Author Archive
Finance Newsletter September 2013
August 30, 2013 | 
Author Reading the business press and thinking of fixing your home or investment loan? You are not alone. Around 50% of new loans are set up as fixed.
There are some great variable and fixed rates available.
4.99% variable is now available with no monthly or annual fees. Check your current rate and see you much you could save in interest.
And 4.89% fixed for 2 years with citibank. This includes a free 60 day rate lock. A historical low for fixed rates.
An experienced broker can explain the difference between fixed vs variable, and show you how you may be able to benefit from our market knowledge.
If you are not sure you have the best loan, we can help you look at your options and may be able to help you get a better rate by comparing all that’s available.
Remember that Mercia finance brokers can assist you with car loans, home loans, Lo-Doc home loans for the self employed, construction loans and any other type of mortgage or loan. Our service is free of charge to you the borrower and we have access to all the major lenders in WA.
A Mercia Mortgage broker can give you independent advice and comparisons between all the major lenders.
All these services are provided by our friendly and professional mortgage brokers at no cost to you – so you have nothing to lose and everything to gain.
If you would like to speak to a broker, call Dan Goodridge on 0414 423 340 or e-mail dg@iinet.net.au .
Posted in 
Tax Newsletter – September 2013
Federal Election tax announcements
The next Federal Election will be held on 7 September 2013. Both sides of politics have made various announcements and promises. Some of the key announcements to keep in mind include the following:
- Company tax rate cut – On 7 August 2013, the Coalition announced that, if elected, it would cut the company tax rate by 1.5% with effect from 1 July 2015. It said the proposed new company tax rate of 28.5% is part of its “significant tax reform agenda to be delivered within the first term”. Note that the Coalition has also previously proposed a levy on large companies to fund its proposed paid parental leave scheme.
- GST and tax reform – On 7 August 2013, Shadow Treasurer Joe Hockey reaffirmed that the Coalition had “no plans whatsoever to change the GST”. “We are prepared to have a debate about tax reform but any changes arising out of the white paper process would first be put to the Australian people at the next election,” Mr Hockey said.
ATO compliance target areas
The ATO has released its compliance program for 2013–2014, setting out key activities and focus areas for the coming year. Some key points include the following:
- The ATO says it will pay particular attention to large work-related expense claims made by: (i) building and construction labourers, construction supervisors and project managers; and (ii) sales and marketing managers.
- This year, the ATO will use new information sources to check correct reporting of: (i) private health insurance rebate claims; (ii) flood levy exemptions; and (iii) taxable government grants and payments.
- The ATO has set up a new taskforce to deal with promoters, individuals and businesses that seek to misuse trusts. The ATO plans to conduct 5,000 data-matching cases and around 700 income tax reviews and audits over the next four years.
CGT small business concessions denied
The Administrative Appeals Tribunal (AAT) has held that the exclusion in the tax law from the capital gains tax (CGT) small business concessions for assets used “mainly to derive rent” applies even if the assets are used in “carrying on a business” of deriving rent.
In this case, the taxpayer argued that in interpreting the rules, it was necessary to distinguish between those assets used to derive passive investment income such as rental income, and those actively used in carrying on a business. Essentially, the taxpayer argued that the strict view that all properties that are used mainly to derive rent are automatically excluded from the concessions unfairly discriminates against small leasing businesses.
However, the AAT considered that the words in the law must be considered first and that it was not “unduly pedantic to begin with the assumption that words mean what they say”.
TIP: This case demonstrates the need to be aware of the various conditions required to be satisfied in order to claim the CGT concessions for small businesses. In this case, the key issue was whether three commercial properties that the taxpayer used in carrying on a business of deriving rent qualified as “active assets” and were therefore potentially eligible for the concessions. However, the AAT found that a specific exclusion under the tax law for assets used mainly to derive rent applied. Please contact our office if you would like further information.
Deductions for accommodation and food refused
An individual employed by a mining company at Port Hedland on a “fly-in fly-out” basis has been unsuccessful before the Federal Court in appealing an earlier decision that refused his deduction claim of $36,000 for accommodation and food against an allowance.
