WSC Caringbah E-News – January 2010

Has your 2009 Tax Return been Lodged?

If not, and if you haven’t already provided your information to us, we suggest you give us a call soon and make an appointment and prevent a last minute rush. To ensure you gather the right information for your tax return, we have provided Checklists on our website. 

We love Referrals!

We are always keen to take on new clients who appreciate high quality service and pro-active advice.  If you know anyone who is looking for a new accountant, be it a business owner, salary earner, or investor, please pass on our details to them.  We are always happy to provide a free initial introduction meeting for new or prospective clients. 

Fringe Benefits Tax – Is your Business Exposed in the event of a Tax Audit?

Do you own or manage a business that employs people (including directors) and where any of the following may apply:

• Own or lease motor vehicles (generally includes all vehicles except for trucks and other vehicles designed to carry more than one-tonne or more than 8 passengers which are used principally for business);
• Incur entertainment expenses (other than Christmas party costs under $300 per employee);
• Private expenses paid for any employees and treated as an operating expense (even if there is no intention to claim as a deduction). These may include Private Health Fund costs, Life Insurance premiums, sporting club memberships or goods given to employees or sold at less than market value;
• Loans or advances are made to employees for non-work related purposes;

Some exemptions or exclusions apply to the above types of fringe benefits but it is important that all employers are aware of the rules and requirements in declaring fringe benefits.  Please contact us if you are unsure or would like to know more.  The ATO audits are heating up in this area so it is definitely better to be safe than sorry.

Key Dates

Thursday 21 January:

• Due date for lodgement and payment of Quarterly PAYG instalment activity statement (quarter 2, 2009-10)
• Due date for lodgement and payment of December 2009 monthly activity statement

Thursday 28 January: 

• Super guarantee contributions for quarter 2, 2009-10. Employers must make contributions to the fund by this date.

Do you Own Property or hold any Investments Overseas?

Under Australian Tax Law, residents of Australia (for tax purposes) are required to declare income from all sources whether it is derived from Australia or overseas.  There are some exemptions and special rules apply to temporary residents of Australia. To prevent double taxation, any tax paid on income derived overseas will generally be allowed as a tax credit in Australia.

Car Expenses claimed by Individuals

Generally, taxpayers must choose one of the following four methods for claiming car expenses (unless an exception applies):
• Cents per kilometre method;
• Log book method;
• One-third of actual expenses method;
• 12% of original value method.

Each method has different record keeping requirements and the taxpayer can choose the one method that gives the highest claim. The method chosen can also change from year to year, provided substantiation requirements are met.

The rules apply to the following vehicles (including four wheel drive vehicles):

• Motor cars, station wagons, panel vans, utility trucks or similar vehicles; and
• Any other load vehicle designed to carry a load of less than one tonne or fewer than nine passengers.

When using the log book method or One-third of actual expenses method you must keep odometer readings for the start and end of the period you owned or leased the car in the income year (ie. when you bought it, sold it and/or at 30 June each year).

Business kilometres are those kilometres travelled by the car in the course of producing assessable income or travelling between workplaces.  The number of business kilometres is calculated by making a reasonable estimate. 

If the car travelled less than 5,000 business kilometres a year, you are limited to using the Cents per Kilometre method or the Log Book method.

For more information on all of the methods, click on the following ATO links:

• Cents per kilometre method http://www.ato.gov.au/print.asp?doc=/Content/33874.htm
• Log book method http://www.ato.gov.au/print.asp?doc=/content/33886.htm
• One-third of actual expenses method http://www.ato.gov.au/print.asp?doc=/content/33878.htm
• 12% of original value method http://www.ato.gov.au/print.asp?doc=/content/33876.htm

Government has received Henry Tax Review

The Government has received the report of the Australia's Future Tax System review team which was headed by Dr. Ken Henry. It is claimed that the report will provide the foundations for a long-term plan for reform, to make the Australian tax and transfer systems fairer, simpler and more competitive.

According to the Government, the community provided around 1,500 formal submissions and over 4,700 letters to the review team and participated in discussion forums held around the country.

Government will consider the review and release it in early 2010, along with an initial response.

Superannuation – Avoiding Excess Contributions Tax

The halving of the superannuation concessional contributions cap from 1 July 2009 means that more individuals are now at risk of inadvertently breaching their annual cap. “Concessional Contributions” are contributions, which are included in the assessable income of the receiving superannuation fund, for example, employer contributions for superannuation guarantee purposes, salary sacrifice contributions and deductible personal contributions.

The reduction in the concessional contributions cap to $25,000 ($50,000 for those aged 50-74) will also have significant flow-on implications for some of the more generous superannuation concessions. Therefore, it is necessary to review salary sacrificing arrangements, transition to retirement pensions and deductible personal superannuation contributions, which are only tax-effective where an individual is within his or her (reduced) concessional contributions cap.

Individuals which exceed their cap, face being held personally liable to pay an extra 31.5 per cent tax (or more) on any excessive superannuation contributions.
This annual cap on ‘concessional contributions’ applies on a per person basis, irrespective of the number of employers contributing on behalf of the person. If a person has more than one superannuation fund, contributions made to each fund on behalf of the member in a financial year are aggregated and counted towards the cap.

Excess concessional contributions tax of 31.5 per cent is levied on the individual (on top of the original 15 per cent contributions tax paid by the fund). However, an individual is able to withdraw from their superannuation fund an amount to meet the tax liability.

For example, John is self employed. He is aged 49 so his concessional cap is only $25,000 per year.  His net business income for the 2010 year is $110,000 before super. He decides to contribute $50,000 into super and claim the full amount as a tax deduction bringing his taxable income down to $60,000. The tax implications are in claiming $50,000 super as a deduction, he has saved personal tax of $18,300 although the contribution will be subject to 15% tax or $7,500. As he has exceeded his concessional contribution cap by $25,000, this will be subject to an additional Excess Contributions Tax of 31.5% or $7,875. So the net tax benefit of claiming $50,000 in super is only $2,925 ($18,300 - $7,500 - $7,875). If he had limited his deduction to $25,000, the net tax benefit would be $6,125 ($3,200 more).

The Commissioner is required to make an excess contributions tax assessment in relation to a financial year and give the taxpayer written notice of the assessment as soon as practicable after it is made. The Commissioner can also issue an amended assessment within four years after the original assessment.

Excess contributions tax must be paid within 21 days after the Commissioner has given the person the notice of assessment. GIC is also payable on unpaid amounts starting from the day the excess contributions tax was due to be paid. However, the Commissioner may remit GIC under the Tax Office’s remission guidelines.

While the excess contributions tax regime has been in operation since July 2007, taxpayers are now only just starting to see the full implications of this new excess contributions tax. This is because there is a lag in the time it takes for the Commissioner to get the contributions data for a financial year to determine if a taxpayer has breached his or her contribution limits.