New tax thresholds were introduced at the start of the financial year for payroll tax in NSW. The annual payroll tax threshold is now $678,000 and the rate is currently 5.45%.

From 1 July 2011, the monthly threshold is:

Remember that your monthly payment is due just 7 days after the end of each month. Annual reconciliations are due 21st July.

I was at the NSW Office of State Revenue website earlier in the week and noticed they have an online payroll tax course to help employers unnderstand payroll tax. I must admit, I haven’t had time to check it out yet  but if you are registered for Payroll Tax (or think you might need to be), it could be worth a look at http://elearning.osr.nsw.gov.au/payrolltax/.

The NSW Government is also introducing the Jobs Action Plan from 1 July as an incentive for businesses to employ more workers (as opposed to the big, fat dis-incentive payroll tax offers you ). If your business employs staff in positions that are new jobs, you may be eligible to receive a payroll tax rebate.

For more information on the new scheme and to find out if you’re eligible for the Jobs Action Plan, visit the Rebate Scheme (Jobs Action Plan) page at NSW OSR.

The federal government announced changes to the operation of a number of offsets and rebates in this Budget. Some of these changes are effective as of Budget night. You should consider the application of these changes to your circumstances closely and carefully.

• From 10 May 2011, the dependent spouse rebate will be phased out for spouses aged less than 40 years of age. As of 10 May 2011, any individual with a spouse born on or after 1 July 1971 will not be eligible for this rebate.

• The low income tax offset (LITO) is a tax rebate for individuals on lower incomes. From 1 July 2011, the LITO will increase from 50% to 70% of total entitlements. This will not lead to an increase in the total offset available, but will lead to an increase in the percentage of the tax offset that will be available throughout the year. The rest of the tax offset will still be available as a cash lump sum at the end of the year.

• From 1 July 2011, the ability of children under 18 years of age (minors) to access the low income tax offset to reduce tax payable on their unearned income (such as dividends, interest, rent, royalties and other income from property) will be limited. This change will have the effect of significantly reducing the amount of passive income that you can distribute to a child effectively tax free. Income earned by minors from work will still be eligible for the full benefit of the low income tax offset.

• From 1 July 2011, self-education expenses will no longer be deductible against government assistance payments of any nature. As a result, students who receive Youth Allowance will still be entitled to claim a deduction for expenses incurred in gaining that payment for the 2010-11 income year. The Commissioner of Taxation has previously determined that students who have incurred such expenses in the 2006-07 to 2009-10 income years but have not retained receipts to substantiate these expenses will be entitled to a deduction of $550 per income year. Such students can make higher claims if the claims can be substantiated.

• From 1 July 2011, families in receipt of Family Tax Benefit Part A will be eligible for an advance of up to 7.5% of their annual Family Tax Benefit Part A entitlement (up to a maximum of $1,000). As above, this will not change the total value of your entitlement, but will allow you to access it at an earlier time. 

• The Family Tax Benefit Part A and Part B supplements, and the family payment higher income thresholds and limits, will effectively be held at their present levels for the next three years, that is, they will not be indexed as in the past. This change may have the effect of limiting or cancelling your entitlement to these benefits, depending on your circumstances.

• From 1 January 2012, the eligibility for Family Tax Benefit Part A will be limited to children up to the age of 21 years. This change may have the effect of limiting or cancelling your entitlement to these benefits, depending on your circumstances.

• From 1 January 2012, students electing to pay their HECS student contribution up-front will have their applicable discount reduced from 20% to 10%, and the bonus on voluntary payments to the ATO of $500 or more will be reduced from 10% to 5%. As such, you should consider whether reducing any outstanding HECS bills or settling any such fees incurred up-front for the remainder of the 2011 calendar year may be beneficial for you. 

This post appears in our Budget Edition of Taxwise Business News.

If you want to stay updated on the latest in tax news for business operators, be sure to subscribe to our popular Taxwise Business News newsletter. This newsletter is produced four times each year; February, June, September and November. It’s completely free and you can cancel your subscription at any time.

There won’t be a “Ratio to Know” cast today as I’m heading out of town for the funeral of a family member. 

