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Newsletter October 2009

Small businesses (those with an annual turnover of less than $2 million) can claim a 50% tax deduction on the cost of eligible assets that they buy between 13 December 2008 and 31 December 2009, and first use or install by 31 December 2010.

Other businesses may be eligible for a 30% tax deduction for assets they bought before 30 June 2009, otherwise a 10% deduction may be available depending on when they buy and first use or install the assets.

The tax break is an extra benefit, businesses can still claim a deduction for the decline in value of eligible assets. For the purposes of the tax break, an eligible asset is a new tangible asset used in carrying on a business. Generally speaking, such assets will include ‘depreciating assets’ for which a capital allowance deduction is available. Certain assets are specifically excluded from the definition of a depreciating asset, these being land, items of trading stock, and certain intangible assets. Assets under hire purchase agreements are eligible whereas leased assets are not eligible.

Small businesses need to spend at least $1,000 on an eligible asset. For all other businesses (where annual turnover is $2 million or more) you will need to spend at least $10,000 on an asset. To help reach these thresholds, businesses can combine the cost of assets that form part of a set or are identical or substantially identical.

The NSW land tax threshold for the 2010 land tax year has been determined to be $376,000.

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.

Persons who are liable for land tax for the first time, or who have not previously lodged a land tax return or received an assessment should lodge an ‘initial return’ with the NSW Office of State Revenue.

The Education Tax Refund (ETR) helps eligible families and independent students meet the cost of primary and secondary school education. You can claim the ETR for education expenses you incur while your child attends primary or secondary school.

Families can claim 50% of their eligible educational expenses if;

• they received family tax benefit (FTB) Part A for the child, or
• a payment was made for the child that stopped them from receiving FTB Part A for that child.

The maximum you can claim is 50% of eligible expenses up to:

• $750 for each eligible child in primary school - that is, a refund of up to $375
• $1,500 for each eligible child in secondary school - that is, a refund of up to $750.

If your expenses exceed your refund limit for the year, any excess can go towards your following year’s refund claim, as long as you are still eligible. The first year you can claim the ETR is for the 2008-09 financial year.

The Tax Office has announced the superannuation co-contribution matching rates for the 2009/10 to 2014/15 financial years. The personal superannuation contributions have been temporarily reduced as announced in the 2009/10 Federal Budget.

 

To receive a superannuation co-contribution, taxpayers must make an eligible personal superannuation contribution by 30 June each year into a complying superannuation fund, lodge an income tax return, and meet eligibility criteria. 

The new superannuation co-contribution matching rates will be:

• 100% ($1 for every $1) for the 2009/10, 2010/11, and 2011/12 financial years, with a maximum superannuation co-contribution of $1,000
• 125% ($1.25 for every $1) for the 2012/13 and 2013/14 financial years, with a maximum superannuation co-contribution of $1,250
• 150% ($1.50 for every $1) for the 2014/15 onwards, with a maximum superannuation co-contribution of $1,500.

The maximum superannuation co-contribution paid is reduced as the level of income increases, phasing out when the higher income threshold is reached. The higher income threshold for the 2009/10 financial year is $61,920.

 

Generally an investment in, or loan, to a related party by an SMSF is an in-house asset. To meet the in-house asset rules, SMSF trustees need to be wary of setting up arrangements with a related party to purchase assets, particularly rental properties.

The ATO has warned that there has become a growing trend in these arrangements, (sometimes referred to as joint venture agreements) involving a third party setting up an agreement between a fund and a related trust, or individual, to purchase an asset that provides income for the trust, or individual, and the fund. These arrangements may involve SMSF trustees paying a fee to the organiser. 

These arrangements may mean the SMSF;

• invests more than 5% in a related party
• enters into a scheme to avoid applying the in-house rules – this is not allowed
• breaches restrictions by intentionally acquiring assets from a related party
• breaches the sole purpose test where the purpose of its investment is to obtain a present day benefit for fund members or a related party, rather than to provide retirement.

The in-house asset rules state that superannuation fund trustees must not invest more than 5% of fund assets in so-called in-house assets. In-house assets include loans or investments in a “related party” or “related trust” to a fund, and assets of the fund that are subject to leases with related parties. Related parties include members and their relatives, and employer sponsors of the funds. Exceptions to the 5% in-house asset rule include business real property. The exceptions are of particular interest to self-managed super funds.

If a SMSF breaches the 5% in-house asset rule, they may become a non-complying fund. If a SMSF breaches in-house asset rules, they must fix the breaches within 12 months.