In the earlier decision, it was held that the allowance was properly characterised as a living-away-from-home allowance (LAFHA) under the fringe benefits tax (FBT) rules. As a result, it was subject to FBT in the hands of the taxpayer’s employer, and travel expenses could not therefore be claimed in relation to it. In affirming the earlier decision, the Court said the expenses in relation to accommodation, food and travel were not incurred by the taxpayer in the course of gaining or producing his assessable income. Rather, the expenditure arose from the taxpayer’s decision not live in Port Hedland and to instead travel to Port Hedland on a fly-in fly-out basis.
Redundancy payment for overseas work assessable
The AAT has ruled that a taxpayer who was the managing director of a company in various countries from 2002 to 2007, and who was paid an employment termination payment (ETP) when he returned to Australia, was not assessable on the part of the annual and long service leave component of the ETP that was attributable to his foreign service (in view of the exemption in the tax law at the time).
However, the AAT confirmed that he was assessable on the taxable component of the ETP, despite its foreign source, on the basis that he was a tax resident of Australia when the ETP was paid to him.
ATO telephone advice does not excuse wrong GST claim
In a recent decision, the AAT has affirmed the Commissioner’s decision to impose on a taxpayer an administrative penalty at the rate of 50% for “recklessness” in relation to incorrectly claimed input tax credits (ITCs). The taxpayer had lodged a claim in the relevant business activity statement (BAS) for almost $72,000 in ITCs in relation goods said to be from Hong Kong. This was despite the goods never having left the country or having been manufactured.
The taxpayer’s representative claimed that he had relied on telephone conversations with the ATO in which the ATO had allegedly advised to the effect that the taxpayer could claim ITCs. However, the AAT did not accept the taxpayer’s arguments in that regard and affirmed the Commissioner’s decision. The AAT noted, among other things, that the discussions post-dated the filing of the BAS and, accordingly, any advice received at that time could not have influenced the making of a false or misleading statement.
TIP: Most taxpayers will, often or not, rely on spoken advice. They may contact one of the many enquiry lines that have been set up by various governmental departments, which provide callers with free and quick advice on not only the operation of the law, but also how it is being put into practice within those departments. However, taxpayers need to be cautious about relying on such advice. As the AAT said in this case, given the size of the taxpayer’s claim, “a private taxation ruling, or at least informed professional advice, could and should have been sought”.
Money from ex-husband’s company assessable
A taxpayer has been unsuccessful before the AAT in arguing that $1.6 million she received from a company run by her (then) husband was provided to her as part of a domestic arrangement with her husband and was not therefore assessable in her hands.
Broadly, the taxpayer contended that she had agreed to finance her then husband’s purchase of shares in the company and that she was behaving as a “good” wife who deployed the resources at her disposal in support of her husband, and that she was not an independent investor in her husband’s business. The AAT did not accept that the taxpayer was simply acting as a supportive spouse who passively received benefits provided to her by her husband under a matrimonial arrangement. The AAT essentially agreed with the Commissioner that the taxpayer was an investor in the business and found that the payments were “income” assessable to her under the tax law.
Poor recordkeeping, so fuel tax credit claims refused
A trustee of a family trust that operated a construction and earthmoving equipment business has been unsuccessful before the AAT in its claim for fuel tax credits. Following an audit of the business in 2010, the Commissioner refused the credits, citing that records maintained by the taxpayer did not accurately describe the amount of fuel acquired or used, or adequately describe the purpose for which the fuel was used.
The taxpayer acknowledged that there were problems with its recordkeeping but said the difficulties were caused by employee delinquency. Further, it said its true entitlements were actually much greater than the amount claimed. However, the AAT was not satisfied with estimates provided by the taxpayer. It was also critical of the taxpayer’s records, saying they “were a mess”. The AAT affirmed the Commissioner’s decision, as well as the imposition of penalties at 25%.
Finance Newsletter August 2013
Reading the business press and thinking of fixing your home or investment loan? You are not alone. Around 50% of new loans are set up as fixed.
There are some great variable and fixed rates available.
4.99% variable is now available with no monthly or annual fees. Check your current rate and see you much you could save in interest.
And 4.89% fixed for 2 years with citibank. This includes a free 60 day rate lock. A historical low for fixed rates.
