| Your Knowledge June 2007 |
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A series of substantial changes take effect from 1 July this year. We’ve summarised these changes so you can see the ways in which you can maximise the opportunity or minimise the risk of change. More changes to individual tax rates As announced in the recent Federal Budget, new individual tax rates and thresholds apply from 1 July 2007.
If you use a payroll software package to calculate the amount to withhold from salary and wages, please ensure your tax rates are updated to reflect the changes. With the changes to the income tax thresholds, it’s worth reviewing salary package arrangements to see if they are still worth the administrative effort. Concessions for businesses under $2 million Is your business turnover under $2 million? A major change was introduced into the Parliament last month that will streamline how many of the tax concessions apply to businesses with an aggregated turnover below $2 million. The changes standardise the eligibility criteria for accessing the small business concessions for GST, the Simplified Tax System (STS), Capital Gains Tax, Fringe Benefits Tax and PAYG instalments. While this might not sound like a big deal, the change means that more small businesses will be able to access the concessions as the threshold has increased and some of the hurdles complicating access have been removed. Let’s put the impact of the change into perspective. More small businesses will be able to access concessions such as the CGT small business concessions that provide the opportunity to reduce to nil the CGT payable on the sale of your business. Then there is the Simplified Tax System. STS can make a big impact on the speed at which you depreciate plant & equipment (for example, depreciable assets below $1,000 can be written off in the year you started to use the asset. Other depreciating assets with an effective life of less than 25 years are added to a pool and depreciated at the diminishing value rate of 30%). If you were unable to access these concessions last year, you might qualify in the incoming financial year. Be aware however that if you are a contractor, you might not be able to access a tax deduction for your superannuation contributions. Under the superannuation guarantee laws, if you are paid for your personal labour or skills, perform the work personally (not delegated), and you are not paid to achieve a result (for example, the contract is based on your time), you are considered to be an employee not a business. As a result, any contributions you make are not deductible as the hirer should be making a superannuation guarantee contribution on your behalf. From 1 July, reasonable benefit limits (RBLs) will be abolished and you will no longer have to report payments made after 1 July 2007 for RBL purposes. The essential financial year end jobs to completeShareholder Loan Accounts (companies only) If you have a debit loan account this can be deemed an unfranked dividend in the hands of the shareholder. A debit loan account can be caused where the company makes payments on behalf of the shareholder or advances funds to them. Where an unfranked dividend occurs, the dividend is declared as income on the shareholder’s personal tax return and taxed at their marginal tax rate (no imputation credit is available). The company’s franking account balance is also reduced. If you have an outstanding debit loan with your company, you need to decide how you will manage this. You may need to have a loan agreement put in place. If you already have an existing loan agreement then make sure that you make the minimum loan repayments before June 30. The rules surrounding shareholder loan accounts are complex and if this situation applies to your company, it is important to talk to us as soon as possible to manage your company’s requirements. PAYG Payment summaries due Don’t forget to provide all of your staff with their PAYG Payment Summary on or before 14 July 2007. This includes any staff that left your employment during the 2006/07 financial year. Your annual PAYG Payment Summary Statement for the year ending 30 June 2007 needs to be lodged with the ATO on or before 14 August 2007. However, if we prepare your Payment Summary for you and you only employ family members in your business (closely held employees) you may be eligible for an extension. Where you have provided Fringe Benefits to your employees in excess of $2,000, you need to report the FBT grossed up amount on their PAYG Payment Summary. This is referred to as a `Reportable Fringe Benefit’ (RFB) amount and you’ll notice that a label has been included on the PAYG Payment Summary for this purpose. Where an employee has a RFB amount then that amount must be reported in their personal income tax return for the year ended 30 June 2007. GST & PAYG changes As you know, to claim an input tax credit you need to have a valid tax invoice for purchases over $50. From 1 July 2007, this threshold amount increases to $75 (not including GST). On the flip side of this is the need for businesses to withhold tax when a supplier does not provide a valid ABN. The threshold change also applies to the ‘no-ABN withholding’ arrangements. So, unless the amount is $75 and above, you will not need to withhold tax from a payment to a supplier where an ABN has not been provided. Superannuation Under the new superannuation system, employers now have to pass the employee’s tax file number (TFN) to the employee’s nominated superannuation fund within 14 days of the employee quoting it or before the next contribution is made. With the new contribution limit of $50,000 per person per annum for deductible contributions ($100,000 per annum until 30 June 2012 for those aged 50 and over), it’s a good time to review salary package arrangements to ensure that they do not breach this limit. If contributions are made above the $50,000 limit, the excess amount of the contribution is taxed at a further 31.5% in the employee’s hands, on top of the 15% tax paid on entry to the fund. In addition, the excess counts towards their undeducted contribution limit. From 1 July, employers can claim a full deduction for contributions made on behalf of their employees under the age of 75 (an employer’s obligation to pay the superannuation guarantee ceases at age 70. If superannuation is paid, it is by agreement not by obligation). The self employed can also claim a full deduction for the contributions they make to superannuation until age 75. This replaces the old rules where a full tax deduction applied to the first $5,000 contributed and 75% thereafter. 6 last minute ways to minimise your tax
Quote of the monthThe function of leadership is to produce more leaders, not more followers. The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained. |
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