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Newsletter October 2008

The increase in the low-income tax offset to $1,200 in 2008/2009 (from $750 in 2007/2008) effectively means that $2,666 can be distributed to minors tax-free in the 2008/2009 financial year.

Applying the tax offset of $1,200 means that no income tax will be payable until the minor’s taxable income exceeds $2,666.

Amendments are soon to be introduced that provide for an increase in the Medicare Levy surcharge threshold from $50,000 to $70,000 for individuals and from $100,000 to $140,000 for families for 2008/2009.

Individuals and families on incomes above the Medicare Levy Surcharge, who do not have private patient hospital cover, pay the surcharge for any period during which they did not have the appropriate cover. The Medicare Levy surcharge is calculated at the rate of 1% of your taxable income. The surcharge is in addition to the 1.5% Medicare levy.

The tax office has confirmed the tax consequences of the demutualisations of MBF and NIB. As a result of recent CGT amendments applying from 1 July 2007, policy holders can disregard capital gains and losses that arise when a private health insurer demutualises.

In addition, cash payments received by MBF policy holders are not subject to income tax and do not have to be declared in the policy holders’ 2007/2008 tax returns.

The NSW land tax threshold for the 2009 land tax year has been determined to be $368,000.00.

Land tax is a tax levied on the owners of land in NSW as at midnight on 31 December of each year. In general, your principal place of residence (your home) or land used for primary production (a farm) is exempt from land tax. You may be liable for land tax if you own or part-own:

vacant land, including vacant rural land

• a holiday home
• investment properties
• company title units, or
• residential, commercial or industrial units.

Annual valuations for land tax are made by the Valuer-General as at 1 July preceding each land tax year. These values should not be confused with those made every three years (approximately) for local government rating purposes. The Register of Land Values is maintained by the Department of Lands, on behalf of the Valuer-General.

The government is in the process of introducing a 50% refundable tax offset for eligible education expenses up to a maximum of $750 for children undertaking primary studies and $1,500 for children undertaking secondary studies (ie a tax offset of up to $375 and $750 per child, per year, respectively).

The offset is a refundable tax offset, which means that any part of the offset that cannot be used to reduce tax liability is paid out to the taxpayer. The Education Tax Refund, if approved, will apply to eligible expenses incurred from 1 July 2008.

The First Home Owner Boost Scheme is an Australian Government initiative to assist first home buyers purchase or build their first home. The scheme is administered by the NSW Government and is in addition to the $7,000 First Home Owner Grant.

First home buyers purchasing an established home may be eligible for the $7000 boost benefit in addition to the existing $7000 grant, bringing the total benefits to $14 000. First home buyers building a new home or purchasing a newly constructed home may be eligible for the $14 000 boost benefit in addition to the existing $7000 grant, bringing the total benefits to $21, 000.

To be eligible for the $7000 boost benefit for the purchase of an established home or newly constructed home, first home buyers must have entered into a contract for the purchase of an established home between 14 October 2008 and 30 June 2009 (inclusive).

To be eligible for the $14 000 boost benefit for building a new home, first home buyers must have entered into a contract for building a home between 14 October 2008 and 30 June 2009 (inclusive). In addition:

• construction must commence within 26 weeks of the contract
• the contract must specify a completion date for building work within 18 months of the construction commencing or construction must be completed within 18 months of the construction commencing.

The tax office has warned tax payers that schemes offering early access to super are illegal and attract significant legal and financial penalties to both promoters and clients. There are only limited circumstances in which members can access their superannuation benefits before they reach their preservation age.

Some promoters of these schemes try to entice people to roll their super into a Self Managed Superannuation Fund so they can access the money early. These promoters can take significant fees of up to 30% before forwarding the rest of the super savings to the member, which they’re not entitled to access early anyway.

Members generally can only access their super when they reach the minimum age set by law (55 for anyone born before July 1960 and 60 for anyone born after June 1964) and either have permanently retired from the workforce, or take a transition to retirement income stream.