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.

What The Budget Means For Young People

While most young people probably didn’t tune into the Budget announcement by Treasurer Wayne Swan they sure were talking about it online given #ausbudget09 and #budget09 were trending topics on Twitter last night.  Perhaps it’s the current concern over the state of the economy that has got everyone involved but deservingly so, because they will cop the recovery of the $57.6bn deficit!

Youth Allowance and Abstudy

 

But not all was doom and gloom because if you are a student looking to Youth Allowance and Abstudy as income support, the parental income test for these dependants will be increased from $32,800 to $42,559 from 1 July.  This means more students should qualify for the support (than they normally wouldn’t have) and thus be able to receive an extra buck to drink at that university bar.

First Home Buyers

 

For those who are first home buyers and have been trawling through every property inspection most weekends (along with hundreds of other keen property beans) than the 30 June deadline for the boosted first home owner grant will be extended for another six months. That means inflationary home prices will continue, the number of people you are competing with for that house/apartment will carry on and your real estate agent’s number should still be on your speed-dial.  But it does mean that up til 30 September, the grant will be the full $14,000 for existing homes and $21,000 for developed (new) homes. However, it will reduce to $10,500 for existing homes and $14,000 for developed homes from 1 October til 31 December. So the flurry of fun in the real estate market will remain.

Health Insurance

 

From 1 July 2010, a new tiered measure will affect how much government rebate you can claim, thus affecting the amount of your health insurance premiums per month. The existing 30% rebate will remain for young people with earning less than $75,000 per annum, but for salaries more than $75,000 per year the rebate will be reduced to 25%, and for salaries of $90,000 and above, the rebate will be reduced to 10%.  Start assessing what bang for your buck you can squeeze out of your health insurers!

Infrastructure & transport spending to create jobs

 

Given the extra government spending on rail, road and infrastructure networks those studying engineering and currently working in the industry should mean additional job opportunities and project involvement.  This extends to those in the country regions such as the Hunter Valley.

A Greener Nation

 

And while the carbon emissions trading scheme have been delayed, at least we can see the Government’s commitment to building a greener nation by the $4.5bn allocated to low emission coal technologies and solar initiatives. That means a lot more a cleaner future for all of us, we should hope!

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

Update on Madoff fraud victim tax relief..

We reported posted an article on the 17th of April about the IRS allowing the victims of the fraud losses to gain certain tax benefits.

Here's the link for those who missed it...

http://austaxation.blogspot.com/2009/04/irs-says-we-can-to-madoff-stanford.html

An update on the situation in the USA...

Despite the US IRS Federal tax ruling, it seems that the state government agencies are refusing to allow the same rules to apply to state income taxes.

Specifically, the California Franchise Tax Board is refusing to co-operate. 

The group of victims affected by this refusal amounts to around 10% of the US$65 billion fraud. They are currently lobbying the state governments for tax relief.

RECAP FROM AUSTRALIAN PERSPECTIVE

We have to keep in mind that the USA runs on a complicated multiple-tiered tax system. In some places, there are federal, state and municipal (what we call "local council") income taxes.

In Australia, we have only a federal level income tax system. This includes the Goods & Services Tax (GST) which was introduced in 2000 to replace the various State and Territory taxes, duties and levies.

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

IRS says "YES, WE CAN...!!" to Madoff & Stanford fraud loss claims - ATO?

The past few months saw news spread like wildfire across the globe about the insanely massive fraudulent Ponzi schemes that were uncovered..!!

Here's two of the biggest ones...!

Bernard Madoff ran a Ponzi Pyramid scheme which stole US$50 billion from investors around the world. 

Allen Stanford also allegedly ran a Ponzi scheme which stole US$8 billion from investors.

Now, that is all very sensational, but back to our world of TAX....

IRS

The IRS (US tax enforcement agency) recently released Revenue Ruling 2009-9 (PDF) which allows investors in these Ponzi schemes to claim their lost funds as a tax deduction..!

The Ruling is extremely generous and allows investors to claim ALL of the monies invested as well as the income declared by the funds less any actual cash withdrawals.

In other words, the defrauded investor can claim the net cash balance owed to them as a tax deduction.

A quick point by point summary by Loeb & Loeb LLP.

ATO

Well, this got us thinking...... 

"If the same thing happened in Australia, would the ATO as nice?"

Well, the quick answer is probably "NO" at this stage...!

