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Newsletter June 2009

As the financial year draws to an end, it is important that you give consideration to your year end tax planning. Below is a summary which highlights some key issues together with some of the significant tax changes of the past year.

Superannuation Contributions. To obtain a tax deduction for the year ended 30 June 2009, all superannuation contributions must be paid and must reach the complying superannuation fund by 30 June 2009. Deductible superannuation contributions are subject to annual caps. Where the annual caps are breached a full deduction is available to the payor, however the superannuation fund member receiving the benefit of the excess contributions will be subject to tax on the excess at 31.5%. This excess contributions tax may be paid by the member's superannuation fund. The annual caps are; 

If the Superannuation Guarantee Contribution for the year ended 30 June 2009 is not made by 28 July 2009 then the Superannuation Guarantee Charge needs to be paid to the Australian Taxation Office. Superannuation paid after 30 June 2009 is not a tax deduction in the 2009 tax return.

From 1 July 2009, the annual cap for deductible superannuation contributions will be halved. 

As a final check list prior to 30 June 2009 please consider;

• Salary sacrifice opportunities,
• Maximizing contributions for non working spouses and other working family members,
• Making non tax deductible contributions into superannuation up to $150,000 per year or $450,000 (age limit of 65) to cover three years.
• Transition to retirement pension strategies for example maximizing contributions at the same time as receiving concessionally taxed pensions or tax free pensions.
• Employment Termination Payment Strategies and the ability to roll these into superannuation funds.

If your total income for co-contribution purposes (the sum of your assessable income plus your reportable fringe benefits amount) is $30,342 or less, the government contributes $1.50 for every dollar a taxpayer contributes to a complying superannuation account, up to a maximum co-contribution of $1,500 a year. 

From 1 July 2009, the government co-contribution will be reduced to $1.00 for every dollar a taxpayer contributes.

Yearly income streams from account-based pensions must be withdrawn from pension funds before 30 June 2009. Pension withdrawals must be within the yearly minimum and maximum limits.

Small businesses with a turnover of less that $2 million that acquire an eligible asset between 13 December 2008 and 31 December 2009 will be entitled to a 50% bonus tax deduction. The asset purchased must have a GST exclusive cost greater than $1,000.

For large companies, a temporary 30% investment allowance is available for new assets purchased, ordered, or started construction prior to 30 June 2009, where the cost of the asset was more than $10,000. The allowance is reduced to 10% from 1 July 2009.

Bad Debts must be written off as a bad debt before year end in order to claim a tax deduction. It is important that a minute recording a bad debt write off is created.

Employee Bonuses are generally only deductible if they’re incurred by year end. This means there must be a legal liability to pay the bonus to the employee and the amount must be able to be reasonably estimated.

Depreciating assets that are not used and scrapped by year end can be written off with an immediate tax deduction. These items should be identified prior to year end.

For tax purposes gains & losses are only bought to account when foreign currency, rights or obligations are realized.

Where there is a sale of a capital asset in which a contract is required, then for capital gains tax purposes, the contract date is the date in which the capital gains tax event occurs, not settlement date.

Should a taxpayer incur a capital gain then the taxpayer should consider realizing any capital losses which can be offset against any capital gains. Remember capital losses can only be offset against capital gains.

For a company to carry forward its tax losses it must pass the continuity of ownership test or the same business test.

Dividends paid during the year can be fully franked provided at the end of the financial year there are sufficient franking credits to cover the dividend. If there are insufficient credits then franking deficit tax needs to be paid by 28 July 2009.

In NSW where the employer’s payroll exceeds $623,000 per annum, payroll tax is charged on payroll in excess of $623,000. From 1 July 2008 to 31 December 2008 the payroll tax rate was 6%. From 1 January 2009 to 30 June 2009 the payroll tax rate is 5.75%.

For payroll tax purposes wages includes direct wages, superannuation, fringe benefits, annual leave, payments to certain contractors etc. If you believe you have a payroll tax liability for the year ended 30 June 2009 please contact your Wearne & Co principal.

Advance deductions for most prepayments are no longer available except where,

• they are less than $1,000 GST exclusive,
• required to be made by law under a court order,
• under a contract of service, eg. salary & wages,
• expenditure of a capital or private nature,

Income is assessable when it is derived. Therefore for year end tax planning it is important to assess when income is derived and where possible, defer that income until the following year.

• Employment income is derived when the income is received, so deferring payment can defer the tax payable. This will apply to bonuses, director’s fees and similar payments.
• Interest income is derived when it is received, or credited to the taxpayer, not when it is accrued. Therefore by deferring the receipt of interest, even if it has been accrued, will defer income.
• Rental income is usually derived when it is received, or credited to the taxpayer, so this could potentially be deferred.
• Prepayment for services. Where a taxpayer received a payment for the provision of services in advance of the services, and the amount can be refunded if the service is not provided, the income has not been derived until the services are provided.