Investing to Save Tax

Tax driven investment products have and will always be an easy sell. Accountants love recommending these products to clients looking for ways to pay less tax.

If your reason for investing in a product is to save tax then you are not investing but being sold a product, which will cost you money.

There are many of these type of investments all are geared to make plenty of money for the provider while feeding off your desire to reduce your tax bill. Below is a list of just a few common ones:

  • Agricultural products such as trees, almonds and almost anything, which they can grow. The idea is that you get a large up front deduction for the cost of planting etc and then when they sell the product you make the income. This gives you a tax deduction now and taxable income in years to come. The problem is that most of these products fail to achieve the growth you were initially advised. Avoid these types of products. Do not fool yourself into thinking that this is an investment.
  • Capital guarantee products, the bases of these products is that there is no down side because your investment capital is guarantee. The down side comes in two forms, the high interest rate you pay and the costs of the options you have to take out to guarantee the capital. Sure the interest is deductable this year but the option is not. Generally these products is written over shares, so if you truly believe in the company you are investing in why do you need a guarantee. This product is structured to make money for the bank issuing it, through interest and the options trade. 
  • Negative Gearing is any product which provides a tax loss now on the promise of a future capital gain. Losing money to save tax makes no sense at all, again if tax is the main goal then this is a poor choice.  Gearing is one method in creating wealth but at some point the investment needs to be positively geared. This means that the loan needs to be paid down. Interest only loans should always be avoided unless they are for a short term purpose (6-12 months). 

Tax is part of the investment puzzle and while it is important to ensure that you do not pay too much, tax effective investments are not part of the puzzle. The best ways to reduce your tax expense is through the way you structure you financial life.

Structure is all about protecting your nest egg and limiting the amount of tax you pay. You can use structures such as super, trusts and companies to achieve these goals.

Talk to your Financial Adviser about what is best for you. 

Tax Time: What To Do & What Not To Do

By Jason Fittler

It is time to start thinking about tax.

The first thing you need to understand is that tax is part of the investment puzzle.

You must ensure that you minimize (LEGALLY) the amount of tax you pay while at the same time not making an actual loss.

First, let’s look at what not to do:

1. Stay away from tax deferral schemes, these schemes are designed to make someone else money right now and they only defer tax. Deferral of tax means you have to pay it next year. 

Below are products, which some “Financial Planners or Accountants” will start to push on you. Why? Because of the commissions they earn.

  1. Negative gearing
  2. Investments in trees
  3. Prepaying interest
  4. Capital guarantee products

2. Prepayment of expenses, this only defers the tax to the following year as such only worthwhile if you think next year you will make less money.  

3. Making large capital purchases. It is too late, as these items will be depreciated proportionately to the year purchased.

Next, let’s take a look of thing you can do to reduce your tax:

Salary Sacrifice to super – this is always top of my list and should be a core strategy of any long-term investment plan. It is by far the most effective way to reduce your personal tax. Note that your average tax rate should be above 30% for this to start being effective.

Capital Gains – time to go through your share portfolio and look to sell out some of the dogs and book the losses. But first, just check if you have any carried forward capital losses from last year.

For those getting ready to retire (ages 50 and above) you need to start looking at your superannuation and check the following:

  • What you have made this year in concessional contribution being employer contributions and salary sacrifice. Make sure below limits and top up if possible.
  • Look to make your non-concessional contributions. You can make up to $150,000 before the June 30.
  • Look towards next year. For those over 50 years old you can increase your concessional contributions up to $35,000 and those under 50 you concession contributions can now move up to $30,000. Make sure you adjust your salary sacrifice.

Last, make sure you touch base with your financial adviser and double check if there is any last minute issues to attend.

 

Changes in Tax Proposals

 By Jason Fittler

At the end of the Labor Government term in Federal Government the concern about the deficit became so important that the government proposed a range of new taxes to try and plug the hole.

As we all know surplus and deficits will come and go but once a tax is introduced it never goes away.  Perhaps the carbon tax will prove me wrong.

However last week the Australian Government announced its formal position with respect to a large number of previously announced tax, superannuation and related changes that have not been legislated.

The bulk of legislation to be progressed should be passed by Parliament by 1 July 2014.

