Issue: 18 June 2008 LAST-MINUTE TIPS TO SAVE YOUR TAX BILL
Deferring your assessable income
It is not practically easy for employees to defer receiving income until next year. However, if you are a self-employed or small business operators reporting your business income on cash basis, then you may defer the receipts of your income till after the 1 July 2008. Also, if you plan to sell any investment assets that realise large capital gain, then you may negotiate with the buyer to have the contract exchanged after the 1 July 2008.
Bringing forward your deductions
Deductions that may be brought forward include your income protection premiums, trade membership and subscriptions, and any other work-related expenses that you are obliged to pay sooner or later. For example, if you have any tax invoice for your professional indemnity insurance policy with a due date in July, then you should pay it now rather than leaving it till later. If you have to pay your business-related expenses whether you like it or not, why don't you do it now and bring forward some tax savings?
In many cases, interest on a loan to buy investment assets prepaid 12 months in advance are generally acceptable by the Tax Office. For example, if you plan to apply for margin loan to invest in shares, you may consider taking up the option to prepay next year's interest to add more deduction for this year.
If you have sold good-performing shares and realised capital gain so far this year, you should consider selling also some bad-performing shares to realise your capital losses. These capital losses may be used to offset against the gain that you made and help to reduce your tax bills. However, be warned that this year the Tax Office will set a target on "wash sales" where someone sells an asset to crystalise loss to offset against other gain and buys the same asset back again.
NEW RULES FOR SUPERANNUATION
Have you provide your superannuation fund with your Tax File Number (TFN)?
For self-employed, if you have not done so, please do it right now. Without your TFN correctly recorded by 30 June 2008, your superfund does not have to accept your last-minute personal contribution and you could miss out on government co-contributions (even if otherwise eligible). Furthermore, your super contribution will attract the top marginal tax rate of 46.5% instead of the concessional 15% one.
For employers, it is your responsibility to pass your staff TFN to their superfund. The same rules will apply to any super you contribute to your staff. If their funds have not received their TFN, then the amount you contribute to their super will be taxed at the top marginal rate.
Employer super funds MUST offer life insurance
From 1 July 2008, all employer-nominated super funds (also known as default funds) must offer minimum levels of life insurance death cover to members.
An employer-nominated super fund is the fund that your employer chooses to pay you as an employee your super guarantee contributions to. For example, if your company pays you wages as an employee and pays your super to your self-managed super fund (SMSF), then your SMSF must be a complying fund that provides you with a minimum life insurance cover from the 1 July 2008.
Employer-nominated super funds must offer minimum life insurance for all members at a premium of at least $0.50 per week for those under 56 years, or with at least the level of insurance cover shown in the following table:
Age range Minimum Life Insurance Cover
0 – 19 Nil
20 – 34 $50,000
35 – 39 $35,000
40 – 44 $20,000
45 – 49 $14,000
50 – 55 $7,000
56 and over Nil
There are some instances where employer-nominated super funds do not need to meet the life insurance requirements; for examples, if the employer is making contribution under a federal award or arranges insurance cover for employees outside the super system that includes death cover that is at least equivalent to the minimum insurance requirements.
Generally, life insurance premium is not tax deductible if you take up a life policy in your own name. However, if it is taken up by your super fund, then the fund can claim the premium paid for member's life insurance as a deduction.
You should discuss with your financial planner to seek for his advice in relation to this issue.
The new super regime have made estate planning a big issue for family members
From 1 July 2007, those people who retire at the age of 60 or over can take their super tax-free under the new super rules introduced the Howard government. However they still need to withdraw their super benefits out of the fund before they pass away. Otherwise, after they are gone, their beneficiaries could be liable for tax on it.
Member death benefits have been taxed differently when it is paid to the beneficiaries. For the beneficiaries who are also the dependants, it was treated as tax-free but only up to the amount of reasonable benefit limit (RBL) defined under the old super rules. For the non-dependants, they were largely taxed at 16.5 per cent.
The RBL has been abolished under the new super rules. As a result, there is no more upper limitation on how much the tax-free super member death benefits can be paid to their dependants. But non-defendants are still liable for tax.
