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Newsletter May 2008

To obtain a tax deduction for the year ended 30 June 2008, all superannuation contributions must be paid and must reach the complying superannuation fund by 30 June 2008. Superannuation contributions for all employees in excess of the age based limit are not deductible. The age base limits are; 

If the Superannuation Guarantee Contribution for the year ended 30 June 2008 is not made by 28 July 2008 then the superannuation needs to be paid to the Australian Taxation Office. If contributions are paid to a complying superannuation fund are late but paid before the due date for lodgement of the superannuation guarantee charge statement (28 days after the payment was due) an election can be made for the contributions to reduce the amount of the superannuation guarantee charge that must be paid to the Australian Taxation Office.

As a final check list prior to 30 June 2008 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 to cover three years. This applies if you are below 65 years of age. If aged between 65–75 years of age, you must pass the work test, and then you can contribute a maximum of $150,000 per year.
• Transition to retirement pension strategies for example maximizing contributions at the same time as receiving concessionally taxed pensions or tax free pensions.
• Eligible 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 $28,980 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. The maximum co-contribution that you can receive is reduced by 5 cents for $1.00 of your total income over $28,980. The co-contribution phases out completely when your total income is $58,980 or more. To be eligible for the superannuation co-contribution, 10% or more of your total income is from eligible employment, running a business, or a combination of both.

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 before 30^th June 2008.

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.

Where there is a sale of a capital asset in which a contract is required then for capital gains tax purposes, when the contract is entered into is the date when capital gains tax will apply, not settlement date. Should a taxpayer incur a capital gain then the taxpayer should consider realizing any capital losses to offset the 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 tests 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 in the franking account to cover the dividend. If there are insufficient credits then a franking deficit tax needs to be paid.

In NSW where the employer’s payroll exceeds $600,000 per annum, payroll tax of 6% is charged on payroll in excess of $600,000. 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 2008 please contact your Wearne & Co partner.

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. This will apply to bonuses, director’s fees and similar payments. Bonuses accrued are not assessable income.
• Interest income is derived when it is received, or credited to the taxpayer, not when it is accrued.
• Rental income is usually derived when it is received, or credited to the taxpayer, or their agent.
• 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.