Autumn 2002 Newsletter

FEDERAL BUDGET 2010

Following are the main tax measures announced in last month’s Federal Budget, in addition to those already announced as part of the response to the Henry Review (see over the page).

50% discount on tax on interest income

From 1 July 2011, individual taxpayers will be provided with a 50% tax discount on up to $1,000 of interest earned, including interest earned on deposits held in authorized deposit taking institutions, bonds, debentures and annuity products.

Increase in the net medical expenses tax offset claim threshold

From 1 July 2010, the Government will increase the threshold above which a taxpayer may claim the 20% net medical expenses tax offset from $1,500 to $2,000, and will commence annually indexing the threshold to the CPI from 1 July 2011.

Changes to First Home Saver Accounts

The First Home Saver (‘FHS’) initiative will be made more flexible and allow savings in an FSA account to be paid into an approved mortgage after the end

of a minimum qualifying period, rather than requiring it to be paid to a superannuation account.

Currently, an FHS account holder is required to keep their savings in an FHS account for four financial years before they are able to use those savings to buy a home. If the account holder buys a home prior to the end of that four year period, the balance of their FHS account must be transferred to their superannuation so that it remains in a concessionally taxed environment.

Changes to the super-co-contribution

The Government has announced the following two changes to the superannuation co-contribution:

v the matching for the co-contribution will be permanently retained at 100% or $1 for each $1 contributed (rather than 150% or $1.50), which means that the maximum co-contribution that is payable on an individual’s eligible personal non-concessional superannuation contributions will stay at $1,000 (rather than $1,500); and

v the income thresholds for the superannuation co-contribution will be frozen for 2010/11 and 2011/12, meaning the maximum co-contribution (of up to $1,000) will continue to only be available to people with incomes of up to $31,920 (the amount available then phases out for incomes up to $61,920).

Editor: Super fund members who are eligible to receive the Government’s super co-contribution need to ensure they make their contributions before 30 June 2010 if they want to receive their entitlement for the 2009/10 income year.

To be eligible to receive a co-contribution, a taxpayer’s ‘total income’ (assessable income plus reportable fringe benefits and reportable employer super contributions) must be less than $61,920, and at least 10% of that total income must be from employment (e.g., salary and wages) or business activities.

THE HENRY REVIEW

The Government also released the report of the inquiry by the Treasury Secretary, Dr Ken Henry, into the entire tax system, and the Government’s initial response to it.

Further initiatives announced include:

§ From 1 July 2012, a Resource Super Profits Tax (‘RSPT’) will be introduced at a rate of 40% on profits made from the exploitation of Australia’s non-renewable resources;

§ The company tax rate will be reduced to 28% (from the 2012/13 income year for eligible small business companies, and from the 2014/15 income year for other companies);

§ From 1 July 2012, small businesses will be able to immediately write-off assets costing less than $5,000 and depreciate all other assets (except buildings) in a single depreciation pool at a rate of 30%;

§ The superannuation guarantee (SG) contribution rate will be increased to 12% (from the current 9%) by 2019/20, with gradual increases commencing on 1 July 2013;

§ From 1 July 2013, the SG age limit will be increased to 75 years (currently 70 years), which means that employees aged 70 to 74 will generally be eligible to have SG contributions made on their behalf;

§ From 1 July 2012, the Government will match concessional contributions (i.e., basically deductible contributions) which are made by or for the benefit of individuals with adjusted taxable incomes of up to $37,000 at the rate of 15% for each $1 of concessional contributions, with an annual maximum amount payable of $500; and

§ From 1 July 2012, individuals aged 50 or above with superannuation balances below $500,000 will have a concession contributions cap of $50,000 (effectively extending the existing transitional concessional contributions cap for such individuals).

Editor: The Government said it would not accept some Henry recommendations, such as reducing the 50% CGT discount, discounting negative gearing deductions, or abolishing the luxury car tax.

However, it has left some on the table, including recommendations to tax fringe benefits and employer superannuation contributions in the hands of employees, making it more difficult to claim personal tax deductions, and removing important small business concessions (such as the 50% active asset reduction and the 15 year exemption) and a range of concessional tax offsets (such as the medical expenses tax offset).

DATA MATCHING AND

THE CASH ECONOMY

Editor: The Tax Office is ramping up its efforts to catch out the cash economy and individuals who are using overseas jurisdictions to hide their money.

