New website - Taxabull.com

Hi all!

We have decided to move the blog to a new address www.taxabull.com.

Please go here for new updates. We continue to twitter using @austax but have simply moved the blog.

We will explain later why we have done so.

Cheers,

From the AusTax team

The #1 provider of Australian tax news on twitter.

ATO appeals court tax ruling on deductibility of education expenses vs Youth Allowance income

Following our previous coverage on Symone Anstis v. Federal Commissioner of Taxation, the Australian Taxation Office has decided to appeal the Tribunal's decision. 

In other words, until the ATO is defeated once again in court, it will not allow education expenses to be claimed against "Commonwealth education assistance schemes".

SUMMARY FOR THOSE WHO MISSED THE CASE RULING

SYMONE'S CASE

Symone (the taxpayer) is claiming that her education expenses should be tax deductible because being enrolled in a tertiary education is one of the prerequisites for her entitlement to Youth Allowance.

So, she claimed various expenses such as textbooks, depreciation on the computer, travel, etc. 

COMMISSIONER'S CASE

The ATO claimed that this was bogus because she incurred these education expenses to finish her teaching degree and eventually qualify as a teacher. 

They are arguing that the expenses are not deductible because it wasn't incurred to derive an income. That is, she was not earning money as a teacher yet at this point in time.

They also rejected the argument that the education expenses was a valid deduction to get Youth Allowance income.

TIMELINE OF EVENTS

17/11/2006  ATO issues an amended tax assessment to Symone

27/11/2006  Symone objects to amendment

05/12/2006  ATO disallows Symone's objection 

12/12/2006  Symone goes to Tribunal to dispute ATO decision

18/04/2007  Tribunal rules in favour of ATO

21/07/2008  Symone appeals to the Federal Court

01/04/2009  The Federal Court rules in favour of Symone

29/05/2009  The ATO appeals against the Federal Court decision 

SUMMARY

We will have to wait and see whether or not the ATO's appeal will be allowed. If so, then the whole legal circus starts again. 

We will update everyone on the progress of this tax case. 

In the meantime, the ATO has issued a statement that it will continue to treat education expenses as non-deductible against Youth Allowance (and other government assistance) until a FINAL decision is made.

SPECIAL NOTE FOR LAW STUDENTS OR TAX LAW ENTHUSIASTS (!)

The case judgement is a very useful and straight-forward explanation of basic tax law. That is, the explanation of how revenue recognition and tax deductibility works.

The case judgement can be found here.

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

Is your employer taking out enough tax from your pay?

This is a quick post for those of you who are employees...

Have you ever happily lodged a boring tax return with just your employment income, NO extra income, NO exciting tax deductions and then get hit with a MASSIVE TAX BILL?

WELL... READ ON, THIS MAY JUST BE THE REASON..!

As part of your payroll, tax is withheld by your employer every pay period. The total tax withheld for the year forms the amount of tax that shows up in your PAYG Payment Summary (aka Group Certificate).

Assuming that your only taxable income is from your job, you shouldn't have to pay any additional tax when you lodge your income tax return. 

This is because your employer has already taken tax out every week/fortnight/month/etc throughout the year.

HOWEVER..!

How do you know that the CORRECT amount of tax is being withheld from your pay?

This is what you do...

You simply cross-check the tax withheld on your payslip against the ATO PAYG Withholding Tax Tables.

The ATO provides these simple tax tables to employers to allow them to easily deduct the correct tax from their employees. However, mistakes do happen and it is worthwhile double-checking.

This is what you need to know beforehand (HINT: have your payslip handy!): 

1. What is your pay cycle? ie Weekly, Fortnightly, Monthly

2. How much are you getting paid per pay cycle? 

3. Do you have HECS/HELP or SFSS?

4. Do you have leave loading? (most likely not)

5. Are you claiming a tax-free threshold for this employer?

Once you have the above information, you can use the Tax Tables that your employer also use. Here's the link to the ATO's PAYG Withholding Tax Tables.

Or....

If you are really lazy or just not into numbers (we don't blame you), then click on this link to the ATO's PAYG Withheld Calculator.

You enter all the information, click on Calculate and voila..! The calculator shoots out the Tax Withheld amount which should match up with your payslip.

If it doesn't match AND you answered all the calculator questions correctly, it's time to talk to your employer's HR or Finance team. 

It could be a simple case of ticking the wrong box when you first filled in your TFN Declaration form.

