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Newsletter August 2010

Superannuation Guarantee

The superannuation guarantee requires an employer to contribute a minimum of 9% of an eligible employee’s earnings to a complying super fund. The maximum super contribution base is used to determine the maximum limit on any individual employee’s earnings base for each quarter of any financial year. One does not need to provide the minimum support for that part of earnings above this limit. The base for 2010/11 is $42,220 per quarter.

Super Co-contribution

The super co-contribution is a helping hand from the government to assist eligible individuals to save for their retirement. If someone is eligible and makes a personal contribution, the government will match the contribution with a super co-contribution up to certain limits. For 2010/11, the maximum entitlement is $1,000, with the lower income threshold at $31,920 and the higher income threshold at $61,920.

Genuine redundancy payments you receive are tax-free up to a limit based on your number of years of service. For the year ended 30 June 2011, the tax-free limit is $8,126 (up from $7,350), plus $4,064 for every year of service (up from $3,676). The amount over the limit will be taxed and will then form part of your ETP.

The taxable income levels for repayment of Higher Education Loan Programme (HELP) debts for the 2010/11 year and the repayment rates are as follows;

Recent changes to the GST Grouping measures have reduced the previous risks in becoming a member of a GST group. The changes now allow;

• members of a GST group to limit their otherwise joint and several liability for the GST liabilities of the GST group, by entering into an indirect sharing arrangement,
• a member of a GST group that exits the group during a tax period is able to exit clear of any liability for the portion of that tax period that it was a member,
• GST group can form and dissolve, and new members can be added:
  • on a self assessment basis (pending notifying the ATO),
  • with effect on any day during a tax period.

One of the changes that may affect private companies concerns shareholders or their associates who use company assets for free, or for less than their market value. These arrangements will now

be treated as payments for the purposes of Division 7A. There are three exceptions to this change:

• minor usage of company assets,
• instances where had the shareholder (or their associate) incurred and paid a cost to use the asset, they would have been eligible to claim a once only deduction for that cost
• the use of certain residences. A number of conditions have to be met for this exception to apply.

Private companies that are currently allowing the use of assets that do not come under the exceptions may need to review their position. These companies will have to consider keeping records of usage and payments for the usage.

To work out when tax must be paid on Employee Share Scheme (ESS) interests, you will now need to consider the structure of the scheme and, in some cases, the employee’s circumstances.

If you are part of a taxed up-front ESS, you may be eligible for a $1,000 up-front tax concession if your taxable income (after adjustments) is $180,000 or less. Also, as a result of participating in the scheme, you must not:

• receive more than 5% ownership of the company,
• control more than 5% of the voting rights in the company.

Generally, the difference between the market value of an ESS interest and what the employee paid for the interest is the amount that will be taxed in the year they acquired the ESS interest.

If an employee is part of a deferred ESS, they will generally pay tax on the difference between the market value of the ESS interest and its cost base at the deferred taxing point. The deferred taxing point for shares is the earliest of one of the following:

• when there is no real risk the employee will forfeit the share, or lose the share other than by disposing of it, and there are no genuine restrictions preventing disposal,
• when the employee ceases the employment in respect of which they acquired the share,
• seven years after the employee acquired the share.

The deferred taxing points for rights have extra conditions to account for situations that only arise in relation to rights – for example, because they can be exercised).

Employees with taxable incomes above $180,000 will not be eligible to defer the taxing point.