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Welcome to the November newsletter.
Amazing Tax Reductions
The introduction of the new superannuation system, the continued reduction in personal taxes and the clarification of transition to retirement superannuation pensions are working together to reduce taxes on retirement savings, investments and salaries significantly. These saving are enhanced where taxpayers work with their accountants to plan their financial arrangements.
Significant Changes
• Tax free superannuation benefits received after turning 60 with no limits
• Taxpayers aged 50 or more can contribute up to $100,000 per annum as a tax deductible contribution (concessional contribution). This is commonly referred to as salary sacrifice, paid by employer before deducting personal pay as you go tax. This minimises tax on this salary component to no more than 15%.
• Tax rebate on taxable component of pensions between ages 55 and 60
• Lower personal tax rates for incomes between $6,000 and $30,000 per annum means that no tax is paid on superannuation pensions not exceeding $30,000 per annum for superannuation pensions for members aged less than 60 years old
• For members in receipt of a pension their earnings on account in the superannuation fund being used to fund the pension (including a transition to retirement pension) are tax free potentially saving 15% tax on earnings of many thousands of dollars including tax on capital gains
• After superannuation fund members reach age 60 their benefit payments are tax free and hence the tax on investments held outside of superannuation will reduce, particularly if wage income is also reduced by using salary sacrifice
Additionally
• The lower earnings will be eligible for low income tax rebate – an investor aged less than 65 can be eligible for government co-contribution on their personal non concessional contributions
• A couple who are eligible for the senior Australians tax offset can receive a combined non superannuation income of up to $43,360 per annum without paying tax if the only other income is a tax free superannuation pension
• This benefit can also be used to reduce capital gains tax when investments outside superannuation are sold and this should be planned with us
Click here for a series of case studies to illustrate the planning opportunities available. They illustrate the tax benefits discussed above and should stimulate discussion with us to discuss planning your finances in a more tax effective manner. The time and effort will be well worth it!
Superannuation Trustees Penalised
“It’s vital SMSF trustees make sure they understand their legal and regulatory obligations as they are legally responsible for managing their fund.” Deputy Commissioner Raelene Vivian
The trustees of a self managed superannuation fund have been issued penalties of $30,000 and ordered to pay $32,500 in costs for breaching the rules relating to their fund.
On 15 October 2007 the Federal Court declared that the trustees for the Axent Group self managed superannuation fund (SMSF) had breached superannuation legislation by selling a property belonging to the fund and using the proceeds of nearly $150,000 to pay a private debt.
Click here for more.
Forgotten Property Deductions
Real Estate investments are one of the most common investments in Australia. Despite this many people are still under-claiming the large range of possible tax deductions arising from such investments. Among those regularly missed by investors are the following deductions.
Contract Adjustments
When properties are settled adjustments will often arise on the contract. Since ‘contract adjustments’ are usually not paid by way of separate cheques but are dealt with as an adjustment to the amount paid on settlement of a property purchase they frequently escape the notice of investors. These adjustments may be deductible (or assessable!) to the investor. Typically contract adjustments falling into this category include adjustments for council rates, water rates and land tax.
Depreciation common Property
People who own investment properties under a strata title will in most States also be the owners of the common property areas in proportion to their ownership. As a result such property owners will be entitled to claim depreciation in respect of their interest in components forming part of the common property.
In the case of residential strata units the depreciable components of common property commonly include items such as:
• Fire extinguishers
• Carpeting
• Lawn mowers
• Pool filters
• Elevators
• Security intercoms
When purchasing a strata unit the purchase price should be apportioned to reflect the investor’s interest in the common property. The amount that is attributable to the investor’s interest in each depreciable component of the common property should then be incorporated into the investor’s tax depreciation schedules.
Structural Improvements
When an existing investment property is purchased (i.e. not constructed by the investor) many investors will miss the ability to claim deductions for depreciation at 2.5% (or 4% in come cases) on the undeducted construction expenditure (i.e. building and structural improvements) regardless of whether the original owner constructed the building for income producing purposes. The building amortization deduction is probably the most commonly overlooked deduction of all amongst residential property owners.
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Health Check
Many clients will have received a Macquarie Partners Health Check report on their business for 2006. Those who have completed 2007 accounts may have received a 2007 Health Check.
These report are generated from final Financial Report information utilising the same software that many financial institutions use to analyse a businesses trading performance.
Of course you do not need to wait until completion of your accounts to access the benefits of such an analysis. If you are considering business finance options or simply want to have a look at current trading contact Macquarie Partners to discuss providing an up to date Health Check.
If you have current reconciled business trading figures available we can provide the analysis in a timely manner. This may help address any trading issues or highlight areas that will need to be discussed with the bank when applying for finance.
ATO Key Dates
Wednesday 21 November 2007
• October 2007 monthly activity statement – due date for lodgment and payment.
Sunday 25 November 2007
• Quarterly activity statement, quarter 1, 2007-08 (July-September 2007) – due date for lodgment and payment if lodging via electronic lodgment service (ELS) or the Tax Agent Portal.
Wednesday 28 November 2007
• Due date for lodgment of the Superannuation guarantee charge statement – quarterly, and payment of the superannuation guarantee charge for quarter 1, 2007-08 (July-September) if sufficient contributions were not paid on time. The superannuation guarantee charge is not tax deductible.
Friday 30 November 2007
• Retirement savings account (RSA) providers to lodge regulatory with APRA by 30 November 2007.
Saturday 1 December 2007
• Income tax for taxable large/medium business company and superannuation funds whose 2006 year return was taxable – due date for payment (where required) - lodgment of return due 15 January 2008
• Income tax for taxable head company of a consolidated group that has a member who has been deemed a large/medium business in the latest year lodged – due date for payment – lodgment of return due 15 January 2008
• Income tax for companies and superannuation funds – due date for payment (where required) where income tax return was due 31 October 2007
• Due date for payment (if applicable) of income tax for superannuation funds who were required to lodge by 31 October 2007
Friday 14 December 2007
• Payment of income tax for superannuation funds where one or more prior year income tax returns are outstanding as at 30 June 2007 – lodgment of return was due 31 October 2007
Saturday 15 December 2007
• Reasonable Benefits Limits (RBL) reporting – funds are encouraged to report any outstanding RBL amendments and reportable benefits paid in the 2006-07 and prior financial years to the Tax Office by this date
• Due date for payment and assessments of superannuation contributions surcharge and termination payments surcharge issued 15 November 2007
• Due date for lodging amended superannuation member contribution statements (MCS) for inclusion in the February 2008 processing of assessments
• The Tax Office requests funds lodge re-reporting cases for Surcharge by 15 December 2007 to allow for inclusion in automated processing before 30 June 2008
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