The government has introduced changes to the private health insurance rebate and the Medicare levy surcharge. From 1 July 2012, the private health insurance rebate and the Medicare levy surcharge will be income tested against three new income tier thresholds.

The private health insurance rebate and Medicare levy surcharge will be income tested against the income tier thresholds in the below table. Your rebate percentage entitlement will be reduced as your income tier rises.

From 1 July 2011, the low-income tax offset no longer reduces tax payable on unearned income for children (under 18 years of age).Examples of unearned income include the following:

• destribution from discretionary trusts
• interest
• dividends
• rent
• royalties

The low-income tax offset will continue to reduce tax payable on earned income of children that includes:

• employment income
• taxable pensions or payments from Centerlink
• income from their own business or partnership in which the child was an active partner
• a compensation, super or pension fund benefit
• income from a deceased person’s estate
• income from property transferred to a child as a result of another’s death or family breakdown
• income from investment of amounts referred to above.

These changes will not impact the income of children who are orphans, disabled, or engaged in full-time occupation at the end of the income year.

As a result of these changes, children must lodge a tax return if their taxable income exceeds $416 (previously $3,334).

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.

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.

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.

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.

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.

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.

Education tax refund

The education tax refund assists you with the education costs of your dependant, including personal computers. You can claim the education tax refund if you are receiving or entitled to receive family tax benefit Part A. This means you must have lodged a claim for family tax benefit Part A for the child and had your claim approved.

Income tax offsets (formerly rebates) for families

Tax offsets reduce the amount of tax you pay. We use the information on your tax return to calculate your income tax offsets. Depending on your circumstances, you may be eligible for one or more of the following offsets:

• dependent spouse (without dependent child or student)
• child-housekeeper or housekeeper
• parent, spouse’s parent or invalid relative
• spouse superannuation
• private health insurance
• net medical expenses
• government benefits (for example, government pensions or Centrelink payments)
• low income (such as part time participation in the workforce)
• senior Australians.

Investing on behalf of children

Investments (including savings accounts and shares) in the name of dependent children under the age of 16 attract special income taxation rules. If the child’s tax file number is not supplied to the investment body, they must withhold tax at 46.5% of interest earnings. Earnings from a child’s investments must be declared by the person who rightfully owns and controls the investment.

Superannuation for families

Super is important in planning for your retirement. You may be eligible for a super co-contribution, or for a tax offset for making contributions to your spouse’s superannuation.

Family breakdown

The tax system has provisions in place to assist with easing the financial burden of separating families. These provisions apply to capital gains tax, superannuation and income from child and partner support payments.

Baby bonus

If you had or adopted a child between 1 July 2001 and 30 June 2004, you may be eligible for a baby bonus until your child turns five years old. The 2008-09 financial year was the last year for current year claims, but late claims will be accepted until 30 June 2014.

A personal superannuation fund is a simple and cost effective means of structuring your superannuation holdings, and will give you benefits that managed funds cannot.

The Australian Taxation Office is the government body that supervisors the small fund superannuation industry. These funds are called Self Managed Superannuation Funds. (SMSF)

The Australian Taxation Office has published guidelines for the formation and operation of SMSF’s and these can be found at:

http://www.ato.gov.au/content/downloads/spr46427n11032.pdf

The primary reason for establishing a personal superannuation fund is the far greater influence it gives to a member over the investments of their retirement savings. The members are the trustees of the fund and can determine, within prescribed guidelines, where the monies in the fund are invested.

Further, the SMSF can invest in commercial property which may be used in the members own business. This gives a helpful source of capital to small business to enable them to secure business premises to operate from.

Other issues including the commencement of pensions and the treatment of contributions can be tailored to the circumstances of individual members in a convenient manner.

Under the Income Tax Assessment Act 1936, an accounting period is generally a period of 12 months ending on 30 June. However, the Act allows for a substituted accounting period (SAP) to balance on some other date.

If you use a SAP, the answers to these frequently asked questions will help you work out your eligibility for, and how to claim, the research and development (R&D) tax incentive.

Can I claim the R&D tax incentive in my 2011 income tax return if my 2011 income year begins before 1 July 2011 but ends after 1 July 2011?

No, the start date for the R&D tax incentive is determined by when your income year begins, not when it ends. If your 2011 income year begins before 1 July 2011, you cannot claim the R&D tax incentive until your first year of income beginning on or after 1 July 2011.

Example:

Company A has a late-balancing September SAP. Company A’s 2011 income tax return will be lodged for the period 1 October 2010 to 30 September 2011. As its 2011 income year begins on 1 October 2010, which is before 1 July 2011, it will not be able to claim the R&D tax incentive until its 2012 income year, beginning on 1 October 2011.

Can I claim the R&D tax incentive in my 2012 income tax return if my 2012 income year begins before 1 July 2011?

No, if your 2012 income year begins before 1 July 2011, you will not be able to claim the R&D tax incentive until your first year of income beginning on or after 1 July 2011.

Example:

Company B has an early-balancing December SAP. Company B’s 2012 income tax return will be lodged for the period 1 January 2011 to 31 December 2011. As its 2012 income year begins on 1 January 2011, which is before 1 July 2011, it will not be able to claim the R&D tax incentive until its 2013 income year, beginning on 1 January 2012.

I have an early-balancing December SAP with a year of income from 1 January 2011 to 31 December 2011. Can I claim the R&D tax concession from 1 January 2011 to 30 June 2011 and the R&D tax incentive from 1 July 2011 to 31 December 2011?

No, the R&D tax incentive applies to years of income beginning on or after 1 July 2011. You cannot claim the R&D tax incentive for an income year beginning before this date. If eligible, you will be able to claim the R&D tax concession for your 2012 income year and claim the R&D tax incentive for your 2013 income year.