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Newsletter January 2012

The government has announced that it will introduce reforms to stop individuals from exploiting the tax exemption for living-away-from-home allowance and benefits. It is proposed that the reforms will be introduced from 1 July 2012.

Under the proposed changes, the FBT Act will be amended to remove LAFHA as a fringe benefit and instead will be included as assessable income for the employees unless:

• They are permanent residents or temporary residents maintaining a home in Australia which they are living from for work; and
• Expenses relating to accommodation and for food above a statutory amount can be substantiated.

A temporary resident is considered to be maintaining a home in Australia for their own use when that home is available for their personal use and enjoyment at all times, which includes an owned or rented unit of accommodation defined under the FBT Act. Temporary residents cannot maintain any other home in another state or country.

The vast majority of temporary residents may fail this test and will not qualify for concessional tax treatment.

The government has stressed that following classes of taxpayers will not be affected by the reforms:

• Permanent residents receiving LAFHA benefits that can be substantiated;
• Employees operating fly-in fly-out arrangements within Australia; and
• Employees of community sector organizations who are not currently using all of their FBT exemptions cap.

To return the Budget to surplus in 2012/2013, the government has announced that it will defer previously announced tax reforms by one year;

• The start date of the standard deductions for work related expenses will be deferred until 1 July 2013,
• The start date of the 50% tax discount for interest income will be deferred until 1 July 2013,
• The start date of the phase down in interest withholding tax for financial institutions will be deferred until 2014-15.
• The start date of the new tax system for managed investment trusts will be deferred until 1 July 2013, allowing more time consultation.
• The government will pause the indexation of the superannuation concessional contributions cap until 2013/2014.

The government had previously announced that individuals earning up to $37,000 will effectively pay no tax on their superannuation guarantee contributions from 1 July 2012. Under the low income super contribution rules, the 15% contribution tax will effectively be refunded into their superannuation accounts.

The government will verify an individual’s income using its available data, so eligible individuals will not need to complete any application forms.

To be eligible, individuals must receive more than 90% of their income through employment or business related work.

The government will restrict the Dependent Spouse Tax Offset to those with spouses born before 1 July 1952. This reform will not affect people whose spouse is an invalid or a carer, or who receives the zone, overseas forces, or overseas civilian tax offsets.

As announced in previous newsletters, regulations were made in previous years to reduce the pension drawdown percentages. The government had previously announced that this drawdown relief would be phased out over the coming years.

Regulations will now be made to extend the drawdown relief for self-funded retirees with a 25% reduction in the minimum payment for account-based, allocated, and market linked pensions for the 2012/2013 financial year. This is an extension to the 50% relief for the 2008/2009 to 2010/2011 financial years. The government had indicated previously that the minimum payment amounts would return to normal in 2012/2013.

From 1 July 2011 rules were introduced for self-managed superannuation fund (SMSF) investments in collectables and personal use assets. The rules apply to all collectable and personal use asset investments made by SMSFs on or after that date. If your SMSF held an investment in a collectable or personal use asset prior to 1 July 2011, it has until 1 July 2016 to comply with the new rules. This transitional period provides SMSF trustees with existing investments in collectables and personal use assets time to comply with the rules.

Collectables and personal use assets may include artwork, jewellery, antiques, artefacts, coins, medallions, bank notes, postage stamps, rare folios, manuscripts or books, memorabilia, wine or spirits,  motor vehicles, or recreational boats.

The regulations require that:

• collectables and personal use assets must not be leased to any related party of the funds,
• collectables and personal use assets must not be stored or displayed in the private residence of any related party of the fund,
• trustees must make a written record of the reasons for the decisions on where to store the collectables and personal use assets and keep the record for 10 years,
• trustees must ensure that collectables and personal use assets are insured in the name of the fund within seven days of acquisition,
• collectables and personal use assets cannot be used by any related party of the fund,
• the transfer of ownership of collectables and personal use assets to a related party of the self-managed super fund must be done at a market price determined by a qualified independent valuer.