Catherines Chat

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

The Australian Taxation Office (ATO) recently released a Taxpayer Alert (TA 2012/7) which outlines the ATO’s concerns that some arrangements entered into by an SMSF to acquire property do not comply with the law.

The ATO is concerned that it may not be possible to simply restructure or rectify the arrangements, and unwinding the entire arrangement could lead to a forced sale of the asset, potentially at a substantial loss to the fund.

The ATO is concerned about the potential consequences of poorly structured arrangements regarding direct property investments using limited recourse borrowing arrangement

Under a limited recourse borrowing arrangement (LRBA), the SMSF borrows money to acquire a property which is held via a holding trust (the Bare Trust). The rights of the lender in the event of default of the loan are limited to the asset over which the borrowing is held.

Issues of concern:

• Where the borrowing and the title of the property is held in the individuals' name and not in the name of the trustee of the holding trust. The SMSF pays part or all of the initial deposit and the ongoing loan repayments.

• The title of the property is held by the SMSF trustee not the trustee of the holding trust.
• Where the trustee of the holding trust is not in existence and the holding trust is not established at the time the contract to acquire the asset is signed.
• The SMSF trustee acquires a residential property from an SMSF member.

• The asset is a vacant block of land. The SMSF trustee intends to use the same borrowing to construct a house on the land. The land is transferred to the holding trust prior to the house being built.

Superannuation issues that could arise from such arrangements

• The arrangement may be in breach of the sole purpose test (SISA section 62).
• The arrangement may be in breach of the borrowing provisions (SISA section 67).
• The asset acquired is not a single acquirable asset (SISA section 67A(2)).
• The asset is subject to a charge in breach of the borrowing provisions (SISA section 67A(1)(f)).

Summary

In my opinion all of the above issues can be overcome by Trustees of the SMSF obtaining advice from qualified and experienced SMSF administrators.  WFS Canberra Pty Ltd is able to offer such advice as well as set up the Bare Trust and obtain the loan to acquire the property. As long as all the correct legal steps are undertaken, in the correct order SMSF trustees have nothing to be concerned about.

MORE than 13,000 machine operators, 6000 graduates and more than 7000 tradies will be needed by 2015 to keep Queensland's mining industry ticking over.

Skills researcher Kinetic Group's boss Derek Hunter concedes these are "uncertain times" but said a flood of activity was still headed our way.

"If you stop looking at the headlines and look at what the activity in the industry is right now, it's as high if not higher than it has ever been," Mr Hunter said.

"We have got significant new growth in productivity from 2013 onwards."

As of April, there were 20 mining and gas projects in Queensland alone, amounting to more than $64 billion in investment.

That includes BHP Billiton's Caval Ridge and Daunia mines already under construction, which will deliver a total of 2450 jobs in construction and during operations.

"These are not pie in the sky figures - the companies already invested are unlikely to stop them going through to production unless there was the most amazing crash," Mr Hunter said.

He noted that even the global financial crisis, though it created a few "blips" for the industry, had only mild long-term effects.

Mr Hunter said the danger was this boom to bust mentality, if something stopped booming, then surely it had bust.

"We have to change people's heads about that - companies have shareholders to satisfy so action must be taken as soon as there is difficulty.

"Certainly (BHP Billiton Mitsubishi Alliance) is laying people off, they have closed a couple of mines in the past few months.

"But they have absorbed most of them back into the organisation."

Daunia

• Open cut mine, 2960 hectares

• Production expected to begin next year

• Full production of 4.5 million tonnes per annum expected in 2014

• 1000 employees required in construction phase, 450 during production
• Caval Ridge

• Open cut mine, 6706 hectares

• Production expected to begin in 2014

• Full production of 5.5 million tonnes per annum expected

• 2000 employees required during construction, 500 during production

According to RP Data, with the exception of economic conditions, most ‘Spring selling season’ indicators for the residential market are stronger compared to this time last year.

Cameron Kusher, RP Data research analyst, says the lead-up to the residential Spring selling season is looking more positive, when compared to the same time last year.

However, Kusher says, the question is whether or not momentum will continue throughout the traditional selling season.