  • Measures to proceed include: Protecting the corporate tax base from erosion and loopholes; improving compliance through third party reporting and data matching; phasing out the net medical expenses tax offset; transferring lost member accounts to the ATO; implementing Managed Investment Trust and regimes; finalising farm deposit changes, and progressing tobacco excise and customs duty regimes.
  • Measures to be amended include: Thin cap – debt loading measures (the Coalition will not proceed with proposal to deny deductions made under s 25-90 of the ITAA 1997) and OBUs (the Coalition will not proceed with the part that excludes all related party transactions but have a targeted integrity measure to provide certainty for the industry)

Taxes proposed but will not proceed include the following:

  1. Self-education expenses $2,000 cap. This is a big win for the professional services industry. In our industry we easily spend over $4000 per annum per adviser to maintain professional qualifications. This does not include any fancy trips overseas or built-in holidays. 
  2. FBT changes to company cars. Anyone who owns shares in McMillan Shakespeare a company who provides leasing for company cars would remember when this was announced. The share price fell $12 on the day of the announcements wiping out $900 million of investor value. The share price has started to recover but is still down on the pre-announcement value.I for one welcome the announcements last week from the Government. I am sure many Australians paid little attention to these announcements however it is these type of measures being taken but he LNP which will provide the foundation for Australia to get back on to its feet.
  3. Tax on super pensions earnings above $100,000 in pension phase. This is the one, which would have affected our clients. It would also limit the amount people would put into super. With this tax now officially gone investors can once again be comfortable that their strategy to invest in Super.

The last two big ones are the Carbon Tax and Mining Tax. If this promise is kept Australia will be back on the road to economic recovery.

It is a long road but at least we will be on it.

 

ATO Secure Login for Individuals

By Jason Fittler

The ATO has launched a new online service for individuals, which allows you to log in and update your details such as change of address, change of name, track your tax return and refund arrange for payments of tax debts etc. 

Below is a link to the site:

http://www.ato.gov.au/General/Online-services/In-detail/Online/Register-to-use-our-online-services/?page=2

To register for a secure login, you will be asked questions about your identity so that the ATO can confirm your identity.

Make sure that you have the following handy when you create your secure login.

  1. Tax File Number
  2. Date of Birth

If you need to update or check your details, phone the ATO on 13 28 61, then press 5, between 8.00am and 6.00pm, Monday to Friday to speak with a customer service representative.

You will also need to provide the ATO with information from two different documents listed below. However, you cannot provide two shared secrets from the same type of document – for example, you cannot use two notices of assessment from different years.

  1. Notice of assessment
  2. Super account member contribution statement
  3. Bank account details
  4. PAYG Payment summary
  5. Centrelink payment summary
  6. Dividend Statement

This is a great new site, which allows you to manage your details with the ATO with minimal fuss. No more long waits on hold and transfer between departments to update your information. You will receive timely information on the progress of your refund and of any outstanding documents due to the ATO.

I still encourage you to speak with your accountant for any tax matters but this service will be a time saving process when dealing with the ATO.

Fringe Benefits Tax - Specifically Motor Vehicle

By Jason Fittler,

The fringe benefits tax (FBT) is a tax applied within the Australian tax system by the Australian Taxation Office.

The tax is levied on most non-cash benefits that an employer provides "in respect of employment."

The tax is levied on the employer, not the employee and will be levied irrespective of whether the benefit is provided directly to the employee or to an associate of the employee.

The tax was first imposed in 1986 and the operation of the tax is described by the Fringe Benefits Tax Assessment Act 1986.

A benefit, is a benefit in respect of employment provided to somebody because they are an employee. The 'employee' may be a current, former or future employee, and treatment of the benefit will be the same whether it is received directly by the employee or by associate of the employee.

There are several specific 'types' of benefits listed in the legislation, including car fringe benefits, loan fringe benefits, housing fringe benefits and others. For each fringe benefit type, one or more methods are prescribed for determining the taxable value of the benefit.

Below is more detail about motor vehicle fringe benefits.

Either of two methods may be used operating cost method (log book) or statutory formula method.

The statutory formula method is the more popular one because it requires less record-keeping. It provides lower FBT rates as vehicle usage increases and as vehicle capital value decreases.

The Statutory Formula Method FBT is calculated as follows:

FBT Taxable Value = FBT Capital Value x Statutory Percentage x Number of days in the FBT year the vehicle is available for use / 365.

