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May 2015 Newsletter
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Client Alert: May 2015

Year End Tax Planning

The year-end is rapidly approaching and you may not be aware that, based on changes announced in Budget, your 2015 tax position may change compared to previous years.  We have listed on the following the major changes that could affect most taxpayers in 2015 and future financial years.
Matters to Consider
Effective for 2015 Financial Year
  • Small businesses (aggregated turnover of less than $2 million) will be able to immediately deduct assets they start to use or install ready for use, provided the asset costs less than $20,000 (currently, an immediate write-off is generally available for assets costing less than $1,000). This will apply for all (new and second hand) assets acquired and installed ready for use between 7.30pm (AEST) 12 May 2015 and 30 June 2017
  • Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed in the small business simplified depreciation pool (‘the pool’) and depreciated at 15% in the first income year and 30% each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools).  
Effective from 1 July 2015
  • Reduction in company tax rate – The company tax rate will be reduced to 28.5% (i.e., a reduction of 1.5%) for companies with aggregated annual turnover of less than $2 million. Companies with an aggregated annual turnover of $2 million or above will continue to be subject to the current 30% rate on all their taxable income.. Note that, the current maximum franking credit rate for a distribution will remain at 30% for all companies, maintaining the existing arrangements for investors, such as self-funded retirees.
  • 5% discount on tax payable for other taxpayers – Individual taxpayers with business income from an unincorporated business that has an aggregated annual turnover of less than $2 million will be eligible for a small business tax discount. The discount will be 5% of the income tax payable on the business income received by an unincorporated small business entity. The discount will be capped  at $1,000 per individual for each income year, and will be delivered as a tax offset.
  • Modernising the existing car expense claim methods - From the 2015/16 income year, the government will modernise the methods of calculating work-related car expense deductions, as follows:
    • The ‘12 per cent of original value method’ and the ‘one-third of actual expenses method’ (which are used by less than 2% of those who claim work-related car expenses) will be removed.
    • The ‘cents per kilometre method’ will be modernised by replacing the three current (cents per kilometre) rates based on engine size, with one rate set at 66 cents per kilometre (in respect of all cars). The Commissioner will be responsible for updating the rate in following years.
  • Zone Tax Offset (‘ZTO’) will exclude ‘fly-in fly-out’ and ‘drive-in drive-out’ workers (‘FIFO/DIDO workers’) - From 1 July 2015, the government will exclude FIFO/DIDO workers from the ZTO where their normal residence is not within a particular ‘zone’. Furthermore, for those FIFO/DIDO workers whose normal residence is in one zone, but who work in a different zone, they will retain the ZTO entitlement associated with their normal place of residence.
  • Immediate deduction for professional expenses on commencing a new business - From 1 July 2015, the government will allow businesses to claim an immediate write-off for a range of professional expenses associated with starting a new business, such as professional, legal and accounting advice (currently deducted over 5 years period).
  • Release of superannuation for terminal medical condition - From 1 July 2015, the government will extend access to superannuation for people with a terminal medical condition by extending the certification period (i.e., the period within which the individual is likely to die) to two years. This will give terminally ill patients earlier access to their superannuation entitlements.