The tax legislation does allow a tax deduction for businesses suffering a loss from theft as per s.25-45.

But, this is more for theft during the "normal operations of the business". For example, money being stolen from the safe or in transit to the bank.

See the following supporting ATO IDs...

1. ATO ID 2001/318

2. ATO ID 2001/59

However, the existing case law and ATO rulings seem to indicate that a loss from financial fraud does NOT fall under s.25-45.

Below are examples of cases where some unfortunate souls' attempt to claim the loss were knocked back by the ATO.

Refer to the following: -

1. ATO ID 2003/1029 - Deduction: Loss from misappropriation of money by an investment broker

2. Lean v. FC of T (2008) or great summary by Robert Richards of CPA Australia

So.....!

Loss from THEFT / BURGLARY:  

Loss from FINANCIAL FRAUD:

 

FINAL WORDS

In all honesty, we wouldn't be surprised if the ATO does release a POSITIVE ruling in favour of deductibility of financial fraud losses. 

The financial crisis has influenced our law-making bodies and the government in general to sway to the populist view of doing whatever it takes to "stimulate our economy".

Now, whether or not this is right or wrong is a discussion for another time and place...

But....

The integrity and strength of our legal system relies on its independence from political and economic conditions.

It should be about the interpretation of the law without bias or prejudice. 

Without Fear, Without Favour

NEC TIMES, NEC FAVENS

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

Are directors liable for a company's TAX DEBT?

Corporate structures are created on the assumption of limited liability status. This means that the company is considered a separate legal entity.

So, most of the time, the liabilities of the company is limited to itself and does not extend to shareholders and directors.

Of course, if the directors have engaged in insolvent trading, then they would be liable for the debts of the company. We have had many cases of this in recent times such as HIH.

But, we are talking TAX and specifically TAX DEBT. The tax debt of a company would normally not extend to the directors. 

However, if a payment arrangement has been made with the ATO for the tax debt AND the company breaches the arrangement....

Then, the directors can be personally liable for the tax debt under s.222AOE "Directors Penalty Notice".

FINAL WORDS

The corporate structure has been traditionally held as a great tool for business. However, the privileges of directors have been increasingly eroded thru the years. 

At the same time, the liabilities and responsibilities of directorships have increased steadily. 

So, research the company before you assume the directorship...! It may just have a few hidden traps for the unwary..!

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

ATO ALERT: Data-matching program targeting car sales

Grim news for those caught under this new data-matching program started by the ATO.

The ATO will be reviewing all car sales  over $10,000 that was made in the 2007 / 2008 financial year. Apparently, 1.7 million sales records fall under this category. The information has been provided to the ATO via the motor registries around Australia.

The previous crackdown in 2008 was for "luxury" car sales over $57,000. In that case, a whooping 70% of investigations yielded a tax liability for the ATO. A very good return on investment, indeed..! 

So, no surprise that its now chasing after the "middle-class".

WHO DOES IT AFFECT?

1. Employers who have provided their employees with car benefits. 

Any benefit provided to your employees outside of wages & salaries is subject to the Fringe Benefits Tax (FBT) rules. 

The ATO will be catching out any employers who have not been declaring FBT on car benefits to employees.

2.  Persons who appear to be living beyond their financial means. 

If you declare a taxable income of only $10,000 but buys a car worth $30,000, then that's suss...!

The ATO will be investigating you to see whether or not you have been paid in cash and not declaring it.

3. Persons who buy and sells cars regularly for profit. 

There is a strong distinction between "car enthusiasts" & "car dealers". Its the ol'  hobby vs. business argument. It's commonsense at the end of the day. 

If you are turning over 50 cars a year, you may be classified as a business..!! The ATO will be looking at classifying those profits as undeclared capital gains on sale.

If you fall under any of the above, it might be a good idea to see a tax accountant to suss out potential liabilities, etc.

From the AusTax team. 

The #1 provider of Australian tax news on twitter.

Trending tax topics - What's hot at the moment

The hottest tax issues at the moment, according to our research are:

1. High Court case challenging the validity of tax stimulus payments - There is an argument presented that the Federal Government does not have the contitutional validity under s51 (tax powers) to offer these payments as they are a gift and not related to taxation. If this case were successful, then this would affect Commonwealth payments made over the past few years. 

This is not the best time to be putting a test case forward for this, as many people are expecting the payment. And frankly, we think the economy needs it. 