In the 2011/12 budget, the Federal Government changed the statutory percentage for calculating FBT, replacing the sliding scale statutory rates with the single rate of 20-percent.

Statutory formula method does not take into account the actual personal use of the car. It automatically assumes significant proportion of use of the car is for business purposes.  

Removal of statutory formula method will apply to contracts entered into after July 16, 2013. It will be effective from April 1, 2014.

The Operating cost method calculation is based on the cost of running the car multiplied by proportion of personal use of car (recorded in log book) by the FBT rate. For those employees who use the car mostly for personal use the fringe benefit tax will be much higher as such the employers will no longer offer cars as a benefit.

Clearly now that the Statutory method is no longer available less people will be provided company cars and those who currently salary sacrifice into a leases vehicle (many of these public servants) will not renew once the lease expires.

Interesting Items: Audits of Property in Self-Managed Super Funds

The Australian Taxation Office is to step up scrutiny of property investments by self-managed super funds amid suspicions that strict lending laws are being breached.

Stuart Forsyth, assistant tax commissioner, said more than one in five contraventions identified by auditors’ involved funds lending to their members.

End of Tax Year: Things To Do Now

By Jason Fittler

Now we are in June it is time to make sure that you have all of your tax affairs in order.

Each year the ATO is making it harder to ensure that you are complying with all of the tax rules.

Below are a few hints on what you need to look at NOW. Don’t wait until the 28th of June.

Superannuation

1. Check to ensure that your concessional contribution does not exceed your age based limit.

2. Check that you non-concessional contributions do not exceed the limits.

3. If you want to top up your concessional or non-concessional contributions to the caps do it now.

4. If you are in Pension mode please ensure that you have taken the minimum for the tax year.

5. If you have a SMSF now is a good time to review your Trust Deed to ensure it is up to date along with your investment strategy.

Family Trusts

1. Ensure that your distributions minutes are completed before the end of June.

2. Review your income for the year and ensure that you have paid the correct amount of PAYG instalments.

3. Review your capital gains tax position, now is a good time to exit the poor performing investments.

4. It is a good time to review you trust deed to see if it need to be updated.

5. Review the tax position of any beneficiaries to determine what type of distributions can be made.

6. If distributing to a corporate beneficiary, ensure that you have sufficient funds for to cover the distribution.

7. Review any loan agreements in place under division 7a and ensure that repayments have been completed and check the interest rate for the next 12-months to set repayments for the next financial year.

Business

1. Ensure that all of your expenses are paid up.

2. Review invoices outstanding and what invoices need to be sent out for this year.

3. Review depreciation items to see if they should be written off.

4. Review capital purchases to ensure you have the information for your accountant.

5. Ensure that all PAYG withholding and instalments are paid up to date.

6. Ensure that all super contributions are paid to date and will be paid by the 28th of July.

Individuals

1. Collect all receipts and have ready for tax agent. Your employer will provide PAYG by 15th of July.

2. Make sure your logbooks for motor vehicle deductions are up to date.

3. Rental properties – ensure you have all receipts and notices for property agent.

4. Review private health insurance rebate claim.

5. Check interest, dividends and income from other sources.

 

Salary Sacrifice and Super

By Jason Fittler,

Salary Sacrifice is about reducing the amount of tax you pay.

Salary Sacrificing into super allows you to benefit from paying lower tax and also allows you to have your money invested in a low tax environment.

The amount you can salary sacrifice into super is limited by your age based on your concessional cap.

From the 01/07/2014 the caps are as follows:

  1. Over age 60  $35,000 per year
  2. Between 50-60 $25,000 per year will change to $35,000on the 01/07/2014
  3. Less ten age 50 $25,000 per year

Concessional contributions are made up of employer (SGC) contributions and salary sacrifice. To ensure that you do not go over the cap you should first work out how much SGC you will receive in the financial year and deduct this from your concessional cap.

The balance is the amount you will be able to salary sacrifice.

For the 2013/2014 financial year, the SGC percentage is 9.25%, this means that your employer will pay 9.25% of your gross pay into superannuation.

For Example-

If you are over age 50 and earn $70,000 per annum you will receive $6,475 ($70,000 X 9.25%) in SGC contributions. You are entitled to make salary sacrifice contributions of $18,525 per annum. The effect this would have is as follows:

Salary Sacrifice works best for those people who have surplus to their current needs.  When you have paid off the house or the kids have left home.