Effective from 1 July 2016 and later years
  • CGT roll-over relief for changes to entity structure - From 1 July 2016, the government will allow small businesses with an aggregated annual turnover of less than $2 million to change legal structure without attracting a CGT liability at that point. This measure recognises that new small businesses might choose an initial legal structure that they later find does not suit them when the business is more established.
  • Accelerated depreciation for primary producers - For income years commencing on or after 1 July 2016 the government will allow all primary producers to:
    • immediately deduct capital expenditure on fencing and water facilities such as dams, tanks, bores, irrigation channels, pumps, water towers and windmills; and
    • depreciate all capital expenditure on fodder storage assets such as silos and tanks used to store grain and other animal feed over three years.
  • Transition period to apply new tax system for managed investment trusts (‘MITs’) - By way of background, the former government announced that a new tax system was to be put in place for MITs. Some features of the proposed system were the introduction of an elective “attribution” system of taxation to replace the present entitlement system and the introduction of a 5% cap to deal with “over or under” distributions so that trusts are not required to reissue statements and investors are not required to revisit tax returns. The 2015/16 Federal Budget confirms the current government’s intention to proceed with the implementation of a new tax system for MITs with a twelve month transition period. The modernised tax rules will now apply from 1 July 2016 (i.e., the 2017 income year), although MITs can choose to apply them from the earlier start date of 1 July 2015.
  • Changes to residency rules for temporary working  - from 1 July 2016 most people who are temporarily in Australia for a working holiday will be treated as non-residents for tax purposes, regardless of how long they are here. This means they will be taxed at 32.5% from their first dollar of income (up to $80,000). Currently those who in Australia for more than six months and satisfied residency rules, are able to access the tax-free threshold, the low income tax offset and the lower tax rate of 19% for income above the tax-free threshold up to $37,000.
  • FBT exemption for work-related electronic devices - From 1 April 2016, the government will allow an FBT exemption for small businesses (with an aggregated annual turnover of less than $2 million) that provide employees with more than one qualifying work-related portable electronic device, even where the items have substantially similar functions. It appears that, consistent with the current rules, the FBT exemption will only apply if the relevant item is primarily for use in the employee’s employment. Removing the restriction that a tax exemption is only provided for one work-related portable electronic device of each type will remove confusion where there is a function overlap between different products (such as between a tablet and a laptop).
  • FBT – Capping threshold for salary sacrificed meal entertainment and entertainment facility leasing expenses (‘EFLEs’) - From 1 April 2016, the government will introduce a separate single grossed-up cap of $5,000 for salary sacrificed meal entertainment and EFLEs (meal entertainment benefits). Where these benefits exceed the separate grossed-up cap of $5,000, they can also be counted in calculating whether an employee exceeds their existing (relevant) cap. Furthermore, all meal entertainment benefits will become reportable.
  • Recovery of HELP repayments from overseas debtors - The government will extend the Higher Education Loan Programme (‘HELP’) repayment framework to debtors residing overseas for six months or more if their worldwide income exceeds the minimum repayment threshold at the same repayment rates as debtors in Australia. The new arrangements will apply from 1 January 2016 to new and existing debts. From this date, debtors going overseas for more than six months will be required to register with the ATO, while those already overseas will have until 1 July 2017 to register. Repayment obligations will commence from 1 July 2017.
  • Changes to Parental Leave Pay (‘PLP’) - From 1 July 2016, the government will remove the ability for individuals to 'double dip’, by taking payments from both their employer and the government. The government will ensure that all primary carers would have access to parental leave payments that are at least equal to the maximum PLP benefit (currently 18 weeks at the national minimum wage).
  • Child care (workforce participation stream) - A new single Child Care Subsidy (‘CCS’) will be introduced on 1 July 2017. Families meeting the activity test with annual incomes up to $60,000 (2013/14 dollars) will be eligible for a subsidy of 85% of the actual fee paid, up to an hourly fee cap. The subsidy will taper to 50% for eligible families with annual incomes of $165,000.

    The CCS will have no annual cap for families with annual incomes below $180,000. For families with annual incomes of $180,000 and above, the CCS will be capped at $10,000 per child per year. Eligibility will be linked to a new activity test.

    The CCS will replace the current child care fee assistance provided by the Child Care Benefit, Child Care Rebate and the Jobs, Education and Training Child Care Fee Assistance payments which will cease on 30 June 2017.

    Additional support will be provided to eligible disadvantaged or vulnerable families through the introduction of a ‘Child Care Safety Net’.
    Furthermore, the 2015/16 Federal Budget announces the introduction of a new Interim Home Based Carer Subsidy Programme, which is a limited pilot programme to subsidise care provided by a nanny in a child’s home from 1 January 2016.
  • Change to the asset test thresholds for the aged pension - The government will increase the asset test thresholds at which pensions are reduced once the threshold is exceeded, as follows:
  • For a single person – a full pension may be received if the relevant value of included assets (i.e., assets other than excluded assets) is less than $250,000 for a homeowner (currently $202,000).
  • For a pensioner couple – a full pension may be received if the relevant combined value of included assets is less than $375,000 for a homeowner (currently $286,500).
  • Non-home owner pensioners will also benefit by an increase in their threshold to $200,000 more than homeowner pensioners.
However, the current ‘taper rate’ at which the age pension begins to phase out will be increased from $1.50 to $3 for every $1,000 of assets over the relevant assets test threshold.

