Category: Uncategorized

SINGLE TOUCH PAYROLL

STP if fnally here! 
From 1 July 2018, all employers with 20 or more employees (as at 1 April 2018), must report their payroll information to the ATO via Single Touch Payroll. STP is a reporting change for employers. Essentially, STP requires that each time an employer pays their employees, they will have to instantly report to the ATO information such as the salaries and wages, pay as you go (PAYG) withholding and superannuation. The information will need to be reported from software, which is STP-enables. Eventually this will mean:

  • Employers will not need to provide Payment Summaries to their employees for the payments reporter through STP.
  • Employees will be able to view their payment information in ATO online services, which they will access through their myGov account.
  • Some labels on Activity Statements will be pre-filled with the information already reported.

NB employers with less than 20 employees (as at 1 April 2018) your STP start date will be 1 July 2019.

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$20,000 instant asset write off

This is the final year of the $20,000 instant asset write-off – to be abolished from 1 July 2018. 

Until 30 June 2018, Small Business Entities (SBE’s) can claim an immediate write-off for most depreciating assets used in their business if the asset costs less than $20,000 and the below time frames are met. In broad terms, SBE’s are entities (including sole traders) that are carrying on a business and have an annual turnover of under $2 million. This includes the turnover of any connected entities and affiliates. 

Being in its final year of operation, the timing requirements around the instant asset write-off are important.

To claim a deduction in 2017/2018, the asset must have been acquired on or after 1 July 2017 and first used or installed ready for use in your business on or before 30 June 2018.  To be claimable in full in 2017/2018.  

If you miss the deadline (i.e. if the asset is not being used in your business or installed ready for use on or before 30 June 2018) then the write-off threshold reverts to $1,000. 

Missing the deadline will result in a worse cash-flow outcome for your business than if the deadline is met . 

WHAT’S THE BENEFIT?

The real benefit from the $20,000 write-off is an improvement to your cash-flow. The write-off improves small business cash-flow by bringing forward deductions rather than having them spread out over more than one year. Cash-flow can be a significant issue for small business, particularly start-ups. That said, it is important to have perspective. You are only getting back the tax rate on the asset, not the full value of the asset. This is the same as the old law where the write-off was $1,000 (which will apply from 1 July 2018).  You don’t get any extra cash than you would otherwise have received under the old rules – you simply get it sooner.

Consequently, you should not let tax distort or blur your commercial instincts – as you don’t get any extra cash than you would otherwise have under the old rules, you should continue to only buy assets that fit within your business plan .

OTHER GOVERNMENT INITIATIVES

While the Opposition has at the time of writing not proposed any further changes to superannuation, the Government by contrast announced a number of changes in the Federal Budget which it intends to implement if re-elected on 2 July.  It is not yet known whether the Opposition supports these changes which are as follows:


REDUCTION OF CONCESSIONAL CONTRIBUTIONS CAP

From 1 July 2017, the annual cap on concessional contributions will be reduced to $25,000 for all taxpayers (down from the current $30,000 for taxpayers under 50, and $35,000 for older taxpayers).  This change will limit the capacity to make deductible contributions to superannuation, as well as salary sacrificed contributions.  Softening the blow however, individuals with a superannuation balance less than $500,000 will be allowed to make additional “catch-up” concessional contributions where they have not reached their concessional contributions cap in previous years, with effect from 1 July 2017.  Unused cap amounts will be carried forward on a rolling basis for a period of 5 consecutive years.  Only unused amounts accrued from 1 July 2017 will be available to be carried forward.  The Government states that this measure will make it easier for people with varying capacity to save and for those with interrupted work patterns (such as women who leave the workforce to have children) to provide for retirement.

EXAMPLE

Jake is an employee accountant whose employer contributed $15,000 in Superannuation Guarantee contributions in 2017/2018.  Jake also salary sacrificed $5,000 to superannuation.  In 2018/2019, Jake’s concessional contribution cap will effectively be $30,000 (consisting of the standard $25,000 annual cap, plus the $5,000 unused cap from 2017/2018).  This will provide Jake with a greater capacity to make concessional contributions such as salary sacrifice in 2018/2019 than would otherwise by the case.

If the concessional contributions gap is reduced, employees may need to review salary sacrifice arrangements that are in place at the end of 2016/2017 to ensure that you do not exceed the new, reduced cap from 1 July 2017.

