) with the remainder made up of other assets (39.7%) and shares (19.6%). Companies and super funds contributed over $5 bn in capital gains tax. Only 2.6% of gains made by super funds were from real estate.

Companies pay 18.9% of all tax. Around 14% of all companies paid no tax or made a loss, which is fairly consistent across the years varying by 0.3% for the last three years (lowest in 2013-14 and highest in the most recent statistics, 2015-16). The largest companies, which represent 0.1% of all companies, contributed 55% of the tax paid by all companies (over $36 bn). Medium sized companies were the next biggest contributor at 15.2%, followed by micro businesses, the largest group by volume, at 12.7% of the population of companies.

Where do we make our money?

Salary and wages are obviously the biggest category of income for individuals averaging $58,827 (up from $57,576 in the previous year). Once again, these figures represent taxable income, not the gross salary or wages someone earns.

We made over $42 billion in rental property income in 2015-16. Over 2 million people have an interest in a rental property, with almost 20,000 of those having six or more rental properties. Most however (1,494,837) have just one property interest. Net rental income has been fairly static over the last few years at -$3.6 billion (it was lowest in 2011-12 at -$7.9 billion before the Government reined in deductions).

What deductions do we claim?

The list of deductions should give you a good indication of where the ATO is focusing their compliance activities. 8,627,122 individuals claimed work related deductions in 2015-16 with an average claim of $2,548 (with most claiming around $1,123). The ATO have already flagged work related deductions as a major compliance focus and it is clear that the ATO has already started taking active steps to improve compliance in this area.

$45.7 billion in rental property deductions were claimed in 2015-16 that's more than the education budget at $35.52 billion in the same period. 61% of all those with rental property interests claimed a loss.

When it comes to donations, we have become tighter with around 57,000 less people making a donation. The average amount donated between 2014-15 and 2016-17 dropped from $674 to $634.

Key take out: The statistics provide an indication of where you can expect the ATO to focus its compliance activities. Work related deductions, especially travel expenses, are a key area. Even if you only claim relatively small amounts, don't assume that the ATO won't query the deductions and ask to see evidence that proves you actually spent the money, you were not reimbursed, and the expenses were incurred in the course of earning assessable income.
 

Superannuation

While the average superannuation account balance is $115,945, the median is only $37,473, which is clearly not enough to self-fund retirement.

The median account balance of men aged 55 to 59 is $124,738, with women likely to have only $83,103 in this same age bracket. The greatest disparity between men and women is in the 50 to 54 age bracket, with women likely to have balances 36% less than their male counterparts.

The highest income earners, those on taxable incomes above $180,000, had the highest super balances with a median of $254,273 ($532,278 average).

The average superannuation balance in the ACT is higher than anywhere else in Australia at $185,777 (median of $57,239) for males, and $157,981 (median of $47,364) for females. The gap between males and females is also likely to be less with the average super account balance for females 15% less than males. By contrast, females in Victoria are likely to have super account balances 25% less than males.

Key take out: There are some very real tax benefits to building the superannuation of your spouse using the super splitting rules.

Posted in: Tax  

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