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Newsletter August 2006

The government has announced that it will introduce legislation to prevent bankrupts from transferring money into superannuation as a means of defeating creditors.

The government said that the rules would protect genuine contributions for retirement purposes. The rules would only apply where a bankrupt makes contributions that are 'out of character'.

The government announced that the legislation will allow a bankruptcy trustee to recover the value of contributions made by the bankrupt to defeat creditors.  Contributions made by a third party for the benefit of the bankrupt can also be recovered if the purpose of the arrangement was to defeat creditors.

The tax office has issued a new determination to provide a quick and easy method for restaurants, cafes and caterers to estimate their entitlement to GST input tax credits.

The determination is designed to allow restaurants, cafes and caterers who are not eligible or do not wish to use the existing determinations, an opportunity to choose and adopt a simplified GST accounting method (SAM) that will reduce their costs of complying with the GST legislation.

The determination can be used by restaurants, cafes, and caterers that;

• are registered for GST,
• mainly sell a range of food that is commonly sold by restaurants, cafes, and caterers,
• have an annual turnover of $2 million (excluding GST) or less.

Eligible food retailers can use a simple formula to calculate their GST-free acquisitions so as to determine their entitlement to input tax credits for each tax period.  The formula uses trading stock figures obtained over a four-week sample period to determine what percentage in total acquisitions is represented by GST-free acquisitions.

The Research & Development (R&D) Tax Concession is an ongoing scheme designed to increase the level of R&D being conducted by Australian companies.

It enables companies to deduct up to 125% of eligible expenditure incurred on R&D activities from assessable income when lodging their income tax returns.  For expenditure that qualifies for the 125% concession, an additional 50% deduction called the '175% premium R&D tax concession' may be available.  It is available to those companies that increase their level of this type of R&D expenditure relative to their average of such R&D expenditures over the previous three years. Grouping and other rules apply.

The ETO is an offset of up to 25% of the income tax liability attributable to the STS business income of STS taxpayers whose annual group turnover is less than $75,000.

It applies to assessments for the first income year starting on or after 1 July 2005.  For most taxpayers it will first apply to their assessment for the 2005-2006 income year.

The ETO is available to a sole trader or a company that is an STS taxpayer, a partner in an STS partnership, and the trustee or beneficiary of an STS trust (depending on who is liable for the tax on the trust income).  Where a taxpayer receives net STS income from more than one source, they may be eligible for more than one ETO.

To be eligible for the full 25% offset, the STS taxpayer's annual STS group turnover must be $50,000 or less. The benefit is phased out where the turnover is in the range of $50,001 to $75,000.

From 1 July 2006, temporary residents will be treated more like non-residents than residents for tax purposes as most of their foreign income will now be exempt.

For the purposes of this change, a temporary resident will be considered 'temporary' if;

• they hold a temporary visa granted under the Migration Act 1958,
• neither they, nor their spouse, are an Australian resident within the meaning of the Social Security Act 1991.

The changes mean that temporary residents;

• will be exempt from tax in Australia on most foreign source income,
• can disregard net capital gains from assets that do not have a necessary connection to Australia, and
• will be exempt from interest withholding obligations associated with amounts owing to foreign lenders.

The changes apply to the 2006-2007 and future income years.

Temporary residents who work in Australia may be entitled to receive their superannuation contributions after they leave Australia.  This payment is called the departing Australia superannuation payment (DASP).

Temporary residents can claim any superannuation benefits they accumulated while working in Australia, as long as they visited on an eligible temporary resident visa (which has expired or been cancelled) and have departed Australia.