LIFETIME NON-CONCESSIONAL CONTRIBUTIONS CAP

Effective 3 May 2016, if the Government is re-elected the non-concessional (after-tax) contributions cap will become a lifetime cap of $500,000, rather than the current annual cap of $180,000. This new cap will be retrospective by taking into account all non-concessional contributions made on or after 1 July 2007. Contributions made before the commencement date of 3 May 2016 cannot result in an excess over the lifetime cap.  However, excess non-concessional contributions made after 3 May 2016 will need to be removed or will be subject to penalty tax.  Going forward, the lifetime cap will be indexed to average weekly ordinary time earnings.

To recap, non-concessional contributions (also commonly referred to as an after-tax contribution) include:
  • Personal contributions for which an income tax deduction cannot be claimed as you fail the ‘10% rule’
  • Contributions made for you by your spouse
  • Contributions in excess of your CGT Cap Amount for small business owners
  • Amounts transferred from foreign superannuation funds, excluding amounts included in the fund’s assessable income, and
  • Contributions made for the benefit of a person under 18 years of age that are not employer contributions for that person.

IMPACT

This change limits the amount of after-tax savings that can be contributed into the concessionally taxed superannuation environment, and is retrospective in that it takes into account non-concessional amounts that have been contributed since 1 July 2007.  This reform will not only impact high income earners but also those who have significant one-off windfalls that they wish to contribute to superannuation such as the sale proceeds of capital assets, or inheritances.
This lifetime cap may also limit the ability of taxpayers to undertake re-contribution strategies, whereby you convert a superannuation interest from a taxable component to a tax-free component.  For more information on re-contribution strategies see our 2013 Superannuation Tax Savers publication available at our website www.mytaxsavers.com.au.

DEDUCTIONS FOR ALL! 

From 1 July 2017 all individuals up to age 75 will be allowed to claim an income tax deduction for personal superannuation contributions.  Currently, only those who receive little or no employer superannuation contributions can claim a deduction such as if:
  • You run your own business, but were not an employee of the business (e.g. you are a Sole Trader or a Partner in a Partnership)
  • You are under the age of 65 (that is, you are eligible to contribute to superannuation) and receiving pension or investment income only
  • You are a contractor who is not eligible for Superannuation Guarantee from the organisations that you contract to
  • You only received workers’ compensation payments during the year
  • You are a non-working spouse/individual
  • You are an employee for only a small part of the year
This change is good news for the many employees who wish to make contributions to superannuation but whose employers do not offer salary sacrifice.  By making an after-tax superannuation contribution, employees (and all individuals under the age of 75) will be able to reduce their income tax liability while providing for their retirement.

‘WORK TEST’ ABOLISHED

The current restrictions on people aged 65 to 74 from making superannuation contributions will be removed from 1 July 2017. Currently, if people in this age bracket wish to make personal contributions to superannuation they must meet a ‘work-test’ which requires them to have worked for at least 40 hours over 30 consecutive days in the financial year.  This change is therefore good news for older taxpayers who do not meet the current ‘work-test’ but who wish to inject money into the occasionally taxed superannuation environment.

LOW INCOME SUPER TAX OFFSET

From 1 July 2017, the Government will introduce a Low Income Superannuation Tax Offset (LISTO).  Its purpose is to reduce tax on the superannuation contributions made by or on behalf of low income earners.  The LISTO is a non-refundable tax offset provided to your superannuation account (not you personally) based on the tax paid on the concessional contributions of low income earners up to a cap of $500. The LISTO will apply to taxpayers with an adjustable taxable income of up to $37,000 that have had concessional contributions made on their behalf (i.e. Superannuation Guarantee contributions by their employer).  The LISTO will replace the current Low Income Superannuation Contribution (LISC) which is a very similar regime.  In effect, the LISTO will ensure that low income earners do not pay more tax on their superannuation contributions than on their take-home pay.  In terms of administration, the ATO will determine your eligibility for the LISTO and will advise your superannuation fund annually.

EXAMPLE

Chase is a part-time university tutor.  In 2017/2018 he earned $35,000 and his employer made contributions of $3,325 on his behalf.  Chase is eligible for the LISTO.  He will receive $498.75 of LISTO in his account.  Chase would have received the same amount under the LISC regime.