Generally, defendants include spouse, minor children, or somebody financially dependants on you, or with whom you are in an interdependent relationship - for examples, same-sex couples, siblings living together and anyone else you provide any financial and domestic support and personal care.
Ideally, we should leave our super balance in the fund upon our retirement to enjoy the pension-mode tax-free earnings and take all out tax-free just before we pass away. The problem is that none of us knows when we will go... and that is why we need an estate planning for our super benefits.
Do NOT forget superannuation contribution
Under the new rules, self-employed can contribute up to $50,000 a year if under 50 years of age or $100,000 a year if aged over 50. To be eligible, you must be self-employed and all income from employment as an employee must be less than 10% of your total assessable income. 'Age' is the person's age at the date the last contribution was made for them for the year.
Deductibility could only be considered where the quarterly contribution was paid on or before the 28th day of the month following the month in which the relevant person turned 70 years of age. However, for the final June quarter, any contributions paid after 30 June 2008 but before the 28 July 2008 deadline cannot be claimed as a deduction this year. It will become a deduction for next year.
Staff super contribution made after 28 July 2008 will not be allowed as deduction. Furthermore, failure to pay compulsory superannuation guarantee to your staff on time will incur an extra administrative cost and surcharge penalty.
Pay your staff super Deductibility
By 30 Jun 08 Deduction allowed in 2008
Between 30 Jun and 28 Jul 08 Deduction allowed in 2009
After 28 Jul 2008 No deduction plus penalty
Do NOT forget Government Co-contribution
If your taxable income plus reportable fringe benefits is less than $28,980 and you make an after-tax "undeducted contribution" of $1,000 to your eligible superannuation fund before 30 June 2008, you will receive the maximum $1,500 tax-free government co-contribution after you lodge your personal tax return for the year.
To be eligible for the government co-contribution, you must be a resident taxpayer, younger than 71 years old at the end of the financial year, receive at least 10% of your income from employment and make an after-tax (undeducted) contribution to your super. The Federal Government will match $1.50 for every dollar you contribute to your super as an undeducted contribution by 30 June 2008. The amount of government co-contribution will be scaled back as your taxable income approaching $58,980. The maximum amount of government co-contribution is $1,500 per person.
DIVISION 7A – LOANS BY PRIVATE COMPANIES
Directors, shareholders and their related associates in privates companies who have dipped into the company funds or taken undocumented unsecured loans must act fast to take advantage of the Tax Office amnesty by 30 June 2008.
Division 7A in the Income Tax law aims to stop private companies lending without any regular minimum principal and/or interest repayments on a commercial basis. It was designed to stop private companies from making tax-free distribution to directors, shareholders and their associates.
It states that where loans are made, unless these are repaid before the company's lodgment date in the same year, the full amount shall be deemed as unfranked dividend and taxed at the recipient's marginal tax rate.
Our office has been working with several clients to make sure that they comply with Division 7A where
. the loan agreement must be signed,
. interest must be calculated at benchmark rates and
. minimum repayment requirement must be meet.
Any new loan agreements must be drawn up in writing before the company’s lodgment day for the income year.
NEW TAX RATES
Taxable Income Marginal Tax Rates
(without 1.5% Medicare Levy)
$0 - $6000 0% 0%
$6,001 - $30,000 15% 15%
$30,001 - $75,000 30% 30%
$75,001 - $150,000 40% 40%
$150,001 - $180,000 45%40%
$180,001 and over 45% 45%
The aggressive tax cuts have effectively reduced the benefits derived from tax effective structures and negative-gearing investments designed mainly for tax purposes.
DUE DATE FOR LODGMENT OF PAYG WITHHOLDING PAYMENT SUMMARY ANNUAL REPORT
If you prepare and lodge the report without involvement of the tax agent and/or your annual PAYG Withholding is larger than $1 million, then the due date will be 14 August 2008.
If you have tax agent involvement in preparing and lodgment of the report and have one or more arms-length payees, then the due date for lodgment will be 30 September 2008.