Note: The rates changed in July 09. So, when you will get a different tax withheld amount when you run the calculator in July 09.

GOOD LUCK..!

RIGHTING TAX WRONGS, ONE AT A TIME...

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

What the Federal Budget means for SMEs? PART 3

This is the third and final post of a series of articles on the impact of the recent May 2009 Federal Budget on small-medium enterprises (SME) in Australia.

CAPITAL INVESTMENT TAX BREAK (SMALL BUSINESS)

We have been eagerly awaiting for this part of the budget to become tax law. And, this week, this stimulus for small businesses was passed by Parliament.

The ATO will be allowing "small business" to claim an additional tax deduction of 50% on the purchase of any business assets over $1,000.

A "small business" is defined as any business that has a turnover of less than $2 million a year. The usual 30% investment allowance will still apply to businesses with turnovers over $2 million a year.

We will cover the few criterias to be met but let's run thru what the tax break means for small businesses....

OLD WAY without TAX BREAK

A business buys a company car for say, $20,000 and depreciates it over the next 8 years. Using the simple prime cost method, this means $2,500 per year.

In other words, the business gets to claim a tax deduction of $2,500 per year for the next 8 years.

NEW WAY with TAX BREAK

Per the above, the business buys a company car for $20,000 and depreciates it over the next 8 years.

However, in this case, the business gets an upfront tax deduction of $10,000 (50%) in the 1st year AND the depreciation deductions over 8 years.

In other words, the business gets to claim a tax deduction of $12,500 ($10,000 + $2,500) in the 1st year. And, the usual depreciation deduction of $2,500 ever year until Year 8.

Sounds exciting and makes you just want to go forth and spend, doesn't it? 

Well, that's the government's plan. 

But, let's run through the criterias that you have to satisfy....!

CRITERIA

1. Business turnover is less than $2 million per year

2. Asset has to be a purchased between 13 Dec 2008 and 31 Dec 2009

3. Asset has to be an eligible new tangible depreciating asset 

4. Asset has to cost over $1,000

SUMMARY

This is the small business version of the government's "$900 cash tax bonus". 

The tax break is designed to encourage small businesses to spend on capital assets to boost the economy and create jobs.

This may well be the best time to buy that tractor, van or other asset for your business. 

If you have a corporate structure with a tax rate of 30%, the government is effectively GIVING YOU the other 20% as an incentive.

SPECIAL NOTE for GROWTH BUSINESSES

For those businesses who are currently in a rapid growth phase with turnover close to $2 million per year....

If you can afford it (and need it), buy your business assets NOW whilst you are considered a "small business". That way, you can take advantage of the 50% investment allowance.

If you delay, you may only be entitled to the 30% investment allowance of businesses turning over $2 million per year.

END OF PART 3 

OF THE SME BUDGET SERIES

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

What the Federal Budget means for SMEs? PART 2

This is the second of a series of articles on the impact of the recent May 2009 Federal Budget on small-medium enterprises (SME) in Australia.

EMPLOYEE SHARE PLANS

The government introduced a radical change to the tax treatment of employee share & option plans for those earning more than $60,000 per year. 

OLD WAY

Previously, employees were given the choice of either being taxed on the value of the shares when they receive the shares / options or at a later date when the shares / options are actually exercised. 

An upfront election also allowed the employee to receive $1,000 of the allotted shares / options tax-free.

NEW WAY

As at 12 May 2009, for those earning over $60,000, employee share/option plans will become 100% taxable at the moment which they were granted to the employees. The employee will also lose the $1,000 tax-free component.

Providing employees an equity ownership benefit is a relatively "cheap" way for SMEs to retain highly skilled but expensive employees without burdening their actual cashflow.

However, this budget amendment will raise challenges to SMEs trying to retain highly skilled executive staff. They would have to structure their employee incentive plans accordingly.

UPDATE

The government has come under fire from all directions for their decision to implement this change. We will keep everyone updated on the developments.

END OF PART 2 

OF THE SME BUDGET SERIES

CLICK HERE FOR PART 3

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

What the Federal Budget means for SMEs? PART 1

This is the first of a series of articles on the impact of the recent May 2009 Federal Budget on small-medium enterprises (SME) in Australia.

DIVISION 7A - PERSONAL USE OF COMPANY-OWNED ASSETS (CARS, BOATS, HOLIDAY HOMES, ETC)

Division 7A applies where the business is operating under a corporate structure. 