I would encourage you instead to take a look at the Key Issues Announced in the Budget. This article was included in the special Federal Budget 2011 issue of  our Business Plus+ newsletter. It contains a brief overview of those issues which are likely to impact upon small business.

Regarding the Budget, I have received a number of queries this week concerning changes to HECS. I will update you on this and other ‘individual taxpayer’ issues when I return. Until then, if there is anything you would like more information on concerning proposed budget changes, let us know.

The Government will phase out the tax offset for dependent spouses currently aged less than 40 to help encourage more Australians into paid employment.

This reform will mean that from 1 July 2011 taxpayers with a dependent spouse born on or after 1 July 1971 will no longer be eligible for the dependent spouse tax offset (DSTO). This means the DSTO will be gradually phased out as the population ages.

Dependent spouses with children are not affected by this measure because they are eligible for Family Tax Benefit B rather than the DSTO.

The change will also not affect taxpayers whose dependent spouse is a carer, who is an invalid or permanently unable to work; and taxpayers eligible for the zone, overseas forces or overseas civilian tax offsets.

This change recognises that dependent spouses who may have been out of the paid workforce for many decades would find it more difficult to find jobs, so they will continue to be eligible for the DSTO.

This reform to the DSTO forms part of the Government’s Building Australia’s Future Workforce package.

The Federal Treasurer, Mr Wayne Swan, presented the Gillard Government’s budget on 10th May 2011. None of the items contained within the budget will become law until they have been passed by the House of Representatives and the Senate, and signed by the Executive Council.

The Government will change the fringe benefit treatment of cars to remove the unintended incentive for people to drive their vehicle further than they need to, in order to obtain a larger tax concession.

Under the ‘statutory formula’ method, a person’s car fringe benefit is determined by multiplying the relevant statutory rate by the cost of the car. Currently, the sliding scale of rates provides an increased tax concession for salary-sacrificed or employer-provided vehicles that are driven further.

The Government will replace the current rates with a single flat rate of 20 per cent that applies regardless of the distance travelled.

This reform will only apply to new vehicle contracts entered into after 7:30pm (AEST) on 10 May 2011, and will be phased in over four years as shown below:

Compared to the current statutory rates, a single rate of 20 per cent will:

• increase the tax concession provided for vehicles driven less than 15,000 kilometres a year;
• maintain the current tax concession provided for vehicles driven between 15,000 and 25,000 kilometres a year; and
• decrease the tax concession provided for vehicles driven more than 25,000 kilometres a year.

People who use their vehicle for a significant amount of work-related travel will still be able to use the ‘operating cost’ (or ‘log book’) method to ensure their car fringe benefit excludes any business use of the vehicle.

The Federal Treasurer, Mr Wayne Swan, presented the Gillard Government’s budget on 10th May 2011. None of the items contained within the budget will become law until they have been passed by the House of Representatives and the Senate, and signed by the Executive Council.

The Government will reduce income tax instalments paid under Pay As You Go (PAYG) using the gross domestic product (GDP) adjustment method for one year.

PAYG instalments in 2011-12 will be set at 4 per cent above a small business’s taxable income for the previous year, half the statutory rate that would otherwise have applied. This is a one-year benefit and the statutory rate will apply as normal from 2012-13.

The PAYG changes will apply to all small businesses, including sole traders and businesses operating through trusts, partnerships and companies. These reforms, according to the Government, will make tax simpler for small business, while increasing cash flows so they can reinvest and grow their businesses.

It is worth noting that while these measures may assist in cashflow, if you’re not careful they could also result in an unexpectedly large tax bill at the end of the financial year.

The Federal Treasurer, Mr Wayne Swan, presented the Gilliard Government’s budget on 10th May 2011. None of the items contained within the budget will become law until they have been passed by the House of Representatives and the Senate, and signed by the Executive Council.

The Medicare Levy is not payable (or is payable at reduced rates) by individuals and families on low incomes and by certain pensioners.

From the 2010-11 income year, the Medicare levy low-income threshold will increase to $31,789 (up from $31,196) for couples, and to $18,839 (up from $18,488) for singles.

For families, the additional amount of threshold for each dependent child or student will also be increased to $2,919 (up from $2,865).

The increase in thresholds generally takes into account movements in the Consumer Price Index.