Pensioners who lose pension entitlements on 1 January 2017 as a result of these changes will automatically be issued with a Commonwealth Seniors Health Card or a Health Care Card for those under Age Pension age.
  • Income tax relief for Australian Defence Force personnel deployed overseas - The government will provide income tax relief for Australian Defence Force personnel deployed on Operations AUGURY and HAWICK. A full income tax exemption will be provided to personnel on Operation AUGURY and the overseas forces tax offset will be available to personnel on Operation HAWICK.
  • Cessation of the Large Family Supplement of Family Tax Benefit (FTB) Part A and reduced portability – The government will cease payment of the additional FTB Part A Large Family Supplement from 1 July 2016. Families will continue to receive a per child rate of FTB Part A for each eligible child in their family. The government will also reduce the amount of time FTB Part A will be paid to recipients who are outside Australia. Currently, FTB Part A recipients who are overseas are able to receive their usual rate of payment for six weeks and then the base rate for a further 50 weeks. From 1 July 2016, families will only be able to receive FTB Part A for six weeks in a 12 month period while they are overseas.
  • Medicare levy low income thresholds for 2014/15 - For 2014/15, the Medicare Levy low income thresholds will be as follows:
    • Individuals $20,896 (previously $20,542
    • Families $35,261 (previously $34,367)
The families income threshold (i.e., $35,261) will be increased by $3,238 (previously $3,156) for each dependent child or student. For single seniors and pensioners, the threshold will be increased to $33,044 (previously $32,279).
  • Research and Development (‘R&D’) tax incentive – introducing a $100 million expenditure cap from 1 July 2014

    Currently, under the R&D tax incentive, companies can claim a refundable tax offset of 43.5% if their turnover is less than $20 million, or a non-refundable tax offset of 38.5%.

    The government has introduced a cap of $100 million on the amount of eligible R&D expenditure for which companies can claim a tax offset at a concessional rate under the R&D tax incentive. Expenditure beyond the $100 million cap will receive a lower offset at the company tax rate.

    These changes apply in relation to assessments for income years commencing on or after 1 July 2014. This measure also includes provisions for the changes to be reviewed five years following Royal Assent and to sunset 10 years following the start date of 1 July 2014.

Year End Tax Planning Strategies

The following year end tax planning strategies may warrant careful consideration:
  1. Estimate Tax Payable and Timing - Determine your financial position prior to 30 June and determine cash flows available to pay tax.
  2. Defer Tax – defer the derivation of income to the 2016 year and prepay 2016 year expenses.
  3. Deemed Dividends - Review director’s loans and unpaid trust distributions and determine possible tax implications.
  4. Budgets – Review business operations for the last year and forecast impact of future business growths.
  5. Record Keeping – Review of record keeping and classifications of transactions in accounting systems.
In order for your tax planning to be effective your records must be kept up to date and you should inform us of any known or expected changes that might affect your personal or business tax position, such as a different employment status, expansion of the business or purchase or sale of assets.
We are offering you to consider undertaking 2015 year end tax planning and to discuss potential tax saving options available before the 30 June 2015.
We may be able to identify some tax opportunities in order improve your 2015 tax position and to assist you with the future cash flows regarding the payment of your 2015 tax bill.
If you would like us to undertake such a review would you please respond via email or call us to discuss tax planning options available to you