An experienced broker can explain the difference between fixed vs variable, and show you how you may be able to benefit from our market knowledge.
If you are not sure you have the best loan, we can help you look at your options and may be able to help you get a better rate by comparing all that’s available.
Remember that Mercia finance brokers can assist you with car loans, home loans, Lo-Doc home loans for the self employed, construction loans and any other type of mortgage or loan. Our service is free of charge to you the borrower and we have access to all the major lenders in WA.
A Mercia Mortgage broker can give you independent advice and comparisons between all the major lenders.
All these services are provided by our friendly and professional mortgage brokers at no cost to you – so you have nothing to lose and everything to gain.
If you would like to speak to a broker, call Dan Goodridge on 0414 423 340 or e-mail dg@iinet.net.au .
Property Newsletter August 2013
A Healthy Driver of Growth
It is estimated that around $5 billion will be invested in health care building projects in Perth over the next five years, but how will these significant projects affect the local property market?
Hospitals are rarely far from the news and it’s no wonder given the critical role they play in modern society. In Perth, much of the recent talk has surrounded the various major hospital projects that are planned or already underway.
A key question for property investors is how will these significant projects affect the local property markets? There will undoubtedly be both positive and negative consequences.
A quick summary
Let’s start by summarising the major hospital projects in Perth:
Fiona Stanley Hospital
The flagship project of the city is the $2 billion Fiona Stanley Hospital in Murdoch, which will be the state’s most sophisticated health facility. The hospital is one of the biggest infrastructure projects in WA history and is scheduled to open in October 2014.
New Children’s Hospital
A project that has seen its fair share of media scrutiny is the new children’s hospital, which will replace Princess Margaret Hospital for Children. Construction for this project began in January 2012 on the Queen Elizabeth II Medical Centre site in Nedlands and is due for completion in 2015.
Expansion of Joondalup Health Campus
The Joondalup Health Campus, the largest health care facility in Perth’s northern suburbs, has recently undergone an expansion and redevelopment worth around $393 million, delivering extensive new facilities and expanded services for public and private patients.
Midland Hospital
The new Midland Public Hospital, scheduled to open in 2015, will be the first new hospital in the area in more than 50 years and construction is already underway. The new facility will replace the existing Swan District Hospital, providing new and expanded services and a 50 per greater capacity.
Jobs, jobs, and more jobs
Hospital projects often involve enormous amounts of construction and therefore generate large numbers of construction related jobs, which can last many years.
But even after construction has finished, hospitals still require many permanent and part-time jobs making them a major local employer. It’s not just the obvious medical jobs required, such as doctors and nurses, but also positions in areas such as administration, cleaning, IT, security, accounts, legal, marketing, and HR. Jobs attract people and naturally increase the demand for housing.
Economic activity
The economic impact of a new hospital extends beyond the hospital itself. With its large workforce and ability to attract people from a wide area, a hospital can have a tremendous impact on the community in which it is located. It can spawn a variety of other businesses servicing the local population, from non-hospital medical services to cafes.
This increased economic activity not only injects life into an area and makes it more appealing, but it also creates even more jobs. A new hospital can also trigger new transport infrastructure, a further boost for the area.
The local property market
How does a new hospital impact on the local property market? Firstly, it could increase the demand for housing in the area, both from people who work at the hospital during or post construction, and from people who value living close to medical facilities.
New research has found that health infrastructure is a key driver of where Australians will choose to live, surpassing employment as the most essential consideration.
In a survey of more than 1,000 people by MWH Global, respondents were asked ‘Which of the following would improve the quality of your life if they were in closer proximity to you?’ The option ‘Better access to hospital/specialist medical care/24-hour medical care’ was chosen by 53 per cent of respondents.
The extra demand for housing triggered by a new hospital could put upward pressure on rents and property prices in the surrounding areas. And these areas should continue to experience the benefit of increased demand well into the future, fundamentally shifting the nature of the local market.
Any risks?
With the amount of people coming in and out of a hospital, there is a risk that increased road traffic could affect some properties in the immediate area. Previously quiet areas could suddenly experience more noise and congestion, devaluing properties.