Div 7A basically says that any monies withdrawn by individual owners should be treated as a "deemed dividend" unless it can be proven that it is a "loan" with an appropriate interest rate and documentation. 

The government has indicated that it is thinking of including the personal use of company assets as an infringement of Div 7A as well.

Example

Say, an individual owner uses the company-owned car on the weekends (ie. 2 out of the 7 days of the week). 

The new rule says that 2/7 of the "market value" of the car use should be considered a "payment" to the owner as per Div 7A. 

So, proper documentation needs to be drafted to show that the "personal use" portion of the car is a "loan" and not a dividend payment. This is regardless of the fact that there has not been any real CASH movements.

There will issues with how the "market value" of the use of the assets will be calculated, etc. 

SUMMARY

We will update everyone as soon as the new guidelines are released. 

But, in summary, if you use your company assets for personal purposes, it may now fall under Division 7A. This includes vehicles, housing, and other assets.

This will mean that some SMEs may have to speak to their tax/legal advisers to re-evaluate their business structures.

END OF PART 1 

OF THE SME BUDGET SERIES

CLICK HERE FOR PART 2

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

What The Budget Means For Elderly Australians

Our elderly are often our weakest members of society - neglected and an afterthought for many of us. For all the contributions they have made to our workforce, our lives and our communities, we need to ensure that they have at least an adequate means of financial and community support. 

A large proportion of elderly people are surviving off the age pension and just getting by. At times, the age pension has not moved in line with the increased costs of living. We have seen the costs of rent spiral upwards and our groceries are priced at a premium. For the elderly on pensions, these basic necessities make up a large proportion of their expenditure. 

Increase in pension payments

Last night's budget handed down some very important benefits for the elderly. Single pensioners will now receive $32.49 more a week and couples will get an extra $10.14. For single pensioners, the age pension equates to 27.7% of the total male weekly wage. 

Pensioners earning $15,000 a year will be $74.14 better off each week, while people earning under $30,000 each year will have an extra $33.39 each week. This will bring them more in line with the increased costs of living so that they can afford more of life's basic necessities. 

$32 a week does not mean a lot for working Australians, but for pensioners every dollar counts. These increases in age pension payments are estimated to cost $2.7bn in 2010 and more than $3bn in 2011.

Some have been calling them the winners of the budget - but does giving someone an extra $32 a week who really needs that money to survive a winner? They are simply getting what they should be entitled to - it moves it in line with the standard of living. In any case, this announcement is welcomed by Austax.

Increase in retirement age to 67

For older australians aiming for a pension in 2017, the retirement age has been increased by 2 years. Thus, it will have go up from 65 to 67. This will be increased progressively over a 6 year period, and this new age limit will take place in 2023. The motivation behind this, is that people are working for longer, higher life expectancy and this will help fund the economy. 

We're not in favour of this announcement. The retirement age has been at 65 for 100 years, and now its increased for the first time to 67. On the one hand, the government has increased the pension and then they are telling people to work longer for it. Anyone in their mid 40's will have to work an additional 2 years to recieve the pension. We understand that people are working for longer and there is a higher life expectancy, however the government is putting a burden on our older Australians. We do not believe the retirement age should have been increased. 

Joe Hockey, the Shadow Treasurer had this to say:

"Raising retirement age by two years to 67 by 2023 was another poor initiative.

"When they promise to do things in 2023 that just shows you they are incapable of making the hard decisions to keep the economy on track," he said.

But Mr Hockey praised the government's decision to spend $14.2 billion over five years to lift the pensions of more than three million Australians and its measures to tackle the medical skills shortage."

Wayne Swan has acknowledged that this will be an unpopular move.  

Higher Income Pensioners

Pensioners on higher incomes will be disadvantaged as the Government will cut the pension by 50 cents for every dollar over the income threshold of $138 per week for singles and $240 per week for a couple. It is essentially a redistribution of income, from higher income pensioners to lower income pensioners.

Carer payments to increase

One of the announcements were were quite happy to see is that Carers get a bonus. There is a new $600 a year Carer Supplement, plus extra $600 a year allowance for each person in their care. We believe this a positive annoucement as often these people are our "unsung heroes" and sacrifice much of their time and other opportunities to take care of our elderly, the sick and other members of society. This is estimated to have a total cost of $1.8 billion over five years.

From the AusTax team. 

The #1 provider of Australian tax news on twitter.