Taxation

Small business concessions: removal of the entrepreneur’s tax offset from 2012-13

by Yin Zhong on April 2, 2012 · 0 comments

From 2012-13, the entrepreneur’s tax offset can no longer be claimed.

The entrepreneur’s tax offset may still be applied to assessments for applicable income years up to and including 2011-12.

The entrepreneurs tax offset (ETO) is a tax offset equal to 25% of the income tax payable on your business income if you have an aggregated turnover of $50,000 or less.

If your aggregated turnover is more than $50,000, the ETO is phased out so that the tax offset stops once your turnover reaches $75,000.

From 2009-10 if you are an individual you must meet an additional income test. Broadly, the new income test applies if you are a small business sole trader, a partner in small business partnership, or a beneficiary of a trust that is a small business. The new income test reduces the ETO entitlement for:

  • individuals who are single with income for ETO purposes over $70,000
  • individuals with a family whose income for ETO purposes is over $120,000.

The ETO can only reduce the amount of tax you must pay each year. That is, we cannot:

  • refund any unused tax offset
  • defer it to reduce your tax in a later income year, or
  • transfer it to another taxpayer to reduce their tax.

Small business concessions: changes to simpler depreciation rules apply from 2012-13

by Yin Zhong on April 2, 2012 · 0 comments

From 2012-13:

  • the small business instant asset write-off threshold has been increased from $1,000 to $6,500
  • the long-life small business pool and the general small business pool have been consolidated into a single pool to be written off at one rate
  • small businesses can claim an accelerated initial deduction for motor vehicles acquired in 2012-13 and subsequent years.

These amendments only apply to small businesses that have an aggregated turnover of less than $2 million. Aggregated turnover includes the annual turnover of the small business and the annual turnovers of any connected or affiliated businesses.

Simplified imputation: Franking deficit tax liability and franking deficit tax offset – consolidation specific matters

by Yin Zhong on January 17, 2012 · 0 comments

If a consolidated tax entity’s franking account is in deficit at the end of an income year, the entity will be liable for franking deficit tax (FDT). This situation may arise for consolidated tax entities that receive refunds of tax paid in earlier income periods due to retrospective changes made to existing law by the Tax Laws Amendment (2010 Measures No. 1) Act 2010.

An FDT liability will give rise to a tax offset which can be used to reduce any current and future year income tax liabilities.

The tax offset is not refundable, but any excess will be taken into account in calculating the amount of the tax offset in future income years.

If the FDT liability attributable to certain franking debits is greater than 10% of the total franking credits that arose in the franking account, the amount that can be claimed as an FDT offset is reduced. This is called the FDT offset reduction.

The Commissioner can use his discretion to allow an entity to offset the full amount of its FDT liability where the deficit arose due to circumstances outside the entity’s control. In the absence of any manipulation of the imputation system, the Commissioner would generally consider the impact of the retrospective amendments giving rise to later refunds of income tax to be a circumstance outside the entity’s control.

PAYG withholding for labour hire or on-hire firms – questions and answers

by Yin Zhong on January 17, 2012 · 0 comments

What are the withholding requirements for labour hire arrangements?

If you operate a labour hire firm, under a labour hire arrangement:

  • you arrange for workers to perform work or services directly for clients
  • the client pays you for this service
  • you pay the worker for work performed for, or services provided to, the client
  • the worker is not an employee of the client
  • you may or may not employ the worker.

What are the withholding requirements for labour hire arrangements?

Under the pay as you go (PAYG) withholding provisions, you must withhold an amount from payments made to workers who perform work or services directly for your clients; regardless of whether the worker is either an:

  • employee
  • independent contractor.

Do workers need to provide their tax file numbers?

Workers need to provide you with their tax file number (TFN). If they don’t provide you with their TFN, the rate of withholding is higher but it does not change the obligation to withhold.

The answers provided on a TFN declaration determine the rate of withholding. You must withhold at the top marginal rate plus Medicare Levy (top marginal rate for non-residents) from withholding payments if a worker has not quoted their TFN.

What if a worker provides an Australian business number?

If a worker provides their Australian business number (ABN), it does not change your obligation to withhold from their payments.

Workers under a labour hire arrangement are not entitled to an ABN (or to register for GST )

if this is the only way they obtain work. However, they may have an ABN (and be registered for GST) because of other unrelated activities they undertake.

Under the labour hire withholding rules, individuals and sole traders are treated the same even if the sole trader:

  • has a registered business name
  • has a trade name
  • has an ABN
  • is registered for GST.

Are you required to make super contributions on behalf of a worker?

You will generally need to make compulsory super contributions for ‘employees’.

A worker who is an independent contractor may be an ‘employee’ for super guarantee purposes, if they are engaged under a contract wholly or principally for their labour.

How do the personal services income rules affect labour hire?

Personal services income (PSI) rules do not affect your obligation to withhold from payments to individual workers. However, they do affect how a worker reports their income in their own tax returns and the deductions they can claim.

What if an interposed entity (such as a company, partnership or trust) is used?

Under the labour hire arrangement withholding rules, you are required to withhold from payments to individual workers. You are only required to withhold from payments to an interposed entity if they are carrying on an enterprise and do not quote their ABN.

Do you have to provide payment summaries and annual reports?

If you withhold from withholding payments, you must provide payment summaries to workers and lodge annual withholding reports with us.

The penalty for failing to withhold from a payment is equal to the amount of withholding that should have been withheld from the payment.

Guide to first home saver accounts

by Yin Zhong on January 16, 2012 · 0 comments

 

Overview

First home saver accounts offer a tax-effective way of saving for your first home through a combination of government contributions and low taxes.

They’re a special purpose account that is more like a term deposit than a normal, everyday account because you have to keep the money there for a minimum period of time. Once that time has passed and you make the decision to buy or build your first home, you have to withdraw all the money at once and close the account. You need to use the money you save as a deposit or to meet other costs you incur in buying or building your first home.

Benefits

There are several good reasons to open a first home saver account. The more money you save, the more the government will contribute – up to a certain limit each year, and there’s also a tax incentive to save money for your home because earnings are taxed at 15%.

Eligibility

You need to understand the separate rules for eligibility to:

  • open an account
  • make contributions
  • receive the government contribution
  • access your funds.

Opening an account

Not all first home saver accounts are the same. Choose the account provider you want to have your account with and read their product disclosure statement to find out more. Banks, building societies, credit unions, life-insurance companies, friendly societies and trustees of public-offer super funds can all offer first home saver accounts.

Building your account

Once you’ve opened an account, you can make personal contributions. Other people (such as your parents or other family members) can also help you out by contributing to your account.

The government will make a contribution equal to 17% of your personal contributions for the financial year, up to a maximum amount each year.

Closing your account

To withdraw your funds, you need to meet a condition for release and you can’t just withdraw some of your money – you must withdraw the full amount and close the account.

Attention icon If you change your mind about buying a home, you cannot simply close your account, withdraw your funds and spend the money. You must close your account and transfer the balance to your superannuation (unless you are aged 60 or over in which case the balance can be transferred directly to you) and you cannot ever open another first home saver account.

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