Hospitals by their very nature can attract a certain degree of anti-social behaviour, which can spill out into local areas. This is especially true for hospitals in inner-city locations that report high incidents of drunkenness and violent conduct.
Could a new hospital encourage new housing developments that flood the market? While developers may be encouraged to build apartment complexes and other housing to cater to hospital staff, limited land supply often curtails the amount of development that is possible.
Is there a risk that a hospital closes down? Given the significant investment that goes into a new hospital and the vital services it provides, it’s unlikely that one would suddenly close down. But over many years, it’s possible that a hospital could scale back or move to another location. If this happened, there could be negative consequences for the local area.
Conclusion
A new hospital can certainly change the economic landscape of an area and therefore have a significant impact on the local property market. Buying close to the site of a future hospital can prove to be a wise investment, especially in the parts that will have good transport links, but the risks need to be carefully evaluated.
Perth Houses Leading the Way
Perth’s median house price rose 3.2% over the three months to April, according to Australian Property Monitors (APM).
This was the strongest amongst the capital cities, and took the annual growth in the median house price to 6.7%.
The unit market hasn’t performed so well. The median unit price rose a marginal 0.4% over the quarter, with the annual figure showing a drop of 0.6%.
Most experts predict growth in the Perth market will slow over the remainder of the year, as the market responds to changes in the mining industry.
Large WA mining projects are transitioning from a construction phase to a production phase.
“What’s happening in WA is not an end to the mining boom, it’s an end to the infrastructure boom,’’ said RP Data analyst Tim Lawless.
“If you find some indicators are weakening, they’re actually weakening from an exceptionally high level,” Mr Lawless said.
Local market commentators are expecting a slowdown in growth in the Perth market overall. However well selected properties should still generate strong capital growth.
Property Acquisitions: Why it Pays to Understand the Valuation Process – Part 2
This month we will explain the role that sales evidence plays in the valuation process, some of the challenges faced by valuers and how investors can get the most out of their valuations.
There is a saying you often hear in real estate circles that a property is only worth what someone is willing to pay for it. But if the property hasn’t sold and isn’t even on the market, how does a valuer determine its value? Just like a crime scene investigator, a valuer must examine the evidence. Specifically, a valuer will look at recent sales of comparable properties in comparable locations.
By using the information uncovered during the inspection and comparing the target property to similar properties that have sold, the valuer can determine a valuation. Of course, the more similarities there are between the target property and those used for comparison, the more accurate the valuation will ultimately be.
At least 3 properties will typically be used as sales evidence and these properties must have sold recently, say within the last 6 months. However, depending on the state of the market and how rapidly it is changing, valuers may choose to only rely on sales that have occurred within the last 3 months.
With the analysis of sales evidence complete, the valuer will compile a report outlining the properties that were used for comparison and how these properties differ from the target property. The report, specifying the valuation figure, will be supplied to the person that requested the valuation. If the valuation was commissioned by a lender for a loan application, the borrower may not be given a copy of the report. The borrower can however ask the lender for the valuation figure.
One of the major challenges facing valuers is performing their role under immense time and cost pressures. Valuation fees are typically quite low and this means that valuers can’t always invest the amount of time they would like into each valuation. Some people describe the valuation process as a production line.
There are also legal pressures facing valuers. If a borrower defaults on a loan and the sale of the repossessed property fetches less than it was valued for, the valuer could potentially be sued by the lender. Although this is a rare occurrence, many people believe the threat of legal action causes valuers to be overly conservative. Examples have shown that different valuers can provide very different valuations for the same property.
Why is it valuable for investors to understand the valuation process? There are a few reasons. Firstly, understanding the factors that determine a property’s value can help you to spot a bargain and avoid overpaying for a property.
Secondly, having knowledge of the process can help ensure you get favourable valuations on your new purchases or existing properties. Providing the valuer with information relating to relevant sales evidence can help you make a strong case for a higher valuation. Pointing out positive characteristics about the property, which might not be obvious to the valuer, can also work in your favour.
It’s important to remember however that valuers are experts in their field, so you don’t want to patronise them. But if you have information that may save them time, most valuers would be willing to look at it.