If this surplus income is put to work in super as opposed to being wasted then you will be in a far better financial position when you do retire.

If you are younger it is harder to find the spare funds to put into superannuation, however, time is on your side.

If you are 30 years old and intend to retire at age 65, then putting away as little $4,500 per annum or $85 per week will boost your superannuation by $500,000 in retirement.  You will also save $24,000 in tax.

 Salary Sacrifice into super is necessary if you are looking to maintain your lifestyle in retirement.

You do have the ability to build your superannuation through non-concessional contributions, as you get closer to retirement, however, this requires that you have other assets to sell or move into the super fund.

Salary Sacrifice should be part of your long-term wealth creation strategy and tax strategy.

If you would like more information on Salary Sacrifice please call us on (07) 4771 4577.

Capital Gains Tax (CGT)

By Jason Fittler

Capital gains tax (CGT) is the tax you pay on a capital gain.

It is not a separate tax, just part of your income tax.

The most common way you make a capital gain (or capital loss) is by selling assets such as real estate, shares or managed fund investments.

When you acquire a CGT asset, start keeping records immediately, because you might have to pay tax on the asset in the future. Your records will help ensure you don't pay more tax than necessary.

If you own the asset jointly with someone else, you'll need to establish each owner's share.

Selling an asset or giving it to someone else is called a 'CGT event'. This is the point at which you make a capital gain or capital loss. There are a number of CGT events, for example, if a managed fund or other trust distributes a capital gain to you, it's a CGT event.

For most CGT events, you work out your capital gain or capital loss by subtracting your 'cost base' (what it cost you to get the asset) from your 'capital proceeds' (what you received when you disposed of it). If you have held the asset longer than 12 months a 50% discount is then applied.

For example: You purchase an asset for $100,000 and sell it 2 years later for $200,000. The capital gain is $100,000, as you held the asset for longer than 12 months you only pay tax on half of the capital gain ($100,000 / 2 = $50,000) at your marginal tax rate.  If you hold the asset for less than 12 months then you will pay tax on the whole amount of the gain at your marginal rates.

A number of assets are exempt from CGT, including your home, car, and depreciating assets used solely for taxable purposes. There are a number of other exemptions, rollovers and concessions.

Most real estate is subject to CGT. This includes vacant land, business premises, rental properties, holiday houses and hobby farms. Your 'main residence' (family home) is exempt from CGT unless you rented it out for a time or it's on more than 2 hectares of land.

You may have to pay tax on any capital gain you make on shares or units when a CGT event happens, such as when you sell them. A CGT event also occurs when you redeem units in a managed fund by switching them from one fund to another.

Always you check what the capital gains tax position will be on the asset prior to selling or straight away afterwards.

Ensure that you put money away to pay the tax when you lodge your annual tax return.

If you would like more information please give us a call on (07) 4771 4577.

Inactive Bank Accounts - Changes You Need to Know

By Jason Fittler

At the end of last year the Government passed legislation that will allow the ASIC to claim any money in bank accounts, which have not been active in the previous three years.

This new legislation will come into effect on the 31/05/2013. Once claimed, the ASIC will pass the fund on to the Government who will include it in general revenue.

Previously this rule applied after 7 years, the rule was changed without consultation with the banks and is estimated that it will raise over $100 million dollars in this financial year.

It will affect all accounts, which have not had any activity on them in the past three years, transactions such as fees and interest do not constitute activity.

The good news is that if one of your accounts is taken you are able to claim it back if you can prove that you own the account and complete the required forms. 

The new law comes into effect at the end of May and banks are advising customers to make transactions as small as a dollar to ensure they are not transferred to ASIC.

Australian Bankers Association chief executive Steven Munchenburg says many accounts will be affected.

"If you've put some money away to save for the future and you're not adding any more deposits to that, and if you've got trust accounts where money is being held for some reason in the future, if you've got bond money for example where you're a landlord and the tenant's bond money is sitting in an account for more than three years, any of those sorts of those accounts, and the banks are obliged to move the money to the Government," he said.

The general feeling is that this is merely a cash grab as there is no real structure around changing the term from 7 years to 3 years. It does however mean that you should check you accounts and close the ones, which you do not need and ensure that the rest are active. Prevention is better than a cure.