Year End Tax Planning

SMSF - Things to consider before 30 June 2015

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SMSF - Things to consider before 30 June 2015
With 30 June nearly here there are many things that Self Managed Superannuation Fund (SMSF) Trustees must consider before this date if they want to maintain a complying superannuation fund as well as take advantage of the many tax benefits available to them.  Please contact us to take advantage of these as well as many more that are available.
1.  Valuation of your SMSF’s assets   
It is a requirement under the superannuation law that the assets in your SMSF be valued each financial year. This is so that your accountant can record the market value of the assets in the SMSF’s 2014/2015 financial statements for income tax purposes and your SMSF auditor can verify that you have not contravened various provisions of the income tax and superannuation laws. The superannuation law does not require that you use a qualified independent valuer, as long as the valuation that you have arrived at is based on objective and supportive data. The ATO has published two documents on its website - “Valuation guidelines for SMSFs” and “Market valuation for tax purposes” that addresses how assets should be valued. 
2.  Contributions into your SMSF  
If you are intending to make contributions into your SMSF, you need to make sure the contributions are received by your SMSF on or before 30 June 2015 in order for it to be counted in the 2014/2015 financial year. This is important if you are making contributions by electronic funds transfer (EFT) as some transactions may not be credited into your SMSF’s bank account until the next working day. 
3.  Don’t exceed your contribution caps  
You will need to ensure that you do not exceed the contributions caps. If you are making a non-concessional contribution, check that the non-concessional contributions made during the previous three (3) financial years are reviewed so that the two year bring forward provision has not been triggered in an earlier year. If it has it will affect the amount you can contribute in the current financial year.
The contribution caps for the current financial year (i.e. 1 July 2014 to 30 June 2015) are:
Contribution type
Age of the member
Contribution cap
Concessional contribution
Concessional contribution
Aged 49 or over on 30 June 2014
 Non-concessional contribution 
 Non-concessional contribution 
 Under 65 at any time in the 1st year 
 * $540,000 for 3 years 

