Beware the ATO - Changes in 2013

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1 Beware the ATO - Changes in 2013 Welcome back. What looks like a fast moving 2013 has started with a bang including the excitement of an early declaration of a federal election in September. Will the world stop or just slow down? Will your decisions change in anticipation of a result which may bring about many changes we shall wait and see. Read below some of the new changes coming with the new year With their improved and updated IT systems ATO is on the warpath in enforcing the rules, including making sure everyone lodges returns and BAS s on time. With their outsourced debt collection agency they are pressuring everyone with reminders letters to pay outstanding liabilities. To be fair they do provide assistance where you are fair dinkum and upfront with your situation especially in allowing payment of tax liabilities in instalments interest is still payable at 4% above market rate to discourage using them as a bank. We have also seen aggressive responses to audits in the work related area where they are not accepting the nexus between the expense and derivation of income. Cost to pursue the matter is sometimes more than any benefits of having an expense allowed as a deduction Contents For you - individually For you - individually... 2 Super Guarantee increases... 2 High income earners to pay higher rate tax on Super... 2 A little tougher for - Non-Residents... 2 Paid Parental Leave - for Dads... 2 Economy, Banks and Lending... 3 For your business... 3 No age limit - for super contributions... 3 Payslip reporting of Super payments... 3 In house Fringe Benefits Changes... 3 Building & Construction Industry more reporting... 4 For your super fund... 4 Focus areas reduced for over 50 year olds... 4 Off market share transfers restrictions deferred... 5 Checklists and Templates... 5 Two heads are better than 1? Discuss your plans? Call to chat

2 For you - individually Super Guarantee increases On 1 July 2013, the first of the proposed incremental increases to superannuation will come into effect. The change will lift the superannuation guarantee rate to 9.25% for the 2013/2014 financial year. So, for an individual on a base salary of $60,000, the change will represent $150 extra compulsorily contributed to superannuation. The super guarantee rate is then proposed to increase every year until reaching 12% on 1 July Shukri Great for individuals. Tough on small businesses with cash flow issues. They either raise prices or reduce employees. Both unpalatable in the context of high Australian dollar and intense internet/foreign competition High income earners to pay higher rate tax on Super While not yet law, the controversial increase to the tax rate of super contributions for high income earners is due to come into effect on 1 July This will mean that if you earn over $300,000, you will pay 30% instead of 15% on superannuation contributions (only on the portion above $300,000). A little tougher for - Non-Residents Life is getting harder for non-residents. The big issue is the Budget announcement that locked nonresidents out of the 50% CGT discount. This means that if you are not a resident of Australia and make money on the sale of an asset, you cannot access the 50% CGT discount from 8 May Shukri applied for capital growth from 8/5/12. This likely mean a need for valuation as at that date. Most valuers can provide a calculation in the future. How the best option is a date closer to the change. It also means a more complex calculation of capital gains taking more time and professional costs. However, we have not seen the legislation supporting this change. In general, you can expect to see some of the tax benefits previously available to non-residents slowly whittled away as the Government seeks to achieve a surplus. Paid Parental Leave - for Dads New paid parental leave for Dads comes into effect on 1 January 2013 providing two weeks of Government funded pay. The paid parental leave applies if - > the Dad or partner (including same sex couples) is an Australian resident, > meets the work test, > has an adjusted taxable income of $150,000 or less, and > is on unpaid leave or not working during the two weeks.

3 The entitlement to parental pay does not change your entitlement to leave itself. Economy, Banks and Lending The small amount of Mineral Resource Rent Tax collected is an indication that the mining boom is slowing and along with it, the capital spending boom. Unemployment is rising marginally and while there is employment growth, it is weak. It s not all doom and gloom though with low interest rates feeding growth and a boon for property investors particularly as rents are rising at the same time. However, banks will still be picky about who they lend to and are sensitive about reliability. In 2013, you will need to ensure that you have a good relationship with the bank or a good broker. Don t let problems get out of control or they might just shut you down before you have a chance to try and talk them around. For your business No age limit - for super contributions From 1 July 2013, the upper age limit for superannuation contributions will be abolished. Employers will be required to contribute to the complying super funds of eligible mature age employees aged 70 and older. Shukri So where you had older members of the team happy to be involved now they are costing more. On the other hand the older team members can salary sacrifice and pick up tax free benefits from the fund worthwhile investigating further Payslip reporting of Super payments From 1 July 2013, employers will need to provide additional information about superannuation contributions on an employee s payslip. Employers will need to report the amount and expected date of contributions they are making. Shukri This means more work for employers. It also means ATO has more information to enforce the legislation more strictly more penalties and whack across the head? The solution, get a bookkeeper if you or your partner are not already one, Be on time with lodgements, consider using cloud based bookkeeping so your accountant can have direct access to data to help advise you on a more timely fashion. In house Fringe Benefits Changes The concessional fringe benefit tax treatment of in-house fringe benefits provided by employers under salary sacrifice arrangements was abolished from 22 October 2012 (transitional rules apply until 1 April 2014 for existing agreements). This change will particularly affect retailers providing discounted goods such as clothing, and