“In Spring we begin to see uplift in listings activity with more properties available for sale and subsequently an increase in auction activity. Spring also sees an improvement in the number of property sales, especially following winter, which is usually a slow period for the housing market,” Kusher says.

“Spring 2011 delivered somewhat of a disappointing selling season with sales volumes across the combined capital cities down by 3 percent, lower than they were in the Spring of 2010 and with no noticeable improvement from volumes in Autumn. The amount of stock available for sale during this period was continually increasing throughout the period to historic high levels and home values were falling across each capital city market,” he says.

According to RP Data, with the exception of economic conditions, most indicators are stronger compared with this time last year.

“Overall, we’ve seen some positive movements for home values with new stock being added to the market lower and each of the vendor metrics (selling time, vendor discounting and auction clearance rates) all showing an improvement,” Kusher says.

Despite a more positive trend for many indicators, when compared with those of 2011 , a comparison with the longer-term trend shows many of these indicators are moving off a low base.

“Overall, the data indicates that generally the housing market is now in a stronger position than it was 12 months ago. Considering this, the Spring selling season should be stronger this year than it was last year. However, in comparison to recent years we would not expect the housing market to power along through Spring in the manner that it has previously,” Kusher says.

Why Australia's resources boom – and property investment opportunities in resources areas – are nowhere near over: Terry Ryder

By Terry Ryder 
Wednesday, 08 August 2012

Three things are fundamentally wrong with the idea that the resources boom will end soon. 

One is the notion that the party stops when the construction of a mine or processing facility is completed – when, in reality, that’s when it begins. 

Another is the false premise that few new projects will be constructed beyond 2014, a claim that suggests people haven’t done their homework before indulging their addiction to media profile. 

And a third is a misunderstanding of the processes under way in China, India and other nations undergoing industrialisation and urbanisation. 

That misunderstanding has lead many to describe what’s happening in the resources sector as a “boom”. That’s a misnomer because a boom is a short sharp rise followed by rapid decline. 

The demand for Australian resources results from significant structural change in the world economy, inspired in part by the emergence of new economic power nations which are seeking to lift the living standards of very large populations. 

This is not a process to be measured in years. It will extend over decades. Property analyst Simon Pressley, recently named Australia’s Buyers’ Agent of the Year, calls it the “resources revolution”. 

High ongoing demand for our resources will continue beyond my lifetime, notwithstanding the likelihood of a few jitters along the way. Australia is going to play a primary role in servicing global demand for ore, coal and gas. 

The belief that the “boom” ends when construction of new mines and processing plants is completed is just bizarre. As Pressley pointed out in one of his Propertyology reports recently, this in fact is when it begins. 

Australia currently has massive new projects under construction, with iron ore projects, coal mines and gas processing hubs, along with associated infrastructure like export facilities and rail links. But the nation doesn’t earn any export dollars until these projects are completed. 

It’s only when they start shipping ore and coal and liquefied natural gas (LNG) that the dollars start to flow. And all the mega projects have proceeded with all or most of their future production under forward sales contracts. 

The third fault line running through the “the boom is ending” argument is the erroneous notion that nothing will happen in Australia once the current crop of projects is completed. The proponents of this idea need to catch up on their reading – or get out of their offices and visit a few coalfaces. 

Most of the big resources projects around Australia are yet to start construction or are just starting to crank up building work. There is so much more to come. 

There have been dozens of major announcements over the past month or so, coinciding with those silly predictions that it’s all grinding to a halt. Here are just some of those relating to Queensland alone: 

Queensland coal production is expected to more than double in the next eight years. In the same period Australia is expected to become the world's largest gas exporter. A report from the Bureau of Resources and Energy Economics says Australia's LNG exports could grow to 106 million tonnes by 2020. The report's long-term projections also suggest big increases in exports of thermal coal and metallurgical coal. 

The $23 billion Australia Pacific LNG project based in Gladstone is to be expanded. Origin Energy, ConocoPhillips and Sinopec have decided to add a second stage, having secured a 20-year supply contract with Japanese power company Kansai. 