For our clients the accounts that this could affect:

  1. Term Deposits, which you just let roll over
  2. Trading accounts use to purchase shares
  3. Accounts held on behalf of children
  4. Trust accounts holding bond money or the initial settlement fund for the trust

Now is the time to tidy up your bank accounts.

Mature Age Workers Offset

 By Jason Fittler

The Mature Age Workers Offset applies to you if:

  1. You were you born before 01/07/1957
  2. Have a net income from working
  3. You are an Australian resident

If this is the case then you will be entitled to the Mature Age Workers Offset. This offset will provide you with an offset against your tax of up to $500. It works as follows: 

  • Up to $9,999 you will receive $0.05 for every dollar earned.
  • Between $10,000 and $52,999 you will receive $500.
  • Above $53,000 you will receive $500 less $0.05 for every dollar earned above $53,000.
  • You will receive no rebate if you earn over $63,000.

Net income from working includes:

  1. Personal services income (Salary)
  2. Assessable income from carrying on a business
  3. Net amount from farm accounts
  4. Reportable employer super contributions
  5. Reportable fringe benefits
  6. Less any deductions related to personal services or business income.

Seniors and Pensioners Tax Offset

As of the 01/07/2012 if you:

  • Have reached age /service pension age and
  • Meet certain eligibility requirements for a government pension or similar or
  • Receiving certain taxable government payments
Then you will be eligible for the Seniors and Pensioners tax offset which is $2,230 for singles and $1,602 each for couples.  This offset is reduced if your income is above the below limits:
  • For singles, if your income is above $32,279 the rebate will be reduced by $0.125 for every dollar above the $32,279 and will cut out once your income is above $50,119.
  • For couples, if your income is above $28,974 each the rebate will be reduced by $0.125 for every dollar above the $28,974 each and will cut out once your income is above $41,790 each.

 If you have any questions please contact us on 07 4771 4577. 

 

Super Tax – Possible Changes

By Jason Fittler

When it comes to super, people’s biggest fear is that the government will change the rules. A justified fear given current rumors.

In 2007 the Howard Government passed new rules in regards super. Rules we all currently enjoy and which has seen many people seriously consider super as a long-term investment vehicle.

John Howard's plan was simple, encourage people to save more in super. Reward them in retirement for doing so and at the same time relieve the strain on the public purse as demand for the Age Pension reduced.

This is now being undone. This week rumors have started, that the government is looking to change the rules and move the goal posts for those who they consider to be wealthy; loosely defined as people who have super balances close to a million dollars.

The indication is that that they are looking to attack your super on two fronts:

Let’s put this into perspective:

A couple with a combined super of $1 million could expect $65,000 per annum in income. If they retired at age 60 this would last to, around age 90. 

In the 2011 Census the median average household income was $64,200. When you compare the two and allow for the fact that once retired the couple will no longer be generating any further income, you quickly come to the realization that having $1 million in super does not make you wealthy.

If one of the couple were to die the other person would normally inherit their super bringing their balance up to the $1 million mark. They would now be subject to the new taxes on super, which the government is proposing.

We need to keep in mind that these retirees were not given this money. Super is earned and saved for many decades to achieve a goal of a comfortable retirement and not to be a burden on the government or family.

Instead of thanking these people the government looks to tax them.

If you are getting close to retirement age you should lobby your local member to ensure that these changes do not come in. Remember your super is your money you earned it, you have worked hard all your life and to be asked to continue to pay tax after retirement seem unfairly harsh.

If you are still working and below 50 years old, keep in mind if they change the laws in regards to when you can access your super you will be working longer.

You will have less time in retirement.

Super for most people is their largest investment after their home, if you cannot access it you cannot stop work.

How long do you want to be trapped at work?

Again, speak to your local member.  

Increase in the Tax Free Threshold

By Jason Fittler

You may have noticed that your take home pay increase slightly last month.

This is because of the increase in the tax free threshold. It is nice to receive more money but are you better off?

Below is an article I wrote when this change was first announced.

Tax Cuts

What does it really mean when the government increases the tax free threshold from $6,000 to 18,000? Are we better off? 

Tax Free threshold

The annual tax-free threshold for most Australians is $6,000. This means that, unless your circumstances are different from the majority, your first $6,000 of income is not taxed. Therefore, by claiming the threshold, you reduce the amount of tax that is withheld from your pay during the year.