The Medicare levy low-income threshold for pensioners below Age Pension age will also be increased.  From 1 July 2010, the threshold will rise to $30,439 (up from $27,697).  This will ensure that pensioners below Age Pension age do not pay the Medicare levy when they do not have an income tax liability.

The Federal Treasurer, Mr Wayne Swan, presented the Gilliard Government’s budget on 10th May 2011. None of the items contained within the budget will become law until they have been passed by the House of Representatives and the Senate, and signed by the Executive Council.

The Government will abolish the Entrepreneurs’ Tax Offset (ETO), with effect from the 2012-13 income year. The ETO currently provides a 25% reduction in tax payable for small businesses with revenue under $50,000 (phasing out  at $70,000).

Replacing the ETO will be an immediate write-off of $5,000  for any car purchased from the 2012-13 year, with the balance being depreciated at 30%. Here’s how that would work:

Let’s use the Treasury example figure and assume you purchase a car for $33,960. At the moment, if you tossed that car into a pool, you would be able to to depreciate the first year at 15% and subsequent years at 30%. So the first year, you’d have a depreciation expense of $5,094 (33,960 x 15%).

Under the new proposal, you would immediately have $5,000 written off and then transfer the remaining $28,960 into a general small business depreciation pool to be expensed at 15% (another $4,344). This would give you a total first year write-down of $9,344. 

This measure is designed to build on the Government’s existing tax reforms for small businesses to be introduced in 2012-13 that allow:

• an immediate write-off of all assets valued at under $5,000 (up from $1,000 presently);
• a write-off of all other assets (except buildings) in a single depreciation pool at a rate of 30 per cent; and
• a reduction in company tax rate to 29 per cent for incorporated small businesses.

These tax reforms will be available to all small businesses, including sole traders and businesses operating through trusts, partnerships and companies.

The Federal Treasurer, Mr Wayne Swan, presented the Gilliard Government’s budget on 10th May 2011.  None of the items contained within the budget will become law until they have been passed by the House of Representatives and the Senate, and signed by the Executive Council.

Measures to bring forward low income tax offset (LITO) relief to 6.5 million low income taxpayers will be annouced in tomorrow nights budget.

From 1 July 2011, the Government will increase the proportion of the low income tax offset (LITO) that is delivered through workers’ week-to-week pay packets from 50% to 70%. This change means instead of being compensated after they put in their tax return at the end of the year, lower income earners are taxed less during the year.

Someone with annual income of $30,000 will get an extra $300 during the year in their regular pay (around $5-$6 each week). A person’s total LITO entitlement for any one tax year will remain unchanged.

The measure is designed to increase workforce participation and help with cost of living pressures. 

With just one day to go until the Federal Budget is announced, what is it you hope to see introduced or dropped?

The ATO recently released its compliance program for 2010/11.

In relation to tax compliance for small and medium enterprises the ATO will be focussing on a variety of issues, including the following: 

Business activity statements– the ATO will be focussing on compliance issues related to BASs, specifically reported property sales and acquisitions and application of the margin scheme rules.

Capital gains and losses – the ATO will be focussing on the calculation of capital gains and losses including in relation to the application of small business CGT concessions, other CGT concessions or rollovers, calculation of cost base, capital gains and losses on the disposal of shares and property (including non-residents).

Cash economy – the ATO will be focussing on businesses that conduct a high level of cash transactions (such as paying cash-in-hand wages) in order to identify taxpayers that may be using cash transactions to hide income and evade tax obligations. This includes the use of business benchmarks which allow comparisons between similar businesses to identify typical or expected turnover levels.

Company deregistration – the ATO will be examining the affairs of taxpayers who deregister companies.

Employer obligations – the ATO will be monitoring employers’ compliance with their PAYG withholding obligations and superannuation guarantee obligations. In relation to superannuation, the ATO will be focusing on road freight transport, automotive repair and electrical service industries. The ATO will also continue to work with promoters, industry representatives and sporting bodies to provide guidance on withholding obligations for visiting entrepreneurs and sportspersons.

Financial supplies – the ATO will be focussing on the GST consequences of transactions related to financial supplies, especially in relation to the appropriate identification and linking of acquisitions to the making of financial supplies. The ATO will focus specifically on capital raising activities, managed funds or superannuation funds, contributory mortgage schemes, small financial transactions (such as pawnbrokers etc) and mergers and acquisitions.