Finance: The Weird World of Lender’s Mortgage Insurance
Lender’s Mortgage Insurance (LMI) is a type of insurance that has been used by millions of Australians who have entered the property market, but it’s a product that isn’t widely understood. So, what is it, when is it used and who is it actually for?
LMI is a type of insurance that is generally required when you are buying a home or investment property and you don’t have a large enough deposit. Generally, it kicks in when you are trying to borrow over 80 per cent of the property value.
LMI is arranged by the lender during the loan approval process and involves a one-off cost, which can often be added to the loan. The premium, which can be many thousands of dollars, is calculated based on a sliding scale that relates to the value of the property, the percentage of the purchase price being borrowed and the loan amount. However, there are other factors that can impact on the figure, such as the type and location of a property.
The biggest misconception about LMI relates to who it actually protects. Although it is paid for by the borrower, its purpose is to protect the lender in the case of a default on the loan. It covers any shortfall that may arise if the lender repossess the property and isn’t able to recover enough money to repay the loan and relevant costs. The clue is in the name. LMI doesn’t benefit the borrower as the borrower would still be liable for a default.
LMI should not be confused with Mortgage Protection Insurance, which covers your mortgage repayments in the event of death, sickness, unemployment or disability.
Some people believe that LMI is overly expensive, especially when you consider that default rates in Australia, even among first-home buyers, are very small. Another common gripe is the fact that refinancing a loan can trigger LMI, even if it was paid when the original loan was approved.
How do you avoid paying LMI? One way is to save enough of a deposit, generally at least 20 percent of the property value. Another way is to have a guarantor, perhaps a family member, provide security to cover an agreed portion of the loan.
As different lenders have different criteria and premiums in relation to LMI, it makes sense to consult with a finance broker who can discuss the pro’s and cons of LMI. Borrowers still may choose to pay LMI if it means getting their home or investment sooner, particularly where costs of a rising market may outweigh the time it will take to save a larger deposit.
Property Management: How Changes to the Residential Tenancies Act Will Affect Investors – Part 2
Now that July 1 has passed, a new set of laws have come into place that govern renting in Western Australia. We discussed some important changes last month and we now continue with this theme, focusing on pets, bonds, security and repairs.
Expanded use of pet bond
Prior to July 1, you could only charge your tenant a pet bond (to cover fumigation expenses) if the tenant kept a dog or a cat at the premises. Now, under the new laws, it’s not just limited to cats and dogs. A pet bond can be charged when your tenant (with permission) keeps any pet capable of carrying parasites that can affect humans. This, however, does not apply to guide dogs that are kept on the premises.
Increasing the security bond
One of the reasons why you might want to increase the amount of the security bond is to keep it in line with increases in rent. Previously, this could only be done 12 months after the start of the tenancy or 12 months after the last bond increase.
With the new laws, you will be able to increase the security bond every six months as long as there has been a lawful increase to the rent in that time. A minimum of 60 days written notice must be given to the tenant and, as before, the security bond cannot be more than the equivalent of four weeks rent plus a pet bond (unless the rent for the property is $1200 per week or more).
Minimum requirements for locks and security
Under the old laws, you were only required to provide normal locks to external doors and ensure all opening windows can be secured by catches on the inside.
The new laws contain far more detailed requirements by specifying the minimum standards that need to be in place to ensure premises are reasonably secure. The minimum security standards relate to door locks, window locks and exterior lights.
Under the new requirements, the main entry door must have either a deadlock or a key lockable screen door. Similarly, all other external doors must have either a deadlock or, if a deadlock cannot be fitted, a patio bolt lock or a key lockable security screen. This excludes balcony doors where there is no access to the balcony except from inside the premises.
The new laws state that your property must have an exterior light that can illuminate the main entry and be operable from inside the premises. However, this does not apply if a strata company is responsible for the lighting to the main entry.
Luckily, you will have two years from 1 July 2013 to make sure your property complies with these new security requirements.
Don’t have to repair everything
Under the new laws, if you tell a tenant that a fixture or chattel is not working before they enter into a tenancy agreement, or if it’s obvious that it was not working at the time they entered into the agreement, you will not have to maintain or repair these fixtures and chattels. However a property must be habitable and safe so you will not be able to contract out of those items being in working order.
