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Newsletter October 2005

The NSW Government has abolished its controversial vendor duty and duty on the disposal of interests in land rich landholders.  The changes will take place from 2 August 2005.  Contracts exchanged but not settled by 2 August 2005 will remain liable for vendor duty.

The state government has announced that for land held as at 31 December 2005 the land tax rate and threshold is now 1.7 per cent (plus $100) on the combined value of all taxable land in excess of $330,000

The 12.5% superannuation surcharge has been abolished for all superannuation contributions and eligible termination payments made after the 1 July 2005.

For monies contributed by the employer by way of superannuation contributions the super fund is taxed at 15% of contributions received.  Investment income in a complying superannuation fund is taxed at 15% or 10% if it is a capital gain (where the asset was held for more than 12 months).  Other positive measures include:

1. Introduction of the co-contribution scheme for lower and middle income earners;
2. Removing the work test so that anyone under 65 can contribute to superannuation regardless of their work status;
3. Introduction of draft legislation allowing couples to split their superannuation contributions.

There are superannuation limits on the amount that can be contributed to a super fund each year for which the employer can claim a tax deduction or a self employed individual can claim in their tax return.  Limits are for the 2005/2006 year:       

Even if there is a reasonable benefit limit there is no reason why members can not contribute additional sums to the superannuation fund by way of an undeducted contribution. This is sometimes called a UPP (Undeducted Purchase Price).

For example an individual may sell the family home, and then after buying a unit, have a million dollars surplus cash. This can be contributed to the superannuation fund as an undeducted contribution.  This UPP is not taken to account in calculating the RBL.

On retirement there is a concept known as the recontribution strategy.  This is where the member takes a lump sum $129,751 (2005/2006 year) and then recontributes this money to the superannuation fund by way of a UPP.

On retirement the first $129,751 of the post June 1983 component is tax free by way of a lump sum. This is a one off tax free limit. Therefore if the tax payer has received previous eligible termination payments then this tax free amount will be reduced accordingly.

There is a growing trend for people to manage their own superannuation funds. These are known as DIY (Do It Yourself) and as a general rule the fund balance needs to be in excess of $150,000 for a DIY superannuation fund to be beneficial.

The Australian Taxation Office has confirmed that providing morning or afternoon tea to employees on a working day either on the employer's premises or at a worksite of the employer is not the provision for entertainment, and therefore is not subject to fringe benefits tax.  In most cases, an income tax deduction is allowed.

The Australian Taxation Office said that light meals (eg, sandwiches, finger food, salads, orange juice) are treated in the same way as morning and afternoon tea.  However, if alcohol is provided at morning/afternoon tea or with the light meal, that would constitute the provision of entertainment.

The Australian Taxation Office has considered the tax treatment of employer contributions to staff social clubs and has announced that the fringe benefits tax issues are complicated.

Previous rulings have stated that the social club is not an employee, nor is it considered to be an associate of employees. The benefit provided by way of the contribution to the social club, in the absence of an arrangement to avoid or reduce fringe benefits tax, is not considered to be made in respect or employment of the employees. Therefore, the benefit provided to the employee's social club is not considered to be a 'fringe benefit'.