Background: How the ATO is catching up with the Cash Economy

Cash economy businesses, which are being targeted by the Tax Office, often ‘skim’ some or all of their cash takings, run part of their business off the books or don’t report all their income.

The ATO uses its data matching programs to gather information from a variety of sources and cross match it with taxpayer information and the Tax Office’s small business benchmarks to identify businesses which have not reported all their income.

Recently, the Tax Office has commenced four new data matching programs:

o Merchant Payment Cards Project – data matching merchant card sales through the CBA; Westpac; ANZ; and NAB. 300,000 individuals within cash economy industries will be matched.

o Plasterers Project – collecting details of taxpayers that have purchased plasterboard, etc., in NSW from Boral Ltd, CSR Limited and La Farge Plasterboard Pty Ltd. 10,000 individuals will be matched.

o Motor Vehicle Data Matching Project – collecting details of taxpayers that have purchased or acquired a motor vehicle valued at $10,000 or higher from the relevant road traffic authority in every State and Territory, e.g., Vic Roads, Transport SA, etc. Approximately 2.5 million individuals will be matched.

o Banking Transparency Strategy – collecting data and intelligence on Australian

tax payers that have offshore accounts in jurisdictions that are of interest to the ATO.

Transactions through (basically) every major financial institution in Australia, including the big four banks, International Financial Institutions and Credit Card providers such as American Express, Diners Card, Master Card and Visa will be reviewed. In excess of 100,000 taxpayers will be targeted.

INDUSTRY BENCHMARKS AND

THE CASH ECONOMY

Editor: The second string to the Tax Office’s assault on the cash economy is using industry benchmarks.

These benchmarks provide a snapshot of what, on average, the Tax Office believes is happening in businesses operating in a particular industry by comparing various costs to turnover.

However, those of us who thought that the benchmarks would apply only to the traditional cash economy targets, i.e., building and construction and restaurants/café’s, cleaners, etc., will be sorely disappointed with the new list of industries to be targeted.

Benchmarks to be published

The following is a list of soon to be published benchmarks issued by the Tax Office.

· Architectural Services

· Automotive Electrical Services

· Cabinet Makers

· Child Care Services

· Chiropractic and Osteopathic Services

· Confectionary Retailing

· Craft Shop

· Discount and Variety Stores

· Electrical, Electronic and Gas Appliance Retailing

· Entertainment Media Retailing

· General Dental Services

· Gift Shops

· Health and Fitness Centres & Gymnasia Operating

· Health Food Retailing

· Lawn Mowing Services

· Machinery Equipment Repair & Maintenance

· Musical Instruments Retailing

· Physiotherapy Services

· Picture Framing

· Printing

· Printing Support Services

· Specialist Dental Services

· Sport & Camping Equipment Retailing

· Sports & Physical Recreation Instruction

· Veterinary Services

Editor: Clients concerned that their industry is being targeted may wish to contact our office.

CENTS PER KM CAR RATES FOR 2009/10

Taxpayers whose income producing use of a car does not exceed 5,000 kms per year can deduct car expenses on a per km basis. The rates for 2009/10 are as follows:

Kind of

car

Engine capacity

Not rotary

Engine

capacity

Rotary

Rate per

Km (cents)

Small

Up to

1,600cc

Up to

800

Medium

1,601cc

2,600cc

801cc to

1,300cc

Large

>2,600

>1,300

STAFF PROFILE – VIVIENNE MASON

We are pleased to report that Vivienne has recently completed 10 years service with Hall Jackson Pty Ltd. Vivienne is our Banklink expert and can assist you with all your Banklink queries. If you would like to know how Banklink can assist your business there is a Banklink presentation on our website. Just go to www.halljackson.com.au and click on Banklink on the right hand side on first page.

HALL JACKSON SERVICES

We would like to remind our clients that we offer the following services through referral to our valued contact

Financial planning, investment and retirement advice;

Business succession, estate planning and risk insurance; and

Residential and commercial lending (including short-term financial), asset purchase and refinancing.

Please contact our office if you would like to discuss any of the above services. A full list of services can be found on our website at www.halljackson.com.au

QUOTE FOR THE SEASON

“ Ability is what your capable of doing.

Motivation determines what you do.

Attitude determines how well you do it .”

- Lou Holtz -