When your taxable income exceeds your tax-free threshold you pay tax on the excess.

Low income offset

As well as there being no tax on the first $6,000 (the tax-free threshold) there is also, to provide a helping hand to taxpayers who earn under a certain amount each year, a low income tax offset.

Effectively, a low income resident taxpayer's tax-free threshold is $16,000. The offset reduces by four cents in every dollar that income exceeds $30,000, and cuts out at $67,500.

The recently announced tax cuts from the government will mean as at the 01/07/2012 the tax free threshold will increase to $18,000 and the low income rebate will be cancelled.

If you earn less than $16,000 you will be in the same position, if you earn between $30,000 to $67,500 you will lose the benefit of the low income rebate, but you will be better off.

If you earn $37,000 you will save around $600 in tax and if  you earn $67,000 around $1800 in tax. 

It also means that people below $16,000 income will not need to lodge tax returns unless they have paid tax and want the refund. 

(End of Article)

This was one of the measures put in place to help offset the carbon tax. It will also assist the government in a reduction in the number of people who will need to lodge tax returns... which I expect will be quite a cost saving to the government.

You should note however that this should also reduce the amount of your tax refund for the 2013 tax year.

So if you are like most people and relay on your tax refund to assist with bill payments make sure that you budget that extra money in your pay each week to compensate for a lower tax refund.

Tax Tips

By Jason Fittler

It is that time of year again when we all head off to our tax agent to find out how much refund we will get or worse how much we have to pay.

A couple of things to remember;

1. Only claim what you are entitled to, the penalty for a false claim will outweigh and benefit.

2. Always keep your receipts and keep them with the completed return.

3. This year the ATO will be auditing Defence Force Personal. They have flagged this so be careful if you fall into this category as you could be in for a nasty surprise.

4. Do not spend the refund until you have it, the ATO will make changes if you owe HELP, Centrelink or Child Support.

The Carbon Tax

By Jason Fittler

Back in July 2011 I first wrote about the Carbon Tax what the legislation was going actually achieve as far as reduction in carbon dioxide. The below link will take you to my original story. /grow-your-wealth/category/carbon-tax

On Sunday the first of July 2012 the Carbon tax came into effect.

The question is how will this impact our lives.

I remember back when the GST was introduced many were worried about how this would work. Over a decade later we are all handling the paperwork just fine.

The big difference is that the increase in costs was directly borne by the consumer or end user and it was clear how the price increase came about.

With the Carbon Tax we will not see prices rise on the first of July 2012, in fact we will not really be able to distinguish between general price raises and one caused by the Carbon Tax.

This is the very nature of the tax, big business will pay the tax and in turn they pass the cost on through prices raises. The catch for big business is that they really at this stage acutely calculate how much their costs will go up by.

I expect that it will take at least full financial year before they can identify exactly how this tax will affect them. The government has made it very clear that business need to be careful not to blame price increases unless they can directly show a relationship between the two. The fine for doing so is $1.1 million, enough for business to stand up and take notice.

What we do know is that electricity prices will move up, the figure I have heard is that the average electricity house hold bill will go up by $400 per year. But what about small business, I expect that their bill will go up more than this and impact on their costs. Of course this will depend on what type of business you have and how much electricity you use.

Personally I locked in some solar panels to help offset this cost.

The real costs of this Carbon tax will not be known for many years to come, I expect that the increases in expenses will be small but often and when we look back in years to come we maybe surprised as to how much we are paying.

The other major costs will be economic growth, as the big end of town such as BHP and RIO decide if they will continue to invest in Australia or look to move mines overseas.

Manufacturing I expect also will look to move off shore depending on what concessions they are given.

Last Sunday was like any other with no major problems or increases in expenses.

I am interested to look back on the 01/07/2017 and compare prices. I think then we will be able to make a real comparison.

Prepay Your Private Health Insurance Now

By Jason Fittler

With the changes being introduced to Private Health and the reduction to the Government Rebate, please be aware that you can prepay your private health insurance before the end of June and still receive the Rebate.

For Medibank Private, you can prepay to 31st December 2013, provided you organise prior to 25th June 2012. You need to ring phone 132331 and wait in queue to receive a quote for the amount of time you wish to repay. You can then either pay online via Medibank site or via BPay and they will provide you with BPay and reference number.

