WSC NEWS - JUNE 2010

Superannuation
Easy Ways to Reduce Tax
Stock take Reminder
Log Book Reminder
Last Call from 2011 PAYG Variation Applications
Capital Gains Tax "CGT" Record Keeping
Political Donations no Longer Deductible for Businesses
How does Company Tax affect Shareholders?

• The 2009/2010 year concessional (deductible) contributions cap is now limited $25,000 or $50,000 for people aged over 50.  Exceeding the cap may result in additional tax levied at 31.5% on the excess.
• In order to obtain a deduction for superannuation for the 2010 income year, the contribution must be paid by 30 June.
• To deduct personal contributions to super funds, individuals cannot derive more than 10% of their income from employment.  You should consult with your accountant to ensure you are eligible for a deduction before making a personal super contribution.
• Non-concessional (non-deductible) contributions of up to $1,000 are matched by the Government with a co-contribution of the same amount made for people earning less than $31,920, phasing out when the individual reaches an income level of $61,920.
• From 2010 year onward, employers must report on PAYG Payment Summaries reportable superannuation contributions (eg. salary sacrificed super) which are contributions in excess of the amount required under the Super Guarantee Legislation or industrial award.
• June 2010 quarter super guarantee contributions must be paid into a complying fund by no later than 28 July in order to claim a deduction and avoid penalties and interest charges.

• Donations to tax-deductible gift recipients
• Business or Work-related Subscriptions or fees
• Printing & Stationery
• Protective clothing
• Promotional products
• Necessary repairs to business assets (cars, computers, etc) or rental properties
• If you operate a small business with a turnover under $2 million, you might be able to claim an immediate deduction for the cost of certain assets under $1,000.

• If your business accounts for income based on invoice date, review and write off any bad debts prior to 30 June and don’t forget to adjust for any GST impact correctly
• If any directors or employees are likely to receive bonuses in respect of the 2010 financial year trading performance, it may be worth conducting director or shareholder meetings before 30 June and approve bonuses to be paid after 30 June. So long as the payment amount is documented by a minute or agreement before the end of the year, it does not have to be made until after June in order to claim a deduction for 2010.

Stock take reminder 

Log Book Reminder

If you have previously relied on a log book to claim business portion of car expenses, ensure your log book is less than 5 years old and that you record the odometer reading at 30 June each year.  If your log book is older than 5 years or you would like to claim business portion of car expenses for the 2010 income year for the first time, your log book must be commenced before the end of June 2010.

If you have a negatively geared rental property or large tax deductions each year and would like the tax withheld from your wage or salary to better reflect the appropriate tax payable for the 2011 income year so that you get your refund sooner rather than later, please contact Ashley Bricknell of our office today to arrange a PAYG Variation Form to be completed and lodged with the Tax Office before the end of June.

The Commissioner has issued a fact sheet providing taxpayers with a timely reminder in relation to the documentation that needs to be kept with a CGT event is triggered.  Although its title refers to small business, the fact sheet is useful for a wide variety of taxpayers.

Documentation would need to be kept for the following:-

1. A purchase contract showing the date and cost of an acquisition made by a taxpayer.
2. A sale contract showing the date of disposal and the proceeds they received on that disposal of a particular asset.
3. Commissions they paid or legal expenses they incurred in relation to the acquisition or disposal of a CGT asset.
4. Improvements made to a CGT asset, for example, their building costs.

Taxpayers must keep the above records for a period of 5 years after the sale of a CGT asset, unless they keep an asset register.

Where a taxpayer has utilised a net capital loss, they should keep records of the CGT event that triggered the capital loss for four years from the income year in which the net capital loss was fully utilised.

Legislation has now passed abolishing tax deductions for donations to political parties and independent candidates and members.

Businesses will no longer be able to deduct political donations, either under the existing $1,500 capped specific deduction in the tax law, or as a general business deduction.

The measure applies retrospectively from 1 July 2008, meaning businesses will not be able to deduct their political donations from that day.

Individual taxpayers will still be able to claim deductions for donations to political parties and independent candidates and members up to the $1,500 cap.

In the recent Federal Budget, the Government announced that they plan to reduce the company tax rate from 30% to 28%.  Any tax cut sounds like a good thing but will this really help company owners (shareholders)?

In order to answer this, we need to understand what happens to company profits after company income tax is paid.   If a company makes a taxable profit of $100,000, it would currently pay $30,000 tax and be left with $70,000 in after-tax profits. However, shareholders can only get their hands on these profits by increasing their wage (which would reduce company profits, impact on compulsory superannuation, workers comp insurance and possibly payroll tax); or borrow from the company (and would need to ensure Division 7A regulations are complied with such as a loan agreement, etc); or declare a dividend out of retained profits.

How company dividends are taxed in the hands of the shareholders will depend on whether they are fully franked, partially franked or unfranked.  A “Franked dividend” is a dividend paid by a company out of profits on which the company has already paid tax.  The investor is entitled to an imputation credit, or reduction in the amount of income tax that must be paid, up to the amount of tax already paid by the company. 

Generally, a company cannot pay a franked dividend until company tax is paid on those profits that are being distributed to shareholders.

For example, using the above example, if in year 2 the company paid a fully franked dividend to a shareholder of $70,000, the shareholder would need to declare $70,000 dividend plus the franking credit (imputation credit) of $30,000, resulting in assessable income of $100,000.  This income would be added to any other assessable income less deductions to determine the taxable income which in turn would determine the gross tax.  If the dividend income fell within the 38% tax rate, gross tax of $39,500 would be payable (including the 1.5% Medicare Levy) less the franking credit of $30,000, resulting in net tax payable on dividend income of $9,500. Based on a 46.5% tax rate, this tax would be $16,500.

So even though the company had already paid tax on the company profits, quite often there is additional tax to pay by shareholders in accessing the profits out of the company by dividend.

Further, any reduction in company tax rates would have absolutely no impact on the net tax payable by a shareholder under the above scenario.  It may however affect the amount of dividends received by shareholders in public companies.

An Important Message
While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.