Fringe benefits tax – the ATO will be focussing on the treatment of motor vehicles, in particular appropriate recording of private use in relation to luxury car purchases and exempt vehicles.

GST – the ATO will be focussing on the GST impact of cross-border transactions, integrity of GST refunds, sales of property and issues concerning retirement villages.

International transactions – the ATO will be focussing on foreign source income, deductions relating to cross border transactions and the application of the thin capitalisation and transfer pricing provisions.

Losses – the ATO will be focussing on the utilisation of losses, especially the incorrect treatment of capital losses as revenue losses.

Personal services income – the ATO will be focussing on contractors to ensure that all PSI is appropriately disclosed, with a particular focus on engineers and computer technology specialists in the mining industry.

Self managed superannuation funds (SMSFs) – the ATO will be focussing on loans to related parties, deductions claimed for exempt current pension income, treatment of losses and re-reporting of member contributions.

Shareholder loans – the ATO will be focussing on amounts paid or distributions made by private companies to shareholders or connected entities to ensure any deemed dividends are appropriately reported.

Trusts – the ATO will be focussing on the TFN reporting obligations of trustees in respect of beneficiaries to whom distributions are made.

Is there anything left?

Although the ATO is targeting the areas mentioned above, businesses should not think that this means that the ATO will not be looking at other areas too. They will!

The ATO have released the following information concerning processing times for tax returns this year: 

As at 26 July 2010, the ATO had issued more than 942,000 notices of assessment, including approximately 830,000 refunds.

At the end of every financial year, the ATO goes though the process of updating its software, mainly to take account of any changes to the tax laws for the previous year. The new software has to be loaded, tested and verified.

During this time (which extends into the first weeks of the new financial year) only a very small number of returns are processed.

As was the case last year, this year we aim to process 94% of individuals’ electronic returns within 14 days. Now that full processing is well underway, it is expected that most electronically lodged (through e-tax or tax agents) returns will meet the 14 day time-frame. However, as usual, some returns will take longer than others because, for example, a claim in the return needs to be checked or more information is needed. Other examples of where it may take us longer to process a return are where we need to check with Centrelink and the Child Support Agency.

Most paper returns should be processed within 42 days (we aim to process 80% of paper returns in 42 days). Again, some can take longer than others, for the same sorts of reasons.

This year the ATO has upgraded its technology to help detect over-stated or fraudulent claims for refunds. This has added 2 days to the processing time for all returns, but we still aim to meet our 14 and 42 day targets.

Given the size of the technology and the scale of the changes, we always keep a close watch on how our systems are operating.

One area we were watching carefully was the processing of returns for taxpayers who have Higher Education Loan Program (HELP) and Student Financial Supplement Scheme (SFSS) obligations, where minor delays had been experienced. However, processing of these returns commenced on 23 July 2010 and it is expected that EFT payments of refunds will have commenced by the end of this week.

The budget has been prepared in uncertain times. Matters which could affect the budget outcomes include:

• The turmoil in Greece, particularly if this spreads to other European countries.

• The expectation that commodity exports from Australia to China and other Asian countries will continue to rise.

• The Government has made a big punt on the continuation of the resources boom.

• The budget expectation is that interest rates will continue to rise.

• The budget is assuming a 7.5% increase in dwellings.

• There are considerable concerns that the resources super profit tax, which is to be determined on a project by project basis, will affect SME operators who may be caught up in resource companies scaling back exploration, repairs and maintenance, capital expenditure and research and development.

The Federal Treasurer, Mr Wayne Swan, presented the Rudd Government’s budget on 11th May 2010. The Treasurer indicated the budget was a “no frills budget” and it was. This series of posts incorporates a summary of matters within the Federal Budget, the Henry Review and other initiatives that have commenced in 2010 that may affect SME operators. Other than those items which have already commenced in 2010, none of the items contained within the budget, nor the Henry Committee Review, will become law until the budget and the various Henry Committee Review recommendations have been passed by the House of Representatives and the Senate, and signed by the Executive Council.

There are no major tax changes in respect of the 2010/11 year as it affects SMEs.