Property Tax Tips: Choosing the Right Investment Structure
It’s one of the most important decisions when buying an investment property. What structure should you use to hold the investment? Given that the there are numerous investment structures available including Individuals or Jointly, Partnerships, Companies, Fixed or Unit Trusts, Discretionary (Family) Trusts, Hybrid Trusts, and Superannuation Funds, how do you decide? Here are some important considerations:
Accessing negative gearing benefits
If you purchase property in a trust or company and the property is negatively geared, the losses will be trapped at the trust or company level (unless you have other income, such as business income you can “inject”) and cannot be offset against income derived by a beneficiary or shareholder. However, an individual (including a partner) can offset negative gearing losses against other income.
Whether the 50% CGT discount can be accessed
Companies are unable to access the 50% Capital Gains Tax (CGT) discount and superannuation funds are only eligible for a 1/3 discount. Individuals receive the full 50% discount and trusts can pass out the CGT discount to individuals.
Ease of accessing equity
As property prices rise, you may seek to draw down on the capital (by refinancing, for example) to use for other purposes. However, capital can generally only be accessed tax-free from discretionary trusts and by individuals (including in partnership). Capital cannot generally be accessed tax-free from a company, as any payment is generally treated as a dividend. In relation to unit trusts, any drawings by the beneficiary will reduce the cost base of the units, potentially triggering a CGT event.
Asset Protection
In an increasingly litigious society, protection of assets from lawsuits and creditors is an increasingly important consideration for people who may be at risk. Professionals, such as doctors or dentists, due to their exposure to professional negligence, may have asset protection as their main aim. Different structures offer different degrees of asset protection.
Ultimately the decision will be between you and your Accountant as to which structure is most suitable for you. However it’s important that you choose professionals such as finance brokers who understand the different structures so they can work with you to ensure you are structuring your loans in the most appropriate manner for you.
Tax Newsletter August 2013
Specific tax rule to prevent dividend washing
The Assistant Treasurer, David Bradbury, has announced that the Government will prevent “dividend washing” by introducing a specific integrity rule into the tax law. This follows the Government’s announcement in the 2013–2014 Federal Budget that it will implement reforms to close, with effect from 1 July 2013, a loophole it believes currently enables some investors to engage in this practice.
“Dividend washing” potentially allows investors who undertake certain sophisticated share transactions to receive two sets of franking credits on what is essentially the same parcel of shares. Mr Bradbury says the proposed specific integrity rule will end this practice. He adds that the measure will not impact typical “mum and dad investors” as it will only apply to investors who have franking credit tax offset entitlements in excess of $5,000.
Individual denied interest deduction
In a recent decision, the Administrative Appeals Tribunal (AAT) has affirmed a decision of the Tax Commissioner to deny a taxpayer’s claim for a personal deduction for interest and bank fees of over $120,000. These were incurred over a two-year period in relation to rental properties purchased by a family discretionary trust that had been set up for that purpose, and of which the taxpayer was the trustee.
The AAT was of the view that the bank had lent the money to the taxpayer in his capacity as trustee of the trust, and not in his personal capacity. The AAT was also not convinced by the taxpayer’s argument that the bank had been mistaken in relation to the legal character of the person to whom it had lent the money. The AAT therefore upheld the Commissioner’s decision not to allow a personal deduction.
Overseas doctor a tax resident of Australia
A doctor has been unsuccessful before the AAT in arguing that he should be declared a non-resident of Australia for tax purposes. The doctor had been working in East Timor since 2006 and submitted that he “resided” in East Timor as that was where he spent his time and lived.
The AAT heard that the doctor was an Australian citizen and spent nine to 11 months of the year in East Timor, with the remainder of his time spent in Australia and Bali. However, the AAT noted that the doctor owned a property in Australia which the Tax Commissioner described as the “family home”. The AAT also noted that the doctor had a property in Bali which he and his wife called “home”. The AAT found that the doctor “resided” in Australia for tax purposes because the taxpayer had retained a “continuity of association” with Australia.
Partnership denied GST credits
The AAT has held that a partnership was not carrying on an enterprise and was not entitled to input tax credits claimed in respect of the relevant period.