TRANSITION TO RETIREMENT CRACKDOWN

The Government intends to remove the tax exemption that currently applies on earnings on pension assets that support Transition to Retirement Income Streams/Pensions.  Earnings from assets supporting these Income Streams/Pensions will be taxed at 15% (currently they are tax-free).  This change will apply from 1 July 2017, irrespective of when your Transition to Retirement Income Stream/Pension commenced.  To be clear, for those under 60 if your pension is paid from a taxed source, you will still receive a tax offset equal to 15% of the taxable part of the income stream.  Those 60 and over will still receive their income stream tax-free.  It’s just that earnings supporting the income stream for both under 60s and over 60s will be taxed at 15%.

EXAMPLE

Ken is 58 years of age, earns $100,000 and has $440,000 in his superannuation account.  He pays income tax on his salary and his superannuation funds pays $3,750 at 15% on the superannuation earnings of $25,000. Nearing retirement, Ken wishes to reduce his working hours by 15% and has a corresponding reduction in his salary down to $85,000.  So as to have no reduction in his current lifestyle, he commences a Transition to Retirement Pension for $15,000 per year. Currently, although Ken pays income tax at his current marginal rate on the pension (less a 15% tax offset) his superannuation fund pays no tax on the earnings on his superannuation account. Under the new law from 1 July 2017, the earnings on his superannuation will be taxed at 15% as he is receiving a Transition to Retirement Pension. While this measure makes the Transition to Retirement strategy less attractive, the concessional rate of 15% tax on earnings still compares favourably to the marginal tax rates that may apply on earnings outside of superannuation.  Additionally, as stated, the 15% tax offset on Transition to Retirement amounts received by people under the age of 60 will remain, as will the tax-free treatment of those amounts for those aged 60 and over.

LOW INCOME SPOUSE SUPER CONTRIBUTION EXTENDED

From 1 July 2017, if it is re-elected the Government will increase access to the low income spouse superannuation tax offset by raising the income threshold for the low income earning spouse to $37,000 (up from $10,800).  The offset will gradually reduce for incomes above $37,000, before phasing out completely for incomes above $40,000.
To recap, this offset provides up to $540 each year for the contributing spouse.,br>

EXAMPLE

David earns $38,000 per year.  His wife Bobby wants to make a superannuation contribution on his behalf. Under the current rules, Bobby would not be entitled to a tax offset as David’s income exceeds $10,800.  Therefore there is no tax incentive for Bobby to make a contribution on behalf of her spouse. Under the new proposed law, Bobby would be eligible for a tax offset as David’s income is below $40,000.  However, as David earns more than $37,000, Bobby will not receive the maximum $540 tax offset.  Rather, the offset will be 18% of the lesser of:
  • $3,000 reduced by every dollar over $37,000 that David earns, or
  • The value of the spouse contributions made by Bobby.

RETIREMENT INCOME PRODUCTS – TAX EXEMPTION

From 1 July 2017, if re-elected the Government will remove the tax barriers to the development of new retirement income products by extending the tax exemption on earnings in the retirement phase to products such as deferred lifetime annuities and group self-annuitisation products.          