A summary of the matters included in the budget, Henry Review and Government Initiatives which have already started in 2010 include:

Medical expenses offset threshold
The threshold of $1,500 applicable under the medical expenses rebate rules will be increased to $2,000 from 1 July 2010, and then indexed annually.

Research And Development  The government has indicated that the new Research and Development Tax Credit scheme will commence from the 1 July 2010. The legislation (which has yet to be passed by the Senate) will provide for a rebate for eligible R & D expenditure at 45% of the R & D expenditure for companies with turnovers under $20M and at a rate of 40% for companies with turnovers over $20M.

If companies with turnovers under $20M are trading at a loss, the Company can elect for the Australian Taxation Office to pay a rebate, calculated at 45% of Research and Development expenditure for the year, directly into the Company’s bank account within 30 days of the tax return having been lodged.

Naturally, the Company’s carried forward losses will be adjusted following the payment of the rebate.

Small Business
Small businesses that account for GST on a cash basis will be allowed to claim input tax credits upfront in relation to Hire Purchase agreements.

Commercialisation Australia Grant Programme
Commercialisation Australia Grant programme for businesses that have developed new products, processes or services that meet the merit criteria have grants available for
• Skills and Knowledge
• Experienced Executive
• Proof of Concept
• Early Stage Commercialisation Repayable Grants

Maximum Grants available are:

Skills Development
The Government has budgeted for $660M in training of apprentices and adult training over the next 4 years.

Health
The Government has allocated an extra $2.2B for improved access to General Practitioners and money for more nurses, plus an extra $467M for an E-Health system.

Small Medium Enterprises (SMEs)
Small Medium Enterprises (SMEs) could be affected by the impact of the resources super profit tax for the resources industries.

The Federal Treasurer, Mr Wayne Swan, presented the Rudd Government’s budget on 11th May 2010. The Treasurer indicated the budget was a “no frills budget” and it was. This series of posts incorporates a summary of matters within the Federal Budget, the Henry Review and other initiatives that have commenced in 2010 that may affect SME operators. Other than those items which have already commenced in 2010, none of the items contained within the budget, nor the Henry Committee Review, will become law until the budget and the various Henry Committee Review recommendations have been passed by the House of Representatives and the Senate, and signed by the Executive Council.

A standard deduction of $500 for the 2012/13 income year will be made optional in lieu of employment deductions and tax agents fees.  This deduction increases to $1,000 for the 2013/14 income year.

Although I am sure this will sound appealing to some taxpayers, it is far from beneficial for most.

According to Tax Office statistics, the average claim just for work-related expenses $1,920 - even higher if you are entitled to travel deductions. Add this to the $301.31 claimed on average for managing tax affairs and a standard $500 doesn’t sound so hot.  And  where will this leave other entitlements and deductions such as the ETR, medical, donations, etc…   ? More than ever, taxpayers need to inform themselves and know what they can claim on their taxes.

There is no doubt that some individual taxpayers will benefit a great deal from a standard deduction, such as those with very simple affairs and little to deduct or claim. Unfortunately, it is not a very generous ‘standard’ for most of us.

The Federal Treasurer, Mr Wayne Swan, presented the Rudd Government’s budget on 11th May 2010. The Treasurer indicated the budget was a “no frills budget” and it was. This series of posts incorporates a summary of matters within the Federal Budget, the Henry Review and other initiatives that have commenced in 2010 that may affect SME operators. Other than those items which have already commenced in 2010, none of the items contained within the budget, nor the Henry Committee Review, will become law until the budget and the various Henry Committee Review recommendations have been passed by the House of Representatives and the Senate, and signed by the Executive Council.

Personal savings will be encouraged by way of a 50% discount in tax payable on the first $1,000 of interest earned.

This will apply to interest earned from the 1st July 2011 on deposits held in banks, building societies and credit unions, and on bonds, debentures and annuity products.

The Federal Treasurer, Mr Wayne Swan, presented the Rudd Government’s budget on 11th May 2010. The Treasurer indicated the budget was a “no frills budget” and it was. This series of posts incorporates a summary of matters within the Federal Budget, the Henry Review and other initiatives that have commenced in 2010 that may affect SME operators. Other than those items which have already commenced in 2010, none of the items contained within the budget, nor the Henry Committee Review, will become law until the budget and the various Henry Committee Review recommendations have been passed by the House of Representatives and the Senate, and signed by the Executive Council.