A coal seam gas (CSG) project in central Queensland is a step closer towards production, with the state government issuing terms of reference for an environmental impact statement. Arrow Energy's Bowen Gas Project is one of two CSG developments that will form part of the company's LNG project. Arrow will develop up to 7,000 gas wells over the next 40 years, each with a lifespan of 15 to 20 years. CSG will be transported from the Surat and Bowen basins to be liquefied at an LNG plant at Gladstone.

The $1.1 billion Fisherman's Landing LNG project in central Queensland is going ahead, after Melbourne-based Molopo sold its Queensland CSG assets to PetroChina. The Chinese group will now begin talks with LNG Limited, which is behind an LNG plant at Gladstone, over a tolling agreement for gas from the Molopo acreage to be processed to be in the plant. Fisherman's Landing is the smallest of the five LNG plants under construction or planned for development around Gladstone.

Yarwun 2, the $2.4 billion expansion of Rio Tinto Alcan's Yarwun Alumina refinery, passed a major landmark recently when the first bauxite was fed into the new facility and Yarwun 2 began producing alumina. Eventually the plant will produce 3.4 million tonnes each year, compared with the current capacity of 1.4 million.

Xstrata has agreed to a $110 million pre-commitment for an expansion of the $2.5 billion Wiggins Island Coal Export Terminal at Gladstone, boosting the chances that the expanded port and the associated $1 billion Surat Basin rail project will begin exporting by 2016.

Stanmore Coal will bring 750 jobs to the Toowoomba and Surat Basin regions when it develops a Wandoan mine worth $380 million. Construction will begin in early 2014. The environmental impact statement for the mine says it could be operating and exporting before the end of 2015. 

Mt Isa City Council has started the process to freeing up land for developers to build a new suburb of about 400 homes. The council feels the expansion of the resources sector in the area makes existing housing supply insufficient to meet coming demand. 

We’ve also had major announcement of developments in Western Australia, South Australia, Victoria, New South Wales and the Northern Territory. Space doesn’t allow me to list them all.

Superannuation changes

There will be plenty of changes made to superannuation this July.

The Government has deferred the start date of maintaining a cap at $50,000 for individauls aged over 50 years with balances below $500,000. So that means for everyone, the concessional contribution cap will drop to $25,000. 

The government will also provide a low income superannuation contribution for individuals earning up to $37,000, so they’ll effectively be refunded the 15% contributions tax.

It will also reduce the super co-contribution by 50%, to just 50c per $1 contribution, effectively reducing the top benefit from $1,000 to $500.

There will also be some changes for high-wealth individuals. People with income greater than $300,000 will have contributions reduced from 30% to 15%

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.

The loss carry-back

The loss carry-back scheme is one of the most anticipated tax changes by SMEs – one of few.

At the moment, businesses can only carry losses forward to offset future income and profits. They can’t carry their current loss back and offset it against past profits.

But under the new scheme, businesses will be able to claim losses of up to $1 million against tax paid in the past two years.

To be eligible, a business needs to have made a profit and then a loss from July 1, 2012. So while that provides some relief for SMEs, it doesn’t mean anything for businesses that have made a loss in the past few years.

Of course, there are a few caveats – businesses structured as partnerships, sole traders and trusts are ineligible.

Carbon tax assistance – business

While there are only 500 companies that will be directly affected by the carbon tax, the indirect effects will come in higher electricity prices, and other costs that will be passed along supply chains.

There are few regulatory issues required of SMEs, then. Some manufacturing businesses will be obliged to report their energy use under the National Greenhouse and Energy Reporting Act – manufacturing businesses should contact the ATO to determine if they’re in this category.

However, there are plenty of assistance programs businesses can tap into. Businesses that use up to $20,000 in electricity every year or have up to 10 employees can get a 50% rebate, and manufacturers will be able to access the $800 million Clean Technology Investment Program.

There’s also the Solar Credits scheme, which small businesses can use, and SMEs in Sydney and Perth which sign up to the CitySwitch Green Office program can get a rebate of $1,000.

But according to Andrew Douglas, principal at M+K Lawyers, looking for assistance isn’t the only thing you should be doing.

“Reducing your exposure; and businesses aren’t doing that. They’re not concentrating on their supply chain, they’re trying to pass through the carbon tax price but every major retailer is rejecting it, so right now it’s a real problem. The other issue is that people aren’t doing an assessment of the true cost,”