THE SUPER NEW LANDSCAPE

ADDITIONAL TAX ON CONCESSIONAL SUPER CONTRIBUTIONS OF HIGH INCOME EARNERS Both the Opposition and the Government if elected will reduce the income threshold above which the additional 15% “Division 293 tax” cuts in for concessional superannuation contributions. The threshold will be reduced from $300,000 to $250,000 from 1 July 2017.  For those who earn below this amount, the tax on concessional contributions will remain at 15%.  To recap, concessional contributions consist of employer Superannuation Guarantee contributions, salary sacrifice contributions, and after-tax contributions for which you can claim a deduction under the “10% Rule”.  The $300,000 / $250,000 income threshold consists of:
  • Taxable income
  • Total reportable fringe benefit amounts
  • Net financial investment losses
  • Net rental property losses
  • Net amount on which family trust distributions tax has been paid
  • Concessional superannuation contributions made within the concessional contributions cap for the financial year.
Note that if an individual’s income excluding their concessional contributions is less than the threshold but the inclusion of their concessional contributions pushes them over the threshold, the extra 15% tax will only apply to the part of the contributions that are in excess of the threshold. EXAMPLE Grace has Division 293 income of $240,000, and has made concessional contributions of $20,000. 2015/2016 AND 2016/2017 As her Division 293 income plus concessional contributions is below $300,000, Grace’s concessional contributions will be taxed at 15% (payable by her superannuation account in the year that the contributions are made). 2017/2018 ONWARDS As her Division 293 income plus concessional contributions is above the new threshold of $250,000, Grace is liable for an additional 15% tax (30% in total).  The 30% tax will be applied to the $10,000 concessional contributions above the $250,000 threshold.  The total superannuation contributions tax will be $4,500. $1,500 (15% x the $10,000 below the $250,000 threshold) plus $3,000 (30% x $10,000 above the $250,000 threshold) Although this policy has attracted significant attention in the media, the actual impact will not be widespread as only 4% of taxpayers earn above $250,000, and the lowering of the threshold will only affect an estimated 110,000, people (those who earn between $250,000 and $300,000).  Even if this tax increase makes it into law, those who salary sacrifice will still enjoy a tax benefit of up to 19 cents in the dollar on amounts that they sacrifice into superannuation. CAPPING THE AMOUNT OF TAX-FREE INCOME Although they have gone about it differently, both the Government and the Opposition have announced policies to limit the amount of tax-free superannuation income that can be enjoyed in retirement. GOVERNMENT From 1 July 2017, the Government proposes to introduce a transfer balance cap of $1.6 million on the total amount of accumulated superannuation that an individual can transfer into a tax-free retirement account (retirement phase or pension phase).  Earnings made when your account is in the retirement phase or pension phase are tax-free.  Earnings on these balances will not be restricted.  By limiting the amount of capital to $1.6 million, this will in effect limit the amount of earnings/income that can be received tax-free when your account is in the retirement/pension phase.  This applies to existing pensions as well as future pensions. To be clear, you will still be able to have amounts in excess of $1.6 million inside superannuation, however these excess amounts must be in an accumulation phase account (where earnings are taxed at the existing concessional rate of 15%).  The $1.6 million cap will be indexed in $100,000 increments in line with the Consumer Price Index (CPI). For those of you who have accounts in the retirement phase as at 1 July 2017, if you have amounts in excess of $1.6 million you will be required to either transfer the excess back into an accumulation account, or withdraw the amount from your superannuation fund (only if you are over 60 will the withdraw be tax free – if under 60, there will be tax on the taxable component). Regarding the total cap amount of $1.6 million, once amounts are transferred into the retirement account, subsequent fluctuations due to earnings growth or pension payments will not affect the amount of the cap used. EXAMPLE Brad is 64 and retires from work and therefore meets a Condition of Release in December 2017.  He has $2.3 million in superannuation. He can transfer $1.6 million into a retirement account, the earnings on which will be tax-free.  The remaining $700,000 can sit in an accumulation account (the earnings on which will be taxed at the standard 15%).  All pension amounts received will be tax-free in Brad’s hands as he has turned 60. Alternatively, Brad can withdraw the $700,000 tax-free as he has turned 60.
STRATEGY This proposal may allow couples to have a combined pension balance of up to $3.2 million.  However, where most of the superannuation savings are in one spouse’s name, the Government’s lifetime non-concessional superannuation cap (see later) may limit the ability to equalise account balances and maximise the combined transfer balance cap.
OPPOSITION Along similar lines, the Opposition if elected will tax the superannuation pensions of high-income earners.  Under their policy, from 1 July 2017 future earnings on assets supporting income streams will be tax free up to $75,000 per year for each individual.  Earnings above the $75,000 threshold will attract the same tax rate of 15% that applies to earnings in the accumulation phase. EXAMPLE Susie is 63 years old, retired and she has $1.8 million in superannuation.  Susie is drawing an account-based pension, thus her account is in pension mode where her earnings are tax-free. Last year, Susie’s superannuation earned $90,000 (at a rate of 5%) which she has taken as income.  Under Labor’s proposal, Susie will pay 15% tax on earnings over $75,000.  This equates to $2,250 tax (payable out of her superannuation savings, not charged to her personally) which reduces her after-tax earnings to $87,750.
IMPACT Both the Government’s and Opposition’s policy again will not have a widespread impact as only 60,000 people are estimated to be impacted under either policy (those who have account balances in excess of $1.6 million).  Even for those who are impacted, the maximum rate on earnings (15%) is more attractive than the individual marginal tax rates that may apply to earnings on investments made outside of superannuation.