2. Our followers are also concerned about the $900 payment, and their eligibility. We have experienced a lot of traffic from our site to the tax bonus calculator. If you earned less than $100k and paid tax, you may be eligible.  

3.  $720 million tax concessions for small business and general business - the government will cut PAYG rates by 6% to give businesses a tax break during these harsh economic times. It includes small businesses, self funded retirees and SMSF (self managed super funds). 

4. Bushfire - Extension of lodgement dates for bushfire affected victims, stamp duty exemptions for bush fire affected areas, and salary sacrifice donations being exempt for FBT for employers. We applaud the government for all these moves and will be covering this in more depth.

5. Alcopops tax to be scrapped - $1.6BN revenue hole now created. We have some contacts in the beverage industry who will provide an industry insight. 

6. Same sex couples being granted same recognition as heterosexul couples for Centrelink. This has been a been a long time coming. We remember people talking about this since the mid 90's. 

"The Federal Government says same-sex couples have three months to contact Centrelink with relevant social security, tax, superannuation or health information."

7. 42,000 people use the first home buyers grant - However this has been declining for since last month. Every man and his dog is aware of the $14k grant for purchasing a home and $21k for building a new home. Interest rates are fantastic now as well but do you really want to be mortaged to the hilt if you could potentially be laid off from your job?

These are hottest tax topics at the moment. The majority of these are influenced by the current economic conditions and also by bushfires. If you come across anything noteworthy, please email us at info.austax at gmail dot com and we will tweet it!

From the AusTax Team - the tax insider. 

The #1 provider of Australian tax news on twitter.

TGIF - Thankyou ATO for releasing a useless GST ruling about Strippers

We've heard on the news wire that due to the continuing economic crisis, more and more American women are turning to occupations in the adult industry. According to SMH via Associated Press:

"The tough job market is prompting a growing number of women across the country to dance in strip clubs, appear in adult movies or pose for adult magazines like Hustler.

Employers across the adult entertainment industry say they're seeing an influx of applications from women who, like Brown, are attracted by the promise of flexible schedules and fast cash. Many have college degrees and held white-collar jobs until the economy soured."

Yes, the current times are tough. Banks are crashing, Jim Cramer can't recommend any stocks, and Kevin Rudd is giving away $900 to boost the economy. Desperate times calls for desperate measures. Gone are the days of dropping "$3,000" on a lap dance. 

Which brings us to this related tax issue. One of our contacts reminded us of this tax ruling. A few years ago, 2004 to be exact, a GST ruling came out about the "supply of adult entertainment services: dancer collects payments and distributes entity's percentage". Summarised below:

Issue

Is the entity, a supplier of adult entertainment services, making a taxable supply to a customer under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when a dancer, engaged by the entity, performs a lap dance or striptease for one or more customers and the dancer collects the payment for the performance?

Decision

Yes, the entity is making a taxable supply to a customer under section 9-5 of the GST Act when a dancer, engaged by the entity, performs a lap dance or striptease for one or more customers and collects the payment for the performance.

This "transaction" has a GST component and is considered a taxable supply. We suppose it is a service performed by a professional, conducted in a business like manner. There is consideration and both parties walk away satisfied. 

Now try getting a reciept for that and telling your accountant.

As the rapper Akon would say:

Tax that, all on the floor

Tax that, give me some more

Tax that, 'til you get sore

Tax that, oh ooh

TGIF

From the AusTax team - Your Tax Insider.

Look no further for controversy than at PWC tax

Our Tax HR correspondent reported this hot tip over the news wire.

PWC are now hiring 2 tax controversy staff at management and senior consultant level. Don't get us wrong, tax controversy is a great area to be in. It's just that PWC let go over 100 staff recently from their Australian offices.  Its tough times given the global economic crisis. Even some of our friends were laid off.

So how is PWC hiring two new staff? 

The ad claims the following: 

• "As we continue to grow our Sydney Practice"
  
• "Rapidly growing practice"
  
• "Ambitious and fast growing team"

We would hardly think that these areas are growing or expanding if you have just laid off a significant proportion of your workforce. A bit hypocritical we think.

By way of background, tax controversy is a specialist and growing area. One of our colleagues works in this area and has told us in the past that this position deals with tax litigation, tax audit and negotiation with the ATO. 

In later posts, we will confirm with our sources regarding the exact number of staff that PWC and throughout the Big 4 industry has laid off. 

From The AusTax team.