The taxpayers, a married couple, argued that their partnership had provided handyman and other maintenance services to a hotel, a business they also controlled and which they had taken over from their sons. The AAT was not convinced that the partnership was an entity providing the claimed services to the hotel. Therefore, the taxpayers were not entitled to claim input tax credits during the relevant period.
However, the AAT was of the view that the net amount of GST owed for the relevant period was zero, and not a positive net amount as argued by the Commissioner.
Division 7A benchmark interest rate
The ATO has advised that, for the income year that commenced on 1 July 2013, the benchmark interest rate to be used in calculating the interest component on the repayment of a private company loan received by a shareholder (or an associate of a shareholder) is 6.20%.
Reasonable travel and meal allowance amounts
The ATO has announced the amounts that the Commissioner considers are reasonable for the 2013–2014 income year in relation to claims made for:
- overtime meal allowance expenses;
- domestic travel allowance expenses;
- overseas travel allowance expenses; and
- travel allowance expenses for employee truck drivers.
Car depreciation limit
The ATO has announced that the car depreciation limit for the 2013–2014 income year is $57,466.
Key superannuation changes
The Government has recently enacted a number of key superannuation changes. These are discussed below. Importantly, these rule changes are not simple and individuals would be prudent to consider their options before deciding what to do.
Excess concessional contributions
The rules in relation to the taxation of excess concessional contributions have been amended with effect from 1 July 2013. The Government says the new rules will be “fairer for individuals who exceed their annual concessional cap”.
Under the new rules, excess concessional contributions are automatically included in an individual’s assessable income and subject to an interest charge to account for the deferral of tax. Broadly, the new rules ensure that individuals who make excess concessional contributions are taxed on the contributions at their marginal tax rates, rather than at the effective 46.5% tax rate that previously applied for all taxpayers before the changes were introduced.
TIP: These proposed changes will undoubtedly be welcomed by the 40,000-odd taxpayers who are expected to pay (on average) $1,100 less tax on their excess concessional contributions in 2013–2014.
However, taxpayers on the top marginal tax rate are expected to have a slightly higher tax liability for their excess concessional contributions (due to the additional interest charge).
Higher contributions cap of $35,000
On 1 July 2013, the concessional contributions cap increased from $25,000 to $35,000 for individuals aged 60 years and over. The same threshold will apply from 1 July 2014 for individuals aged 50 years and over.
TIP: Eligibility for the higher cap depends on a person’s age on 30 June in the previous income year. This means:
- persons who were aged 59 years or over on 30 June 2013 are eligible for the higher cap in 2013–2014; and
- persons who will be aged 49 years or over on 30 June 2014 will eligible for the higher cap in 2014–2015.
Please contact our office if you wish to discuss your eligibility for the higher cap.
Under the new cap, eligible individuals will potentially be able to claim greater deductions for superannuation contributions, or salary-sacrifice larger contributions. It is important to note that this temporary concessional cap will cease when the general cap reaches $35,000 through indexation (which is expected to be 1 July 2018).
TIP: Taxpayers aged 59 years or over on 30 June 2013 should consider reviewing their salary-sacrificing arrangements, deductions for personal contributions and transition to retirement pensions to take into account the higher concessional cap of $35,000 for 2013–2014.
Extra 15% contributions tax for $300,000+ incomes
From 1 July 2012, individuals earning above $300,000 must pay an additional 15% tax on concessional contributions. That is, the effective contributions tax has doubled from 15% to 30% for concessional contributions (up to the cap of $25,000 or, for older taxpayers from 2013–2014, $35,000) made on behalf of individuals above the $300,000 income threshold.
However, despite this extra 15% tax, it should be noted there is still an effective tax concession of 15% (ie the top marginal rate less 30%) on concessional contributions up to the cap of $25,000 (or $35,000).
TIP: Individuals with incomes above $300,000 may want to consider limiting their concessional contributions to compulsory superannuation guarantee contributions (9.25% for 2013–2014) where such benefits can be packaged in a more tax-effective manner. Alternatively, these individuals may want to consider whether it is more beneficial to instead make after-tax non-concessional contributions.