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Newsletter July 2006

For the 2005/2006 income year and later years, the law has been changed to exclude the following payments from qualifying for the tax offset;

• cosmetic operations for which Medicare benefit is not payable, and
• dental services and treatment which are solely cosmetic.

Medical expenses do not include contributions to a private health fund, travel or accommodation expenses associated with medical treatment, or inoculations for overseas travel.

For the 2005/2006 income year the net medical tax offset will remain at 20% (20 cents in the dollar) of your net medical expenses over $1,500.

The medical expenses must be for:

• you;
• your spouse - married or de facto - regardless of their income;
• dependent children aged under 21 years old;
• dependent children who are students aged under 25 years;
• an invalid relative, parent or spouse's parent, or child housekeeper but only if you can claim a tax offset for them.

Overtime Meals - Overtime meal allowance expense claims up to an amount of $21.90 per meal are considered to be reasonable for the 2006/2007 income year where the meal is paid under an industrial award.

Domestic Travel - A domestic or overseas travel allowance expense claim is considered to be reasonable if the amount of the claim covered by the allowance received by an employee does not exceed the relevant reasonable amount shown in an ATO table.  Different allowance amounts apply to employees at three separate salary levels (up to $84,250; $84,251 to $149,750; and above $149,751).  There are also different amounts for office holders covered by the Remuneration Tribunal, including federal members of parliament, and employee truck drivers.

Over the past few months there have been some significant developments in Bankruptcy Law that have the effect of making a person's family home available for their creditors if they should go bankrupt.  The old way of protecting the family home by 'putting it in the wife's name' may no longer be effective.

A solution to the problem is that the new provisions under the Bankruptcy Act do not affect a family home that is held by a Corporate Trustee.  However, it should be noted that stamp duty, annual land tax, and eventual capital gains tax may make it an expensive process.

For the income year beginning 1 July 2006, the benchmark interest rate is 7.55% (up from 7.30% for the previous year).  This benchmark interest rate only applies to a private company or trustee which has an income year commencing 1 July 2006.

The car cost limit for capital allowance purposes for 2006/2007 is $57,009 (this has remained unchanged since the 2002/2003 year).  This has the effect of placing a limit on the cost of cars for depreciation purposes, so cars purchased for greater than the limit, the deduction for the decline in value of the car is calculated as if the cost were only $57,009.

The luxury car tax threshold for 2006/2007 is also $57,009.  Motor Vehicles defined as 'luxury cars' are subject to luxury car tax on the portion of the value of the vehicle exceeding $57,009.

Averaging of land values - for the 2007 land tax year, the taxable value of each parcel of land will generally be the average of the land value applying for the current tax year and the values that applied for the previous two years.  Where a parcel of land was only recently created (eg by subdivision or amalgamation), the average will be based only on the land values for those taxing dates when the land did exist.

Averaging of land tax threshold - for the 2007 and future land tax years the land tax threshold will be averaged.  The threshold will be the average of the 'indexed amount' for the new and the previous two land tax years, as calculated annually by the Valuer General.

As the land tax threshold was abolished for the 2005 land tax year, a 'notional' threshold of $342,000 will be used for that year.

The dependent child age for a child (who is not a student) is now defined as 'aged less than 21 years' (previously 16 years).  The age of a dependent full time student remains defined as 'aged less than 25 years'.

The new age criterion for a dependent child is used in determining entitlement to the housekeeper, child-housekeeper, medical expenses, zone and overseas forces tax offsets, and the Medicare levy and Medicare levy surcharge family thresholds.

The new criterion applies from 1 July 2005 is not retrospective.