Tag: Tax

The Tax Advantages of Superannuation

Superannuation is a concessionally taxed environment as follows  

* Superannuation earnings (such as interest, dividends, rent etc.) are taxed at 15% when your account is in accumulation mode (i.e. not in pension mode). These earnings are tax-free when your account is in pension mode. By contrast, investment earnings on assets (such as shares, property, term deposits etc.) held outside of superannuation are taxed at your marginal tax

* Capital gains made by superannuation funds are likewise taxed at 15% when your account is in accumulation mode. Where a CGT assets supports a pension, any capital gain made when those assets are sold is tax-free. Any capital gain made by your superannuation fund is reduced to 10% (a 33% discount) where that asset has been held for 12 months or more.  Although this is a lesser discount than the 50% discount available to trusts and individuals, this is negated by the base CGT superannuation taxation rate of 15%.

Therefore, as well as making provision for your retirement, by contributing to superannuation you can also enjoy the above tax concessions. From 1 July 2017 all individuals up to age 75 can claim an income tax deduction for personal superannuation contributions. Before this date, you could only claim a deduction for your personal contributions where less than 10% of your assessable income, your reportable fringe benefits and your reportable employer superannuation contributions (e.g. salary sacrifice contributions) for the year were from being an employee – this was known as the 10% Rule. This rule prevented most employees from claiming a tax deduction for this type of contribution. However, under the new rules, to claim a deduction, the following requirements must be met:

* Age – All individuals under the age of 65 are eligible. Those aged 65 to 74 meet the superannuation ‘work test’ (work for at least 40 hours in a period of not more than 30 consecutive days in the financial year in which you plan to make the contribution). For those aged 75, the contribution must be made no later than 28 days after the end of the month in which you turn 75. Older taxpayers are ineligible.

* Minors –  If the individual is under 18 at the end of the income year in which the contribution is made, they must derive income in that year from being an employee or carrying on a business.

* Complying Fund – The contribution must be made to a complying superannuation fund.

* Notice Requirements – To claim the deduction you must provide your superannuation fund with a Notice of intention to claim a deduction form before you lodge your tax return in respect of that financial year.

Superannuation is also a great asset protection strategy. If a person becomes bankrupt, they may lose most (or all) of their assets. However, the Bankruptcy Act provides that the interest of the bankrupt in a regulated superannuation fund at the time of the commencement of the bankruptcy is not ‘property’ that can vest in their trustee in bankruptcy to be divided among creditors. Furthermore, if the superannuation fund pays a lump sum to a bankrupt (though not a pension) after the date of the bankruptcy, this money is also not divisible among creditors.

 

WHATS HOT?

This article examines some topical issues that taxpayers and employers should be aware of at this time. Areas covered include ATO compliance, the instant asset write-off, Airbnb tax consequences, and more.

NEW ATO RULES

The ATO is currently on the look-out for and taking action against employers who are not complying with two new regimes:

BACKPACKER TAX
Employers who employ workers in Australia on a 417 or 462 visa must now be withholding 15% tax from every dollar that they earn up to $37,000 (from the first dollar that they earn). These workers can no longer claim the tax-free threshold. Beyond $37,000, the normal tax rates apply.

Employers who currently have these workers on their books, must have registered online with the ATO by 31 January 2017 at www.ato.gov.au/twhm/ to be able to withhold at this new rate. Employers who won’t have this class of workers on their books until later in the year can register their business at that time. When you register with the ATO, you will typically not receive an acknowledgement, however the ATO advise that they will eventually include your registration information in your business’s ATO profile. To confirm that your registration has been successful, at this stage you will need to phone the ATO. Employers who cannot register online, can register with the ATO by phoning their business info line on 13 28 66. Employers with this type of worker on their books who do not register with the ATO will be required to withhold at the 32.5% rate and may be subject to ATO penalties.

SUPERSTREAM
Despite the deadline having passed months ago, SuperStream non-compliance among employers is still relatively high. By way of background, SuperStream is a Government initiative that aims to improve the efficiency of administering Australia’s superannuation system. The system requires employers to remit employee contributions (including Superannuation Guarantee) and other relevant data in an electronic, standardised format. The data is linked to the payment by a unique payment reference number. All employers are now required to be SuperStream compliant except for:
  • Contributions to your own SMSF (i.e. if you’re a related-party employer) – for example , if you’re an employee of your family business and your Superannuation Guarantee contributions go to your SMSF.
  • Personal Contributions – for example, if you’re a sole trader and you contribute to a superannuation fund for yourself.
Fines of up to $8,500 can now be imposed by the ATO on employers who are not SuperStream compliant. For more information on the SuperStream regime including compliance solutions, see the September/October edition of our publication which is available in the subscriber section of our website //www.taxrmytaxsavers.com.aueporter.com.au

INSTANT ASSET WRITE-OFF

If you are a small business (aggregated turnover of less that $2 million) contemplating buying machinery or equipment, be aware that these are the final months of the $20,000 instant asset write-off.

With a sunset date of 30 June 2017, small businesses may wish to start considering bringing forward any planned asset investments to the next few months – particularly in this current low interest-rate environment. You can read more about the cashflow benefits of the instant asset write-off in the previous edition of our publication (January/February 2017 ). Note that legislation is currently before the Parliament to increase the turnover eligibility threshold from $2 million to $10 million (to be back dated to 1 July 2016) however at the time of writing this has not yes been passed into law. We will immediately notify subscribers via email if and when this increase becomes law.

RENTING OUT YOUR HOME

With the advent of Airbnb many more residential home owners are now landlords – renting out their entire house, or one or two rooms. The ATO is at the moment,is particularly targeting those that rent out part of their property via Airbnb.

Whether you are renting out your entire home or part of your home through Airbnb or just traditionally by advertising it or through a real estate agent…. the tax consequences are broadly the same as follows:
INCOME
Any rental income will be assessable. You should keep records of your rental income, even when it is paid by the tenant in cash.
RENTAL EXPENSES
Where your rental income is assessable, you are generally entitled to tax deductions for expenses incurred in deriving that income.For landlords these generally fall in 3 categories:

To read the complete article please see the ATR Bi Monthly update for Mar/Apr 2017 – this can be accessed via our exclusive ATR Members Area //www.mytaxsavers.com.au/login

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