For BUPA, you can prepay up to 14 months ahead. You need to ring 134135 and I assume the same type of thing will apply as above.

It is certainly worth looking into, if you haven't already. While you are on the phone, you may also wish to review the rebate percentage that you are entitled to, now that the rebate is means tested. The change that you make to the rebate percentage, (if any), would not commence then until you resume paying after the prepayment runs out.

If you are not with the above 2 funds, I'm sure your fund would have some similar options, you will just need to contact them.

The changes are as follow:

  1. If you earn under $84,000 per year then the rebate will be 30% if under age 65, 35% if between ages 65-69 and 40% if aged 70 or over.

  2. If you earn between $84,000 and $97,000 per year then the rebate will be 20% if under age 65, 25% if between ages 65-69 and 30% if aged 70 or over.

  3. If you earn between$97,000 and $130,000 per year then the rebate will be 10% if under age 65, 15% if between ages 65-69 and 20% if aged 70 or over.

  4. If you earn over $130,000 you will receive no rebate at all.

For couples simply double the above limits.

For more information please contact us on 07 4771 4577. 

End of the Tax Year

By Jason Fittler

It is that time again when you may need to focus on reducing your tax payable for the 2012 financial year.

Below are the things you need to do now, sure you can wait until the last minute and be upset with your adviser when it does not happen on time or you can act now and pay less tax this year.

  1. Make your concessional contributions to super. Make sure you have contributed up to your limits, under 50 $25,000 over 50 $50,000. This is very important for any self employed people. Remember 01/07/2012 is too late to claim the deduction.
  2. Check your capital gains tax position. If you have a capital gain then you should first check to see if you have any carried forwarded losses from previous years. Next look to sell out any under performing stocks in your portfolio to book the loss.
  3. Prepay interest on your investment loans. This does two things, it gets you a tax deduction in this year and second you normally receive a lower interest rate.
  4. Prepay your income protection insurance in advance.
  5. Make a co-contribution to super for your spouse. You put in $1,000 and the government gives you $1,000, as long as your spouse’s income is below $61,920.

If you take care of these things now you will have a smile on your face when you receive your tax refund.

Of course if you need any advice or help getting these things done, give us a call, 07 4771 4577.

End of Financial Year – List of Things to do

By Jason Fittler

Below is a list of financial matters to consider before the end of the financial year. Do these today and reduce the stress in the last weeks of June.

  1. Capital gains tax – it is time to look at your investments to see if you have any capital gains this year. If so then first see if you have any carried forward losses from the previous years which you can use to off set the gains. If not, then take a look at your investments to see if there are any shares you would look to sell to off set these gains. Be careful not to sell a quality share just to book the loss. Finally do not look to sell and buy back the same shares just to book the loss, the ATO will disallow these type of trades. 
  2. Concessional Contributions – these are the payments your employer makes to super and any salary sacrifice contributions you make. First make sure you have not exceeded your caps. If under age 50 it is $25,000 per annum, if over age 50 it is $50,000 per annum. Please note there are rules if you are over age 65 so make sure you check with your adviser first. If you have gone over your caps get it sorted before 30/06/2012. If you have not, think about making more deductible contributions to help reduce your taxable income and therefore the amount of tax you pay.
  3. Non Concessional Contributions - these are the payments you make from your after tax income. First make sure you have not exceeded your caps. You can make a maximum of $150,000 pa or $450,000 in a three year period. If you have gone over your caps get it sorted before 30/06/2012. If you have not, think about making more non-deductible contributions to increase your super balance in preparation for retirement.
  4. Co-Contribution - is a government initiative to help eligible individuals boost their super savings for the future. If you are a low or middle-income earner, you can take advantage of the super co-contribution payment by making eligible personal super contributions to your super fund or retirement savings account (RSA). The government will then match up to $1,000 of your personal super contributions. If you’re eligible, all you need to do is make personal super contributions to your super fund or retirement savings account and lodge an income tax return. The maximum super co-contribution payable, and the way we work out this amount depends on the income year in which you made your eligible personal super contributions, and whether your total income falls between the super co-contribution incomes thresholds for that year.
  5. Prepay Interest – if you have an investment loan you may consider prepaying the interest of the 2013 tax year. This will bring forward this expense into the 2012 tax year giving you a larger tax refund. This strategy is best for individuals on high incomes who want to reduce the amount of tax they pay. Note that this strategy only defers tax.
  6. Salary Sacrifice – it is time to speak with your employer and review your salary sacrifice strategy. If you are over age 50 and have been salary sacrificing up to your age based limit of $50,000 pa, then you need to reduce this back to $25,000 pa in line with the new caps as per the May budget of $25,000 for everyone.

