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Welcome to the July newsletter.
This month’s quote is:
“The most unproductive emotion is worry”
Protecting the Income that Provides Our Lifestyle
Australian households are facing record debt levels (around $6million) from consumer purchases, mortgages and the purchase of investment assets.
With these levels of indebtedness, many people’s income is now their most valuable asset and it needs to be protected. Unfortunately, many Australians chronically underinsured. Last year a national study found the majority of Australians were not well protected against loss of income due to illness or injury. 67 per cent of Australians either had no income protection insurance or had cover for only two years as part of their superannuation.
More worryingly, the study found that if they lost their income, two in three respondents aged 25-49 who were currently working would need to rely on government welfare for financial support. Half those surveyed with a mortgage or dependent children did not have any income protection cover at all.
What about Health?
51 per cent of respondents were recently found to not have income protection insurance because they felt an accident or long term illness was unlikely to happen to them, compared to the statistical likelihood that one third would be affected.
The Federal Government has designated seven broad groups of health conditions as priority conditions. These include asthma, cancer, cardiovascular health, diabetes, injury, mental health and arthritis/musculoskeletal conditions.
A 2003 report showed these priority health conditions were very common among people aged 30 and over, with around half the population in that group suffering from at least one priority condition. In addition, a 1998 study indicated that in almost 40 per cent of cases a priority condition was the main cause of disability, which is broadly defined as a loss of functionality (at work or school) for at least six months. This data indicates many clients are likely to find themselves facing a substantial period where they are unable to work.
A recent study found 38 per cent of respondents without income protection said they would only be able to continue living their current lifestyle for less than four months if their salary stopped.
Real lifestyle risks are faced by not protecting against the financial impact of disability. Without income protection, clients relying on a regular salary to pay for life’s necessities, dependents or ongoing financial responsibilities such as mortgages will face a very difficult situation.
Relying on workers’ compensation will not be enough as many accidents and illnesses causing disability occur outside the work environment and the majority of income protection claims result from illness rather than injury or accidents. Only around 10 per cent of all income protection claims paid would also be eligible for workers’ compensation.
Self employed clients in particular need to take out cover as they lack the support provided through employment. For the self-employed, being unable to work and generate an income create real problems in meeting financial commitments such as business debts or a staff payroll.
If obtaining proper protection of your income is of concern (and based on the data above it should be!) please let us know.
Government makes STS more attractive
As part of the 2006 budget initiatives, it is now easier for small business to access the enhanced depreciation rates and other benefits of the STS. The changes proposed are:
1) The STS average annual turnover threshold increases from $1million to $2 million;
2) The $3 million depreciating assets test has been removed from the STS eligibility requirements;
3) Depreciating assets roll over relief will also be extended to STS taxpayers to ensure businesses can be restructured without triggering a taxing point;
4) Allow STS taxpayers to be eligible for the CGT small business concessions without having to satisfy the net assets threshold and to pay quarterly pay as you go instalments on the basis of GDP adjusted notional tax;
5) Increase turnover from $1million to $2 million for GST cash accounting.
6) Allow STS taxpayers to pay quarterly PAYG instalments on the GDP-adjusted notional tax basis.
If you would like to know more about the benefits of STS and whether it is beneficial to your business, please feel free to get in touch with your usual contact at the firm.
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Land Tax Savings Available
Many readers may be aware of a recent decision in relation to land tax and its impact on land held in unit trusts. For some time unit trusts have been given a different land tax treatment than family trusts which are generally referred to in land tax legislation as “special trusts”.
The effect of the recent court decision is that unit trusts will generally be given the same tax treatment as family trusts meaning that the threshold for Land Tax purposes that normally applies to land held by natural person or a company is not available. The impact of this is a substantial increase in the Land Tax that would otherwise be payable.
We have undertaken some research and found that in some circumstances it is possible for a discretionary trust, unit trust and fixed trust to fall outside of these rules and for each such trust in some circumstances to enjoy a full land tax threshold. Although too complex to spell out in detail in this newsletter, the rules are known to our staff and we can therefore assist you in reducing your Land Tax bill provide certain elections are able to be made.
The impact of a saving of land tax where these arrangements apply in relation to a property with an unimproved value of $400,000 would be almost $6,000 per annum. If you own land in a trust, you should contact us without delay to see if you can qualify for these substantial savings.
2006 Tax Season now upon us
As readers will no doubt be aware 30 June 2006 is behind us. This means that it is now time to be collating the information to enable us to prepare your company, trust and/or personal and superannuation fund income tax returns for lodgement with the ATO. As the ATO enforces strict lodgement deadlines with ever increasing tenacity, NOW is a great time to gather your records and submit them to us so that we can prepare your accounts and returns long before the due date for lodgement. We can provide you with a checklist of what we require to minimise the number of questions that are asked by our staff of you and if this is of help, please get in touch with your usual contact at the firm.
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