Client Alert: July 2009

Dear Client,

We are pleased to supply you with the July 2009 edition of Client Alert, which contains information on a number of important developments in taxation including:

Tax Law Amendments - A bill to setthe PAYG instalment rate for 2009/10 and to allow taxpayers who voluntarily registered for GST to report their PAYG instalments annually.
Small Business and General Business Tax Break - Changes to the one-off bonus deduction available to business that purchase eligible assets
2009 Federal Budget Follow up - A bill introducing three measures announced in the 2009/10 Federal Budge, including the proposed reduction to the superannuation concessional contributions cap.
Medicare Levy Thresholds 2008/09 - Proposed increases to the Medicare levy and Medicare levy surcharge low-income thresholds for 2008/09.
Superannuation Guarantee Ruling - A ruling setting out the Commissioner's view on the treatment of payments, such as overtime payments and Christmas bonuses, made to employees for the purposes of superannuation guarantee.
Taxpayer Alerts - Five alerts issued by the Tax Office warning taxpayers of arrangments under review, including treatment of losses from the disposal of shares.
Deductibility of Self-education Expenses - The Tax Office's treatment of the deductibility of self education expenses against Commonwealth educational payments.
Work Cover Data Matching Project - A data matching project that the Tax Office will be conducting to ensure compliance with the tax law by businesses.

Please Contact us if you wish to discuss how the points raised in Client Alert specifically affect you.

Tax Law Amendments

The Federal Government has introduced a Bill into Parliment which seeks to set the PAYG instalment factor at 2% for the 2009/10 income year and allow taxpayers who are voluntarily registered for GST and choose to remit GST annually to also remit their PAYG instalments annually.

Small Business and General Business Tax Break

The Tax Laws Amendment (Small Business and General Business Tax Break) Act 2009 provided a one-off bonus deduction for businesses that purchase eligible assets. It received Royal Assent in May 2009.

The Act incorporates various amendments, which include;

Increasing the rate of the bonus deduction for small business entities to 50%
Clarifying the rate of the bonus deduction to be used on a batch/set of identical assets where a taxpayer is a general business; and
Clarifying that a taxpayer who chooses to self-construct an eligible asset is not precluded from teh bonus deduction.

The rate of the bonus deduction remains unchanged for general businesses. That is, either 30% or 10% depending on the acquisition time of an eligible asset.

2009 Federal Budger Follow-up

The Government has introduced a Bill into Parliment seeking to implement three measures announced in the 2009/10 Federal Budget. The Budget will:

Amend teh provisions relating to teh income tax exemption on foreign income;
Temporarily reduce the matching rate and maximum co-contribution for the superannuation government co-contributions; and
reduce the superannuation concessional contributions cap.

Foreign employment income

Foreign employment income derived by a taxpayer engaged in continuous foreign service for 91 days or more will be exempted from income tax if the service is attributed to specific activities. For example, the delivery of Australia's overseas aid program by the taxpayer's employer.

Superannuation co-contribution

The Bill will temporarily reduce the matching rates and maximum co-contribution as below:

For the 2009/10 to 2011/12 income years, $1 for each dollar of contribution, up to a maximum of $1,000 per annum;
For the 2012/13 and 2013/14 income years, the rate is $1.25 for each dollar of contribution, up to a maximum of $1,250 per annum; and
for 2014/15 and later income years, the rate is $1.50 for each dollar of contribution, up to a maximum of $1,500 per annum.

Superannuation concessional contributions cap

The Bill will reduce the concessional contributions cap to $25,000 per annum from 1 July 2009. The Bill will also reduce the transitional concessional contributions cap, which applies until the 2011/12 income year for individuals aged 50 to 74, to $50,000 per annum.

The non-concessioal contributions cap will remain at $150,000 for the 2009/10 income year.

Medicare Levy Thresholds 2008/09

The Federal Government has introduced a Bill into Parliment seeking to increase the Medicare levy and Medicare levy surcharge low income threshold amounts for individuals, families and pensionets below age pension age for the 2008/09 income year.

The proposed threshold for singles is $17,794 and $25,299 for pensioners under age pension age.

The proposed threshold for families with no dependants is $30,025. The additional amount to the threshold for each dependent child or student will be $2,757.

Superannuation Guarantee Ruling

The Tax Offioce has issued a ruling in which the Commissioner states his view regarding the treatment of payments made to employees for the purpose of the superannuation guarantee (SG).

The ruling has been modified from the dreaft ruling previously released to include several important changes. These changes include:

Christmas bonuses are now considered to be ordinary time earnings (OTE) and to be included when determining the minimum SG payable for an employee; and
regular overtime payments made outside an employee's ordinary hours of work will generally not be included in OTE and, therefor, not included in calculating the required level of SG for the employee

The ruling does not discuss whether parental leave and ancillary leave (eg Jury duty leave) are taken into account when calculating the minimum SG for an emplyee.

Taxpayer Alerts

The tax office has issued five Taxpayer alerts warning taxpayers of arrangements that it is currently reviewing. These alerts relate to:

1. the non-commercial use of negotiable instruments to pay a benefit from a self-managed superanuation fund (SMSF) or make a contribution to the SMSF;

2. The advice provided by a company to its shareholders that monies received in relation to unexercised entitlements for a share offer should be treated as a capital gain and the CGT discount may potentially apply;

3. The re-characterising of capital losses as revenue losses on the disposal of shares by individuals where previously they claimed to be long-term investors eligible for the CGT 50% discount;

4. The selling of interests in managed investments schemes (MIS) by promoters to groups of individual investors on the basis that they will be 'partners' in a partnership and will be able to claim upfront deductions for their interests in a MIS; and

5. The attempts by a taxpayer to create or claim a capital loss arising from the artificial receipt and surrender of an interest in a discretionary trust as a default beneficiary.

The Tax Office says the arrangments described in the first alert in teh above list may breach the provisions of the supperannuation legislation.

Deductibility of Self-education Expenses

The Tax Office has issued a notice following the recent decision of the Federal Court that a taxpayer who was receiving Youth Allowance was entitled to a deduction for self-education expenses incurred.

The Tax Office says that it will continue to apply the Commissioner's established view that self-education expenses are not deductible against various Commonwealth educational assictance schemes.

Workcover Data Matching Project

The Tax Office has announced that it will request and collect business names and addresses from each state's and territory's WorkCover Authority for the 2007 and 2008 calendar years.

The information collected from the projects will be electronically matched with the Tax Office's data holdings to identify non compliance with registration, lodgment and payment obligations.