The superannuation contribution levels are:

The Federal Treasurer, Mr Wayne Swan, presented the Rudd Government’s budget on 11th May 2010. The Treasurer indicated the budget was a “no frills budget” and it was. This series of posts incorporates a summary of matters within the Federal Budget, the Henry Review and other initiatives that have commenced in 2010 that may affect SME operators. Other than those items which have already commenced in 2010, none of the items contained within the budget, nor the Henry Committee Review, will become law until the budget and the various Henry Committee Review recommendations have been passed by the House of Representatives and the Senate, and signed by the Executive Council.

The Government has announced that the Superannuation Co-Contribution of 100% of the first $1,000, contribution will no longer revert to $1,250 by 2012/13 and $1,500 by 2013/14. The threshold will be frozen at $31,920 for 2010/11 and $61,920 for 2011/12.

The Federal Treasurer, Mr Wayne Swan, presented the Rudd Government’s budget on 11th May 2010. The Treasurer indicated the budget was a “no frills budget” and it was. This series of posts incorporates a summary of matters within the Federal Budget, the Henry Review and other initiatives that have commenced in 2010 that may affect SME operators. Other than those items which have already commenced in 2010, none of the items contained within the budget, nor the Henry Committee Review, will become law until the budget and the various Henry Committee Review recommendations have been passed by the House of Representatives and the Senate, and signed by the Executive Council.

At present funds in a first home saver account must be held for at least 4 years before an individual can use the savings to buy a home.  If the home is purchased within the 4 year period the funds must be transferred to a superannuation account. 

It is now proposed that the balance of a first home saver account may be paid into an approved mortgage at the end of the 4 year period, rather than being paid into a superannuation fund.

The proposed change will apply to houses purchased after the Governer General has assented to the relative amending legislation later this year.

The corporate tax rate applying to small business companies (turnover under $2M) will reduce to 28% in 2012/13.

The corporate tax rate for companies with turnovers over $2M will reduce to 29% in 2013/14 and reduce to 28% in 2013/14.

While this is good news for small corporate entities, it does nothing for the vast majority of small business owners in Australia who operate through a sole trader, partnership or trust structure.

The Federal Treasurer, Mr Wayne Swan, presented the Rudd Government’s budget on 11th May 2010. The Treasurer indicated the budget was a “no frills budget” and it was. This series of posts incorporates a summary of matters within the Federal Budget, the Henry Review and other initiatives that have commenced in 2010 that may affect SME operators. Other than those items which have already commenced in 2010, none of the items contained within the budget, nor the Henry Committee Review, will become law until the budget and the various Henry Committee Review recommendations have been passed by the House of Representatives and the Senate, and signed by the Executive Council.

The Government has introduced the third tranche of its earlier commitment for reductions in personal income tax rates from 1 July 2010. Personal income tax rates which apply for the 2010/11 financial year are:

From 1st July 2010 -

• In addition, there is a Medicare Levy payable of 1.5% plus a Medicare Levy Surcharge may apply.
• There is no change to the corporate tax rate in 2010/11 – continues at 30% (however, changes are planned for small business from 2012/13).
• Superannuation Contribution Tax – continues at 15%.
• Superannuation Funds Tax – continues at 15%.

Medicare Low Level Income Threshhold will be increased to:
• $18,488 for single people
• $31,196 for couples

The additional amount of threshold for each dependent child or student will be $2,865.

The Medicare low level income threshold for pensioners below pension age will be increased to $27,697.

The Federal Treasurer, Mr Wayne Swan, presented the Rudd Government’s budget on 11th May 2010. The Treasurer indicated the budget was a “no frills budget” and it was. This series of posts incorporates a summary of matters within the Federal Budget, the Henry Review and other initiatives that have commenced in 2010 that may affect SME operators. Other than those items which have already commenced in 2010, none of the items contained within the budget, nor the Henry Committee Review, will become law until the budget and the various Henry Committee Review recommendations have been passed by the House of Representatives and the Senate, and signed by the Executive Council.