Always make sure you speak to your adviser first before acting on any of the above ideas. It is important that you act in your own best interest and speaking with your adviser will give you peace of mind that you have not made a mistake.

For more information please contact us on 07 4771 4577. 

Standard Deduction for Work Related Expenses

By Jason Fittler

The Government has announced that it will also defer the introduction of a standard tax deduction for work-related expenses and the cost of managing tax affairs by 12 months until 1 July 2013. 

The measure, which was also first announced in the 2010 Federal Budget originally proposed to give people a standard deduction for work and tax management related expenses of $500 in 2012—13 and then $1,000 from 2013—14 onwards. 

Dependent Spouse Tax Offset Phase Out 

The Government has announced it will phase-out the dependent spouse tax offset for taxpayers with a dependent spouse born on or after 1 July 1952, from 1 July 2012. 

This measure extends on the 2011—12 Federal Budget announcement to phase-out the dependent spouse tax offset for taxpayers with a dependent spouse born on or after 1 July 1971. 

The Government has also announced that taxpayers who are eligible for the zone, overseas forces and overseas civilian tax offsets or whose spouse is an invalid, permanently disabled or a carer will not be affected by this change. 

Reform of Living Away From Home Allowances and Benefits 

The Government has announced it will amend the tax exemptions that apply to living-away-from-home allowances and benefits by: 

1. requiring individuals to substantiate their actual expenditure on accommodation, and food beyond a statutory amount; and 

2. Limiting access to the tax concession for temporary residents to those who maintain a home for their own use in Australia that they are living away from for work. 

This change will ensure that a level playing field exists between temporary residents and permanent residents. 

The Government has confirmed that these reforms will have no impact on permanent residents unless they are receiving living-away-from-home allowance in excess of their actual expenses. Employees who receive allowances for having to travel from their usual place of work for short periods will also not be affected by these changes. 

The reforms are proposed to apply from 1 July 2012 for both new and existing arrangements.

Limited Recourse Borrowing Arrangements (LRBA) for SMSF

By Jason Fittler

The ruling addresses two key issues:

  • what is a single acquirable asset
  • repairing versus improving an asset

The guidance is essential to ensure that trustees understand the limited recourse borrowing arrangement requirements. If an arrangement does not meet these requirements, it contravenes the borrowing prohibition and places at risk the SMSF's status as a complying super fund.

The key concepts are:

  • what is an 'acquirable asset' and a 'single acquirable asset'
  • distinguishing 'maintaining' or 'repairing' the acquirable asset from 'improving' it
  • when a single acquirable asset is changed to such an extent that it is a different (replacement) asset

An SMSF can borrow money to acquire a single acquirable asset that is held on separate trust under a limited recourse borrowing arrangement. Multiple assets cannot be held under the arrangement. It is necessary to consider both proprietary rights and the object of those proprietary rights to determine if the asset is distinctly identifiable as a single object, even if it has two or more separate proprietary rights. For example, a factory built across two titles would be a single acquirable asset.

As the money borrowed can also be used to repair or maintain, but not improve, the single acquirable asset:

  • an improvement substantially increases the value or functional efficiency of the asset
  • a repair corrects something that is already there and that is damaged, has become worn out or dilapidated, or has deteriorated
  • maintenance is preventative.

Borrowed money cannot be used to effect improvements. However, money from other sources can be used so long as the changes or improvements to the asset do not result in a different (replacement) asset. If a house is destroyed and another house is constructed from the insurance proceeds (so restoring the acquirable asset to land and a house) this would not result in a replacement asset. Thus the limited recourse borrowing arrangement can continue to operate.

Each draw-down (for example, for repairs) under a limited recourse borrowing arrangement is a separate borrowing but satisfies the limited recourse borrowing arrangement provisions as long as the arrangement as a whole satisfies the provisions. However, borrowings solely to fund repairs to an asset that the SMSF already owns would not satisfy the limited recourse borrowing arrangement provisions.

For more information please call us on 4771 4577.