MGAA AboutTax Blog

At best, we can call it a calculated risk, at worst a rumour.

Based on what PM Malcolm Turnbull and Treasurer Scott Morrison seem to be saying in public media, and based on what experts in the industry seem to be indicating, this year's budget could be a watershed in Superannuation Tax changes.

We share with you some of the changes that might happen, and suggest action plan so you can take advantage of the current generous concessions, before it is too late.

 

Some Changes that might happen
Salary Sacrifice (concessional) limits for super contribution could be reduced              Age Category           Current         Might reduce to  under 50 yrs $30,000 py $20,000 py  50 yrs & over  $35,000 py $25,000 py	In order to take advantage of tax deductible salary sacrifice (or pre-tax contribution), ensure you top up your employer / pre-tax super contribution before budget night.
Post tax (non-concessional) limits for super contribution may be reduced. Age Category        Current         Might reduce to  under 65yrs $540,000 py (bring forward)         $150,000 py (bring forward might be scrapped) 65 yrs & over  $180,000 py   $150,000 py                   This action might be aimed at scrapping 'withdrawal and re-contribution strategy'.	Taxpayers have used this strategy over the years to steadily convert their taxed component in super into tax free component. This substantially reduces tax on death benefits paid to adult children. Contact your advisor to see if you could do a withdrawal and re-contribution strategy before budget night.
Transition to retirement income stream (TRIS) benefit may be limited. Currently, you can start TRIS to withdraw tax free pension, and get tax benefit via salary sacrifice into super, provided you are above 60yrs of age. Entry to TRIS may be restricted to eligible taxpayers who reduce their working hours to under 30 hours a week (move from full time to part time roles)	This strategy has been used by many taxpayers in their golden age (above 60 years of age) to reduce their tax on salary or business income, yet ensuring their cash flow is not impacted. Contact your advisor to see if you could start your TRIS before budget night. In most probability, TRIS started before budget night would not be impacted by any possible changes to this policy area.

If you would like assistance with working out the best possible strategy for your personal scenario, please do not hesitate to contact us.

 

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This article aims to give you a quick update on Budget 2015 changes and some tax tips for tax time 2015.

NEWSPOINT

Tax Rates   Taxable Income Tax Rates 2014-15 Tax Rates 2015-16  0 - $18,2000 Nil  Nil   $18, 201 - $37, 000           19%  # 19%  #  $37, 001 - $80, 000 32.5%  # 32.5%  #  $80, 001 - $180, 000 37%   37%    $180,001 and over  47% * 47% *    * Includes 2% temporary budget levy applicable for 3 years from 1st July 2014.   # Low Income Tax Offset ("LITO") of $445 applies for taxable income up till $37,000, reducing by 1.5 cents in the dollar, for every dollar of taxable income over $37,000 such that it cuts out at $66,667. The effect is that no tax is payable up to an income of $20,892.

Medicare levy low income thresholds 2014-15 Basic Medicare levy of 2% applies to taxpayers earning above threshold as per below. Type  Income Threshold for 2014-15 Individuals             $20, 896 Families  $35, 261

BUDGET UPDATE 2015 - FOR INDIVIDUAL TAXPAYERS

Work related car expenses From 1 July 2015, taxpayers will only have two methods available to calculate and claim their work-related car expenses – the (max 5000kms) cents per kilometre method and log book method.

Read more…

This article aims to bring together some key information to help you, our clients and readers, to understand your obligations under the new SuperStream regime.

What is SuperStream?  SuperStream is a government reform to provide a single channel for employers to make super contributions to all funds. It applies to all employers making super contributions.  It claims to be simple, faster, have less errors, consistent, a reliable electronic way of managing data and payments for superannuation and saves time and cost in the long run when paying multiple super funds for employees.

TIP! This also means that ATO will have real time data about super paid by employers to employees. Delayed payments or non payments would thus be picked up easily resulting in possible ATO audits!

How does SuperStream affect employer super contribution?

1. Employers must make superannuation contribution by submitting payments and data electronically (to a superfund) in accordance with the standard.
2. All superannuation funds (including SMSFs) must receive contributions from employers electronically in accordance with the Standard.

 Note: The new Standard does not apply to employers who contributes to a SMSF to which the employer is related.

Read more…

THE $20,000 TAX DEDUCTION FOR CAPITAL ITEMS  You can fast track deduction of plant and equipment purchased from your business income, maximum up to $20,000 per item.  Eligibility Pass the 'Small Business Entity (SBE) test' i.e. You need to be running a business (very critical). Your current year or prior year turnover (grouped with entities connected with you) should be less than $2,000,000. Purchase (and hold ready for use) an eligible item of Plant or Equipment of less than $20,000 (net of GST) between 7.30pm (AEST) on Tuesday 12 May 2015 and 30th June 2017.

