Catherines Chat

The ATO recently released a statement about their concern over people investing into property with their super without fully understanding their obligations under the law.

Their concern is based on real life examples where incorrect structures or lending arrangements have been setup by the individuals.

This has resulted in a number of funds becoming non-complying and penalties being issued for the breaches. This problem is caused by trustees trying to implement the complete strategy without getting the appropriate advice and having so many parties involved in the process.

Here is a short list of some common mistakes;

- Incorrect entity name on the front page of the contract

- Purchasing the property directly in super without setting up the Bare Trust arrangement

- Incorrect lending arrangements where the name of the lender is the incorrect entity

- Rental income and Interest expenses coming or going into the wrong bank account

- Using the same Corporate Trustee for both the super and the bare trust to reduce the costs

- Using the property for personal use (including related parties)

- Lack of liquidity within the Self Managed Superannuation Fund

Buying property in super can be a very valuable strategy if it is implemented correctly and it is appropriate for your situation. WFS Canberra has been providing advice on implementing Super and Property strategies for over ten years and has experience in all aspects of buying property in super including;

• Establishing an SMSF
• Obtaining loan approval for an SMSF to buy property
• Establishing a Bare Trust
• Sourcing Property for an SMSF
• Ensuring your Investment Strategy is sound and acceptable to the ATO
• Holding your hand through all aspects of the transaction to ensure it progresses smoothly and avoids all ATO scrutiny.

Hello All,

Catherine is away at National’s for Dragon Boat racing and I thought I would take this opportunity to hijack her blog and write about tax. It is getting to the point in the financial year where people need to start thinking about end of year tax strategies and how the tax changes implemented for 2013 can really affect them. For example, does the tax free threshold rising to $18,200 mean that you no longer need to lodge a tax return? The ATO have some good calculators available on their website to help you make this decision. But when in doubt remember to ask a professional.

For those in business it is time to look at whether or not you have contributed enough into superannuation for yourself and does the business have enough profit in it for you to contribute more? It also time to make sure if you are a sole trader that you register with you super provider to claim super contribution’s as a deduction in your personal tax.  As we get closer to the end of the financial year (EOFY) we will give you more hints and tips. Please feel free to comment below if you have any questions you would like answered or have anything in particular you are interested in hearing about for EOFY. Remember that now can be the best time to get in and see your accountant for some tailored strategic advice.

That’s enough from me for now but you might see me again posting on Catherine’s blog as we get closer to the new tax season.

Lexie O’Toole

Fuel changes

There will be some key changes to fuel tax credits from July 2012. The following rate changes will be affected:

• Liquid fuels, including diesel, petrol or fuel oil used in some off-road activities
• The introduction of a carbon charge
• Heavy vehicles travelling on a public road
• Gaseous fuels
• And some blended liquid fuels

When calculating fuel tax credits, you’ll need to use the rate applied when you acquired the fuel.

For more details on fuel tax credits for fuel acquired from July, you’ll need to check out this table here.

Building industry reporting

If you’re a business or entrepreneur operating in the building or construction industries, then you’ll need to start reporting on every payment made to contractors in the New Year.

As for who needs to report – any business primarily operating in the building and construction industries, including businesses making payments to contractors. If more than half of your business activity relates to building and construction, then you need to start reporting.

The details you need to report for each contractor include:

• ABN
• Name
• Address
• Gross amount paid in the financial year
• Total GST included in the gross amount paid

You’ll also need to report worksheets and other records, including payment details for work done in relation to any sort of building or structure. That includes construction, demolition, design, destruction, erection, improvements, maintenance and repair.

Contractors who pay other contractors may need to fill in all this information as well.

Businesses will need to make this report by July 21 each year, but don’t fear – the first report isn’t due until July 2013.

Living away from home allowance

The government will be making a few changes to the Living Away From Home allowance come July.

Access to the concession for temporary residents will be limited to those people who maintain a residence for their own use in Australia, but are required to live away from work. These workers are known as “fly-in, fly-out”.