4 organisations such as private schools that provide discounted education for children of employees. Previously, in-house property and residual benefits were eligible for a 25% reduction in the taxable value. While this change occurred in 2012, we are likely to see the full effect in 2013 and beyond Building & Construction Industry more reporting A new reporting regime came into effect on 1 July 2012 requiring businesses in the building and construction industry to report payments to contractors. The first of these reports is due on 21 July Businesses affected by the reporting regime need to report the contractor s ABN, name, address, gross amount paid for the financial year, and total GST included in the gross amount. For your super fund Focus areas reduced for over 50 year olds With $458,451 million tied up in Self Managed Superannuation Funds (SMSFs), it is not surprising that the Tax Office takes an active interest in this area will see an even greater focus on ensuring that the assets of superannuation funds are kept separate from their members until they retire. There is a lot you can do with your superannuation and through a superannuation fund but you need to understand the rules. For SMSFs, property investment using Limited Recourse Borrowing is a major area of focus. If the purchase of the property is not structured correctly, trustees may be forced to sell the asset. Shukri Just imagine being forced to sell and investment property in a slow market just after you paid stamp duty. Solution is ensure your Property Tax Specialists is involved in setting up all the paperwork correctly. The value of assets contributed to superannuation is another area the Tax Office is sensitive about. Earlier this year, the Tax Office released final valuation guidelines on how superannuation fund assets must be valued. These guidelines require fund assets to be valued at market value and apply now. In 2013, you can expect to see a greater focus and enforcement of these valuation rules. This is happening at a time when the promoters of new property see the cash in super funds as a way to encourage people to invest in property. While the concept is great, however attention has to be paid to detail. The arrangement is not always suitable for everyone s circumstances. ATO & ASIC through their press releases indicated their concern about people being persuaded to part with retirement funds in Super when it is inappropriate for their circusmstances. Shukri Get adequate professional advice before committing.

5 Off market share transfers restrictions deferred An off market transfer is when assets from a related party are transferred to or disposed of by a SMSF outside of the underlying market. For example, when a trustee transfers shares directly to a SMSF - instead of the trustee disposing of the shares on the market and then the SMSF purchasing the shares. A ban on off market transfers was due to come into effect on 1 July 2012 but delayed until 1 July From this date, all acquisitions and disposals of assets between SMSFs and related parties must be conducted through that market, or if no market exists, must be supported by a valuation from a suitable qualified independent valuer. The big question in 2013 is, when we see the final detail of the ban, what assets will be covered Checklists and Templates To make the compilation & reporting task for 2012 tax returns easier, clients of Property Tax Specialists receive checklists and templates to facilitate the process... saving them time and money... the write way is having clear documentation. ATO way means time/money wastage with audit investigation. Two heads are better than 1? Discuss your plans? Call to chat... Contact us if you would like to - review & discuss your current property & tax situation... maybe the next deal or - whether or not to sell a property, which one in the portfolio should be sold - your asset protection strategy. What is your risk profile? High..medium..low - structuring your next investment property. In whose name should it be? - Should you rent out your home and live closer to work in a rented space - Should you invest your capital in 1 Main Residence or 2 smaller rental properties - planning to legally minimise your tax position or just to explore the possibilities - Subdividing a block or your Main Residence Capital Gain or Business Profit? - Is your Self Managed Super Fund ready to acquire a property 1. with limited recourse loans 2. from lending institutions or yourself - prepare your next tax return or application to reduce your PAYG Withholding We look forward to being of service. We also look forward to your referrals. To improve our service we welcome all constructive comments on this newsletter and other materials. Call/ Shukri Barbara at Property Tax Specialists at Shukri@propertytaxspecialists.com.au DISCLAIMER The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained. Contact your accountant or Property Tax Specialists at info@propertytaxspecialists.com.au or call 02

6 Shukri Barbara Winner - Readers Choice Awards Your Investment Property Magazine Property Tax Adviser of the Year Property Tax Specialist of the Year Tax Columnist Smart Property Investment magazine Property Tax Specialists Prosperity & Peace of Mind Barbara & Co cpa cta phone fax mobile post: P.O.Box 665 Chatswood NSW 2057 office Level 5 suite 509, Archer Street Chatswood NSW 2067 website < "Liability is limited by a Scheme approved under Professional Standards Legislation