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Newsletter November 2006

The NSW Office of State Revenue wishes to remind employers that if their business, or group of related businesses, whose total Australian wages exceed the NSW monthly threshold of $50,000, are required to pay NSW payroll tax.

The payroll tax rate is 6.0 per cent and the threshold is $600,000.

The definition of wages for payroll tax purposes will include the following; wages and salaries, superannuation, commissions, bonuses, grossed up value of fringe benefits, certain allowances, certain contractor and consultant payments, director’s fees, and other employer remunerations.

Wages exempt from payroll tax will include payments to apprentices, trainees, defence force personnel, payments under emergency operations, golden handshakes, redundancy payments and severance pay.

There are 2 common scenarios by which you may use your home to produce income.

• You live in your home as your principle place of residence but because of some transfer you leave the house rent it out and rent some where else.
• You use down stairs as a fully fledged office with a separate door a bit like the old doctors surgeries.

If a dwelling that was your main residence stops being your main residence, you may choose to continue to treat it as your main residence provided you claim no other place as your principle place of residence. This would happen for example if you were transferred interstate.

The maximum period that the dwelling can be treated as your main residence is for 6 years. This means that after moving out of the property you either have to sell it within a 6 year period or move back into it and re-establish it as your main residence.

Should your main residence cease being your main residence and you then rent out this property and claim another place as your principle place of residence so the above exemption does not apply then capital gains tax will apply depending on the date the property was originally purchased, and the date the property first became available for rent.

If the property was purchased prior to the 20^th September 1985 and there has been no change in owners, the property will be exempt from capital gains tax.

If the property was purchased after 19^th September 1985 and rented prior to the 20^th August 1996 then the capital gains tax will be worked out on a pro-rata basis based on the number of days the property was your principle place of residence compared to the number of days the property was available for rent.

If the property was purchased after 19^th September 1985 and rented after the 20^th August 1996 the capital gain or loss will be calculated at the difference between the market value at the time the property first was used to produced income and the sale value.

Where your principle place of residence is used both for living and business eg. Doctors surgery then the capital gains tax will generally be calculated based on floor space with the residence portion of the capital gain being exempt and that portion that relates to the business being taxable.

At present, separate Small Business Concession eligibility tests currently exist for GST, the Simplified Tax System, CGT, FBT and PAYG. In order to reduce compliance costs, the government has now announced that it will introduce legislation to standardize the eligibility criteria for small business tax concessions.

The proposed new criteria sets out that any business with an annual turnover of less than $2m will be able to access any of these concessions.

The Entrepreneurs’ Tax Offset (ETO) is a new measure that allows a tax offset of up to 25% of the income tax attributable to the business income of a business in the simplified tax system (STS) with an annual group turnover of less than $75,000.

The ETO is available for assessments relating to income years starting on or after 1 July 2005. If your taxable income is $50,000 or less, you can claim a tax offset of 25% of the income tax liability attributable to your STS business income. If the STS group turnover is more than $50,000, the tax offset is phased out until it equals zero at a turnover of $75,000.

The ETO is available to;

• an individual or a company that is STS taxpayer,
• a partner in an STS partnership, and
• a trustee or beneficiary of an STS trust.

Treasury has indicated that legislation to give effect the governments “Simpler Super” reform package is on track for introduction into parliament by the end of 2006.