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Newsletter September 2011

The government has proposed that from the 2012/2013 financial year, amendments will allow small businesses to;

• Immediately write-off assets valued at under $6,500 (up from $1,000 presently),
• Immediately write-off up to $5,000 for motor vehicles acquired from the 2012/2013 income year, with the remainder to be written-off at a rate of 15% in the first year and 30% in following years,
• Write-off of other assets in a single depreciation pool at a rate of 30% (15% in the first year).

As part of these proposed changes, the entrepreneurs tax offset will be abolished.

The taxable income levels for repayment of Higher Education Loan Programme (HELP) and Higher Education Contribution Scheme (HECS) debts for the 2011/2012 year and the repayment rates are as follows;

*HRI – Taxable income plus any total net investment loss (which includes net rental losses), total reportable fringe benefits amounts, reportable super contributions and exempt foreign employment income.

First Home Buyers

From 1 January 2012, full exemption from transfer duties will be provided to eligible first home buyers purchasing a newly built home costing up to $500,000. Partial transfer duty exemptions will be available for homes costing between $500,000 and $600,000. The exemption is restricted to newly built homes.

Payroll Tax Rebates

A payroll tax rebate of $4,000 will be provided to enhance the creation of new jobs or to support the entry of workers with a disability into the workforce. The rebate for creating new positions for new staff will be paid in two equal parts and took effect 1 July 2011. The rebate for employing staff with a disability will be a one-off payment and will be provided from 1 January 2012.

Seniors Principal Place of Residence Duty Exemption

The existing concession on the transfer duty on selling an existing property and buying a newly constructed home for purchasers aged 65 years or older, has been extended to persons aged between 55 and 65 years.

Other Duties

Mortgage duty on business transactions, duties on non-real property transfers and unquoted marketable securities will be abolished from 1 July 2012.

The ATO jointly administer the research and development (R&D) tax concession and R&D tax incentive with AusIndustry.

Prior to 1 July 2011, the R&D tax concession allowes companies to claim a tax deduction in their income tax return of up to 125% (and in some cases up to 175%) of eligible expenditure on R&D activities. The R&D tax concession continues to apply and be administered for income years starting before 1 July 2011. As a result, R&D expenditure incurred in respect of R&D activities performed in years prior to 1 July 2011, must continue to be claimed under the R&D tax concession.

The R&D tax incentive replaces the R&D tax concession for years starting on or after 1 July 2011. It provides R&D tax offsets to encourage more companies to engage in R&D. The R&D tax incentive has two core components:

• a 45% refundable tax offset (equivalent to a 150% deduction) for certain eligible R&D entities with an aggregated turnover of less than $20 million per annum
• a 40% non-refundable tax offset (equivalent to 133% deduction) for all other eligible R&D entities. Unused offset amounts may be able to be carried forward for use in future income years.

If a SMSF decides to lend money, the trustees must make sure the loan terms comply with the law and are in the best interests of the member’s retirement.

When a loan agreement is not in the best interest of the SMSF - for example, when the SMSF has given discount loan rates or favourable terms - this could have serious consequences. In addition to putting the member's benefits at risk, the SMSF could be found to be non-complying and would, therefore, not qualify for concessional tax rates.

Before lending any money, the trustee’s should consider the fund's investment strategy and determine whether the investment is appropriate. If the SMSF still decides to go ahead and lend money from the SMSF, they should:

• write an appropriate loan agreement and have it signed by all the parties involved
• ensure the loan agreement specifies all the terms of the loan, such as
  • what the security for the loan is
  • the repayment period
  • the repayment period
  • when repayments will be paid
  • the amount of the repayments
  • the interest rate
• ensure the interest and repayments are received by the fund according to the loan agreement
• take appropriate action to protect the fund's investment if the loan agreement is not followed
• ensure the loan is sensible and does not put the members' benefits at risk
• ensure that the conditions of the loan agreement do not provide the borrower with favourable terms.