3 June 2010

Dear Client,

As we come to the end of another year, we take this opportunity to remind you of some important tax matters which should be addressed prior to 30 June 2010.  Of course, for tax planning to be most effective, it should form part of all financial decisions made year round.  The information in this newsletter is general in nature and should you have specific questions, please contact our office.

Superannuation contribution limits

It is important to continue to be aware of the limits imposed on superannuation contributions.  If these limits are breached, penalty tax may be levied on the excess contribution at the top marginal rate.

You can make up to $150,000 a year in non-concessional (undeducted) contributions.  If you’re under 65 in a financial year, you have the option of “bringing forward” some of these contributions.  Instead of a yearly cap of $150,000 you could contribute $450,000 in one year and then no no-concessional contributions over the next two years.

From 1 July 2009, any contributions made by your employer that are in addition to the mandated 9% superannuation guarantee will be reported on your PAYG Payment Summary and will be assessed in order to measure eligibility for assistance payments, such as Family Tax Benefit, Baby Bonus, Superannuation Co-Contribution, as well as eligibility to claim a tax deduction for personal superannuation contributions.  Such contributions are known as Reportable Employer Superannuation Contributions.

Superannuation Co-Contributions

As in prior years, the Superannuation Co-Contribution is available for taxpayers who make personal superannuation contributions.  The Government co-contribution will be paid to the taxpayer’s fund when the Tax Office has received both the taxpayer’s 2010 tax return and contribution information supplied by their superannuation fund.  The co-contribution is not shown on the taxpayer’s tax return or assessment, but notified separately once the information has been matched.

To be eligible, an individual must make a personal contribution (after tax) to a Superannuation Fund and earn more than 10% of their total income from either salary or business income. The individual’s total income (assessable income, salary sacrificed amounts, reportable fringe benefits and reportable employer superannuation contributions) must be less than $61,920.

How is the contribution calculated?

For the 2010 income year, where an individual’s total income is $31,920 or less, the co-contribution is an amount equal to 100% (up to a maximum co-contribution of $1,000) of the employee’s personal contributions.  Where total income exceeds $31,920 the co-contributed amount phases out until it ceases at $61,920.  The co-contribution is not taxed when received by the fund.

Minimum pension draw down limits to increase

In 2008 the Federal Budget announced that the minimum pension draw down limits were halved as a temporary measure to assist superannuation funds and their members during the Global Financial Crisis.  This temporary measure will cease at 30 June 2010.  Accordingly, superannuation members who are drawing either an account based pension or a transition to retirement pension should ensure that for the 2011 year and following, that they meet the new minimum pension requirements.  Should you require further information, please contact your Superannuation Fund or this office.

Reduction in personal rates commencing 1 July 2010

The recent Budget also announced the following reductions in personal rates (excluding Medicare Levy):

From 1 July 2010 the Low Income Tax Offset increases from $1,350 to $1,500.

Medical expenses offset

In the recent Federal Budget, Treasurer Swan advised that from 1 July 2010, the Medical Expenses Offset threshold will increase from $1,500 to $2,000.  For the 2010 tax year, the threshold continues to be $1,500 and any out of pocket medical expenses above this amount will attract a rebate of 20%.

Standard tax deduction

The Government also announced a standard tax deduction of $500 per individual which will be able to be accessed by individuals from the 2013 income year.  We will address this further in future updates.

Henry Review into the Taxation System

You would no doubt have seen a lot of press surrounding the release of the Henry Report and the Government’s response to some of its recommendations.  While the review recommended 138 changes, a small number have been addressed by the Government.  Those which will impact on you in the near future have been announced as part of the recent Federal Budget and have been addressed above.

ATO Benchmarking

The ATO has released a range of benchmarks for business to assess their profitability against industry benchmarks.  The ATO are planning to use these benchmarks as a tool to assist in curtailing the cash economy.  We will post a link to the available benchmarks on our website for your information, and if you have any queries, you should contact our office.

Mixing Business/Investment loans with personal debt

I take this opportunity to remind you again of the importance of keeping a distinction between business/investment loans from private debt. The Australian Taxation Office will look at the purpose of the loan to ascertain whether the interest is deductible. The problem arises when a business/ investment loan has a redraw facility and due to payments in advance a redraw is made and the funds used for private purposes. This redraw, even though made from surplus repayments, will be a private loan and from that point on the repayments and interest will need to be apportioned between the business/investment and private debt.  A repayment specifically for the private portion of the debt cannot be made as any repayment must be apportioned between the two types of debt. It is a better practice to “park” excess repayments in an offset account and use the offset account to fund private projects.

I also take this opportunity to remind you to provide our office with updated information when you move, change telephone numbers or email addresses, or your personal circumstances change.  This will ensure all your information is current with the relevant authorities.

We will continue to update the website throughout the year with developments and interesting articles for your information.  The website also has links to the following data:

• Vehicle kilometre rates
• Travel allowance – reasonable expenses
• Industry benchmarks

Have a prosperous new financial year.

Regards,

Disclaimer

While B Davis & Associates Pty Ltd considers the advice provided above to be accurate, no warranty is given to this effect.  The advice is general in nature and you should seek specific, tailored advice before acting on any of the above.  It should not be considered financial product advice for the purposes of the Corporations Act 2001.