*Please remember that only people who are under aged 65 at any time in the first year of contribution can bring forward two (2) years of non-concessional contributions and make three years worth of non-concessional contributions (i.e. a total of $540,000) in one year or over three consecutive financial years. If the two year bring forward rule had been triggered prior to 1 July 2014, then the maximum non-concessional contributions a person can contribute is limited to $450,000 (i.e. pre 2014/2015 non-concessional contribution cap) over the three (3) consecutive years.
4.  Employer contributions received by your SMSF  
Employer Superannuation Guarantee (SG) contributions are treated as concessional contributions. Employers are required to make SG contributions by the 28th day of the month following the end of the quarter in which an employee’s salary was earned. Therefore, an employee’s SG contribution for the June 2014 quarter (i.e. last financial year) may have been received by your SMSF around 28 July 2014 (i.e. current financial year). This means you need to include the SG contribution received in July 2014 in your concessional contribution cap for the 2014/2015 financial year.
Also, if you are an employer and you wish to claim a tax deduction for SG contributions made for your employees for the June 2015 quarter in the 2014/2015 financial year, then you will need to make sure those contributions are received by your employees’ superannuation funds by 30 June 2015. If they are received by your employees’ superannuation funds after 30 June 2015, you cannot claim the deduction in this financial year. The minimum SG contribution percentage required to be provided by employers for eligible employees for the 2014/2015 financial year is 9.50%.  
5.  Salary sacrifice contributions received by your SMSF   
If you have a salary sacrifice arrangement (SSA) with your employer to sacrifice your pre-tax wages for superannuation contributions, those SSA contributions are treated as concessional contributions. Therefore, check your records before contributing more concessional contributions into your SMSF to avoid exceeding your concessional contributions cap.
6.  Claiming a tax deduction on your personal superannuation contributions made into your SMSF   
You may be able to claim a tax deduction on your non-concessional contributions made into your SMSF. First check the eligibility rules. The deduction is normally restricted to self-employed people and people who either do not receive any superannuation support (e.g. retirees) or receive very limited superannuation support from their employer. They must also be aged under 75. If you are 75 years or older, you can only claim a deduction for contributions you made before the 28th day of the month following the month in which you turned 75. 
If you are eligible and intending to claim a tax deduction you will need to lodge a “Notice of intention to claim a tax deduction” with your SMSF trustee before you lodge your personal income tax return. Your SMSF trustee must also provide you with an acknowledgement of your intention to claim the deduction. The amount claimed as a deduction will then change the character of your original non-concessional contribution into a concessional contribution.  Don’t forget that the maximum amount of deduction you can claim is limited to your assessable income. Therefore, you may not be able to claim the maximum concessional contribution limit of $30,000 or $35,000.
7.  Spouse contributions into your SMSF   
If you are intending to make non-concessional contributions for your spouse, you will need to make sure the contributions are received by your SMSF on or before 30 June 2015 in order for you to claim a tax offset on your contributions. The maximum tax offset that you can claim is eighteen per cent (18%) of non-concessional contributions of up to $3,000 (i.e. $3,000 x 18% = $540 maximum claimable). However, in order for you to be able to claim the maximum tax offset your spouse’s income must be $10,800 or less in a financial year. The tax offset decreases as your spouse’s income exceeds $10,800 and cuts off when their income is $13,800 or more. Your spouse must be under 70 year of age.  If your spouse is aged 65 to 69, they must be gainfully employed for at least forty (40) hours over thirty (30) consecutive days. Your age and work status as the contributor does not matter, however, you will both need to be Australian residents for tax purposes and not be living separately and apart on a permanent basis at the time the contribution is made.
8.  Contribution splitting in your SMSF   
Concessional contributions that you have made into your SMSF can be split between you and your spouse. The requirement is that your spouse must not have reached their preservation age or if they have reached their preservation age, they need to be aged under sixty five (65) and not retired from the workforce. The maximum amount that can be split for a financial year is eighty-five per cent (85%) of the amount of concessional contributions made into your SMSF in that financial year up to your concessional contribution cap. You cannot split non-concessional contributions. The 30 June date is important because if you are intending to do contribution splitting, you must make the split in the financial year immediately after the one in which your contributions were made. This means you can split concessional contributions you have made into your SMSF during 2013/2014 financial year in the 2014/2015 financial year. You can only split contributions you have made in the current financial year (i.e. 2014/2015) if your entire benefit is being withdrawn from your SMSF before 30 June 2015 as a rollover, transfer, lump sum benefit or a combination of these. If you split your concessional contribution with your spouse, the full amount of the original concessional contribution, counts towards your concessional contribution cap. In addition, you cannot claim the superannuation spouse contribution tax offset for a contribution split to your spouse’s superannuation account. 
9.  Your entitlement to the superannuation co-contribution   
If you have made non-concessional contributions into your SMSF, the Commonwealth Government will match your contributions with a co-contribution of up to $500 per year if you are an eligible person. To be eligible you must earn at least 10% of your income from business and/or employment, be a permanent resident of Australia and under 71 years of age at the end of the financial year. The government will contribute 50 cents for each $1 of your non-concessional contribution to a maximum of $1,000 made to your SMSF by 30 June 2015. To receive the maximum co-contribution of $500, your total income must be less than $34,488. The co-contribution progressively reduces for income over $34,488 and cuts out altogether once your income is $49,488 or more. The government will pay the co-contribution directly into your SMSF once you have lodged your personal income tax return.
10.  Your entitlement to the low income superannuation contribution   
If your income is under $37,000 and you and/or your employer have made concessional contributions into your SMSF, you will be entitled to a refund of the 15% contribution tax up to $500 paid by your SMSF on your concessional contributions. To be eligible at least 10% of your income must be from business and/or employment and you must not hold a temporary residence visa. To receive the refund, you need to make sure that the concessional contributions are received by your SMSF by 30 June 2015. The refund will be paid directly into your SMSF by the ATO.
11.  Check whether you are entitled to any CGT small business retirement exemptions   
There are four capital gains tax (CGT) concessions available to small business owners on the sale or replacement of certain assets associated with their business. The four concessions are referred to as: (1) 15 year exemption; (2) 50% active asset reduction; (3) retirement exemption, and; (4) rollover exemption. Speak to your accountant as to whether you qualify for one or more of these and if so ensure that you comply with the legislative requirements by 30 June 2015 in order to claim the exemptions. 
12.  Minimum pension payments from your SMSF  
If you are accessing an account based pension from your SMSF, then you need to make sure that the minimum amount required to be paid under the superannuation law is paid from your SMSF by 30 June 2015 in order for your SMSF to receive tax exemptions. The minimum amount is determined by your age and the percentage value of your pension account balance at either the commencement date of the pension or 1 July each year. See the table below for your percentage value.
Percentage factor
Under 65
65 to 74
75 to 79
80 to 84
85 to 89
90 to 94
95 or more

