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Newsletter August 2008

First home saver accounts (FHSA) are a new initiative introduced as a tax effective way to help first home buyers kick start saving for a first home. These accounts will be available from financial institutions (including banks and super funds) on 1 October 2008. To open one of these accounts, you need to:

• be aged over 18 and under 65 years
• have a tax file number you can quote in your application
• have never owned a home in Australia that has been your main residence
• never previously have had a first home saver account.

After each financial year, you’ll receive a government contribution based on your personal contributions during that year. When you’re ready to buy or build your first home, you withdraw the funds and close your account. This is what you need to do:

• Make personal contributions of at least $1,000 for four financial years (not necessarily consecutive years) before you can withdraw your money.
• Contribute as little or as much as you like every year, up to a maximum cap over the life of the account. The cap is $75,000 for the 2008–09 financial year and will be indexed over time.

Other people (such as your parents or other family members) can help you out by contributing to your account. The government will contribute 17% on top of your personal contributions up to a maximum of $850 for the 2008–09 financial year.

Amendments to the income tax laws have been made to provide relief from capital gains tax (CGT) to private health insurance policy holders when their insurer demutualises to a for profit insurer.

The amendments ensure that policy holders who receive shares, in the demutualised insurer, will not be subject to CGT when they receive the shares. In addition, these shares will broadly receive a market value cost base.

Policy holders who receive a cash payment under their insurer’s demutualisation, rather than shares, will not be subject to CGT at the time they receive this payment.The changes will provide certainty to policy holders of health insurers that have demutualised. The changes will apply from 1 July 2007.

For a self-managed super fund (SMSF) to receive its tax concessions, it must be a complying super fund. To be complying, a fund must satisfy a residency test.

The residency test has three elements. The fund’s trustee must make sure the fund meets all three conditions to ensure that it qualifies as an Australian superannuation fund at a particular time:

• the fund was established in Australia, or at least one of the fund’s assets is located in Australia.
• the central management and control of your fund is ordinarily in Australia, and either of the following
  • the fund has no active members, or
  • it has active members who are Australian residents, and who hold at least 50% of
    • the total market value of your fund’s assets attributable to super interests, or
    • the sum of the amounts that would be payable to or for, active members, if they voluntarily ceased to be members.

 The central management and control of your SMSF is the strategic decision-making of the fund. This includes carrying out duties like:

• formulating the investment strategy of the fund
• reviewing the performance of the fund’s investments
• these duties are generally performed by the trustee or trustees of the fund.

The trustee of a Self Managed Superannuation Fund (SMSF) will contravene the SIS Act if the trustee uses the resources of the SMSF to give financial assistance to a member of the SMSF or relative of a member.

The term ‘financial assistance’ extends beyond the provision of loans and other kinds of disposition of money or property. Financial assistance can take the form of the giving of a guarantee, indemnity, security or charge or the taking on of an obligation, or any other arrangement that, on an objective assessment is in substance to provide financial assistance to a member or relative using the resources of the SMSF. Other examples may include;

• giving a gift of an SMSF asset to a member or relative of a member
• selling a SMSF asset for less than its market value to a member or relative
• purchasing an asset for greater than its market value from a member or relative of a member
• releasing a member or relative of a member from a financial obligation owed to the SMSF

The taxable income levels for repayment of Higher Education Loan Program (HELP) and Higher Education Contribution Scheme (HECS) debts for the 2008/2009 year and the repayment levels are as follows;

HELP Repayment Income	Repayment Rate
Below $41,585	Nil
$41,595 - $46,333	4%
$46,334 - $51,070	4.5%
$51,071 - $53,754	5%
$53,755 - $57,782	5.5%
$57,783 - $62,579	6%
$62,580 - $65,873	6.5%
$65,874 - $72,492	7%
$72,493 - $77,247	7.5%
$77,248 and above	8%