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Superannuation is a way to save for our retirement and that it has some tax savings! However, some tricky questions like, how much can you contribute into your super, when can you access your super money, what do you need to know as an employer, etc could leave anyone scratching his head. Yes, you guessed it right – there are lots of numbers that are involved with super and only to make it a little more complicated the numbers change with the moods of the federal budgets. This article aims to bring together some key information in a simple question & answer format to help you, our clients and readers, plan your Super.

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Largely misunderstood by most taxpayers and some tax professionals, this part of Income Tax Assessment Act 1936 covers just one section, broken down into innumerable subsections and continues to gives us sleepless nights. This provision aims to catch the mischief of an individual taxpayer accessing underlying cash from after tax profits of a private company without having to pay their top up marginal tax rate.

So what's the fuss about?

To explain with an example, say a private company makes $500k and pays a flat 30% tax on it.  If the after tax profit of $350k is distributed to it's mum and dad shareholder, they would most certainly have to pay a top up tax, which could be as high as 22% of the cash dividends. How easy would it be if the shareholders instead just took this cash out of the company as loans, or made the company pay for their personal expenses? This is the mischief that Div7A of ITAA'36 purports to catch!

 What would the cash be used for? This could be broadly split into two categories;

  A.      Personal use and lifestyle 

• Cars, bikes, boats
• Holidays, shopping, personal use goods
• LIfestyle assets, home improvements, etc

B.      Personal investment assets  Read more…

Leading up to and beyond G20 summit in Brisbane earlier this year, news has been rift about multinational corporates using tax havens to dodge higher corporate taxes. US, Australia, UK, Europe, China, India, you name it, economies are worried about erosion of their base corporate tax. So much so, there is now a new term for this on the blocks; Base Erosion and Profit Shift (BEPS).  It's not just multinationals like Google and Apple, but also our own backyard multinationals including top banks who are said to be using BEPS to avoid local taxes. Cayman Islands, Luxembourg, Switzerland, Bermuda, Ireland etc., have become commonly ill-famous as Tax Havens for their low corporate tax rate and corporate secrecy.

Australian Commission of Tax, Chris Jordan, Prime Minister Tony Abbot and Treasurer Joe Hockey have all gone on record pledging strong action to bring back to Australia it's fair share of corporate tax. Needless to say the less tax corporates pay, the more mum and dads have to pay!  

|| Often small businesses ask, 'Why can't we do the same?'. It's hard to convince clients to do the right thing while the news is broadcasting multinationals dodging the corporate tax. Needless to say, the less tax corporates pay, the more mums and dads have to pay! ||

SO HOW DOES IT WORKS?

BEPS works primarily on two concepts: Transfer Pricing and Thin Capitalisation. Take for example, a smart phone is produced in China for say $100 and shipped to Australia for sale. While it is at sea, a transaction is made, only on paper ofcourse, where it is sold for $100 to say a company in Cayman Islands. This company then sells it to an Australian Company for $600 which sells it in a store in Australia for $700. Thus $500 profit is shifted from high tax region of China or Australia to a low tax region of Cayman Islands. Ofcourse all these companies are fully owned by either an American or European Smart Phone company. This is called Transfer Pricing. Unfortunately, corporate are taxed currently based on their residency status, hence profits generated by Cayman Island subsidiary can not be taxed in China or Australia. Read more…

Financial Planning: It's too much money! Honey!

With PUP joining hands alongside Liberals to water down FOFA laws, a few questions arise; What is the real issue with Financial Planning laws? Why is it that we have seen so many cases of fraud and inappropriate advice?

Years ago, when I was earnestly studying to become a tax advisor, I had an opportunity to sit in a presentation by one of the best known Australian minds in Superannuation and Financial Planning Industry.  After the presentation I approached him to seek guidance on my career path. He said, 'Manu, how much do you think the best paid partners in large tax firms make a year? About $500,000. This kind of money is made by a corner shop financial planner in Parramatta!'.  Now I must add that this great mind continues to be one of the most ethical advisors I have met in my lifetime.  He, however pinpointed to the problem in Financial Planning industry, so succinctly : It's Too Much of Money! Honey!                                       

In financial planning industry you could earn as much as a Cardiologist without years of education and training or thousands in HECS debt. Even a hairdresser has to study way more for her license than a financial planner does. I guess it is this attraction of easy money which creates 'conflict of interest' and, at times, inappropriate advice, which results in people loosing their lifetime of savings.

So what does this new look FOFA mean to us?

• Financial Advisors would be able to tick a few boxes to confirm that 'they acted in best interest of their client' without any rigorous compliance.
• Bank tellers will be able to lead you into buying their insurance and superannuation products without personalised advise for commissions.
• Ongoing clients will continue to pay commissions to their financial planners without even knowing how much! This is even when the financial planner has never contacted them over the years. Read more…