There is no maximum pension payment amount required unless you are accessing your pension under the “Transition To Retirement” (TTR) ground. If so, the maximum amount that you can withdraw/receive from your SMSF is ten per cent (10%) of your pension account balance. If you exceed the maximum limit under TTR, then your SMSF will not be entitled to tax exemptions. The minimum pension payment requirement also applies to you if you are accessing a pension under TTR. You need to make sure that your pension meets both the minimum and maximum requirements under TTR.
13.  Review the investment strategy and the trust deed of your SMSF   
The superannuation law requires that the investment strategy of your SMSF is regularly reviewed. Make sure you have documented something (perhaps in the trustees’ minutes) that the investment strategy has been reviewed. You should also document your decision as to whether the SMSF should hold any insurance for the members of your SMSF as part of your investment strategy. You should also review your SMSF’s Trust Deed to ensure that changes in the superannuation law are considered and changes are made to the Trust Deed, if necessary, to reflect these. Your trust deed also needs to allow for the implementation of superannuation strategies. Many superannuation strategies (e.g. limited recourse borrowings, contribution reserves, re-contributions, anti-detriment payment) can only be implemented if your trust deed and investment strategy allow for them.
14.  Is your death benefit nomination still valid?   
There have been a few court cases mentioned in the media in relation to death benefits paid from SMSFs. Although a binding death benefit nomination (BDBN) is not compulsory for SMSFs, you may choose to have one. If you do choose to have one, then trustees of your SMSF must follow the instructions in your SMSF’s trust deed on how to implement a BDBN.  For a nomination to be binding, it must be paid to dependants or to an estate. This means only dependants and a legal personal representative can be nominated. So if you have divorced, remarried or have children during the financial year, make sure you update your nomination to reflect your new wishes and circumstances. Normally a binding nomination has to be renewed every three (3) years or it will lapse. As binding nominations are not compulsory in an SMSF, SMSFs are able to offer non-lapsing or lapsing binding nominations, depending on the SMSF’s trust deed. If no binding nomination is made, then the trustees of your SMSF will use their discretion to distribute your superannuation benefits on your death. A non-binding nomination enables you to advise the trustees of your SMSF of how you wish your superannuation benefits to be distributed. However, because it is not binding it is used as important information for the trustees to consider but the final decision is at the trustee’s discretion. 
Important Dates for Your Calendar Source for 2015 Financial Year 
The list of key dates is not comprehensive – it is a guide only.
Events or timelines may change.

June 2015
Date Obligation  
 5 June  Tax return lodgment, including companies and super funds where the tax return is not required earlier and both of the following criteria are met:
  • non-taxable or a credit assessment as at latest year lodged
  • non–taxable or receiving a credit assessment in the current year.
This is for all entities with a lodgment end date of 15 May 2015, excluding large/medium taxpayers and head companies of consolidated groups.
  Tax returns due for individuals and trusts with a lodgment end date of 15 May 2015 provided they also pay any liability due by this date.
Note: This is not a lodgment end date but a concessional arrangement where you will not have to pay failure to lodge on time (FTL) penalties if you lodge and pay by this date.
 21 June  May 2015 monthly activity statement – due date for lodging and paying.
25 June 2015 fringe benefits tax annual return – lodgment due date for tax agents (if lodging electronically). Payment (if required) is due 28 May.
30 June Super guarantee contributions must be paid by this date to qualify for a tax deduction in the 2014–15 financial year.
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