Also, employees will be required to justify their spending on accommodation and food beyond the statutory amount, and a year limit will be placed on how long an employee can receive the benefit at any one work location.

These changes will affect anyone signing an agreement after May 8, 2012, and from July 1, 2014 for any contracts before that time.

Brand new tax brackets – including carbon tax assistance

As part of the government’s introduction of the carbon tax, there’ll be some dramatic changes to the income tax rates – including the adjustment of the tax-free threshold to $18,200 from the current level of $6,000. That means you’ll be able to earn up to $20,542 before any tax is payable at all.

These changes are crucial for employers. Next year, your staff will have less tax withheld from their paychecks, so you’ll need to make the necessary changes to ensure they’re being paid correctly.

Here are the tax brackets for the 2011-12 year, followed by the new tax brackets, which will take effect from the 2012-13 year.

2011-12:

• $0 - $6,000 = Nil
• $6,001 - $37,000 = 15c for every $1 over $6,000
• $37,001 - $80,000 = $4,650 plus 30c for every $1 over $37,000
• $80,001 - $180,000 = $17,550 plus 37c for every $1 over $80,000
• $180,001 and over = $54,550 plus 45c for every $1 over $180,000

2012-13:

• $0 - $18,201 = Nil
• $18,201 - $37,000 = 19c for each $1 over $18,200
• $37,001 - $80,000 = $3,572 plus 32.5c for every $1 over $37,000
• $80,001 - $180,000 = $17,547 plus 37c for every $1 over $80,000
• $180,001 and over = $54,547 plus 45c for each $1 over $180,000

At the same time, the maximum value of the low-income tax offset reduces from $1,500 to $445, and after that, will be reduced by 1.5 cents in every dollar over $37,000. Previously, that number was at $30,000. From 2015, that figure will be reduced to just $300.

The pensioner tax offset will merge with the new senior Australians tax offset. Meanwhile, there have also been some changes to the Medicare levy and Medicare levy surcharge thresholds.

From July 1, the Medicare levy surcharge thresholds will be changed, while the low-income thresholds will be changed as well. The full details of those changes are available on the Australian Tax Office’s website here.

Little known Tax Tip for Year End Planning for Business

 Increased Instant Asset Write-Off Threshold for business starting July.  Assets costing under $6,500 will be able to be claimed outright rather than depreciated.  This is up from the existing $1000 rule.  So you may want to delay any large purchases till next week. 

Year End Tax Tips for Property Investors

n  Documentation – when it doubt – keep the record anyway so your Accountant can claim it if possible.

n  Depreciation – Have you got a depreciation report for every property?  If not, get one.  It is free cash in your pocket.  We use a company that guarantees more cash to you than the report costs

n  Travel – ATO accepts 4 trips per year to the property and maybe more if justified.  Keep travel expenses and diaries.

n   Interest Expenses  - Learn how to maximise tax deductible debt and minimise non tax deductible debt

n  Pre-Pay Expenses – interest & other expenses can be pre-paid 12 months in advance

n   Manage Capital Gains & Losses – if you are selling a property speak to your Accountant first.  An Accountant experienced in CGT can save you hundreds of thousands of dollars by correctly planning Capital Gain

n   Manage Capital Losses – if you are selling an Asset for a Gain are these any Assets you can also sell for a loss to help you minimise the gain?

n   PAYG Variation – get it done now ready for next year. Extra cash in your pocket per fortnight.

Individuals looking to maximise their superannuation dollar, who will earn less than $61,920 in the 2011/12 financial year should look to make an after-tax contribution to their superannuation to qualify for the Government Co-Contribution.

At present the government will match after tax contributions dollar for dollar up to a maximum

of $1,000 for a person earning up to $31,920. The maximum then reduces by 3.333 cents for every dollar of total income, less allowable business deductions over $31,920 reducing to nil at $61,920.

From 1 July 2012, the maximum co-contribution payable will be halved to $500 a year