Parramatta | Tax Management

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NEWS
 
  Simpler Super  
  What's new for 2007 individual tax returns  
  New Tax Rebates  
  ATO Compliance Focus for 2005  
  2005/06 Federal Budget  
  Compliance Program Announced  
  Tax Time 2004  
  Vendor Duty  
 
 

 

Simpler Super

Significant changes to the taxation of super starts from 1 July 2007.

  1. Generally, if you are aged 60 and over payment of a super benefit as a lump sum or income stream (such as a pension) will be tax-free, provided the benefits come from a taxed source.

  2. Reasonable benefit limits will be abolished.

  3. There will be an annual cap of $50,000 for concessional contributions to super (i.e. employer contributions and salary sacrifice arrangements and personal contributions claimed as a tax deduction by a self-employed person). Accordingly, the age-based limits will no longer apply. Contributions in excess of the $50,000 cap will be taxed at 31.5%. Transitional measures apply between 1 July 2007 and 30 June 2012 - the annual cap will be $100,000 for people aged 50 or over.

  4. There will be an annual cap of $150,000 for non-concessional contributions to super (i.e. personal contributions for which you do not claim an income tax deduction). People under 65 years of age can make non-concessional contributions of up to $450,000 over a three-year period. Contributions in excess of the non-concessional contributions cap will be taxed at 46.5%. Also, between 10 May 2006 and 30 June 2007, you can contribute up to $1 million of non-concessional contributions to your super fund (excluding contributions arising from personal injury payments, or disposal of certain small business assets).

  5. If you are self-employed you may be able to claim a full tax deduction for your super contributions and eligible for the super co-contribution.

  6. Contributions made to new super accounts without a tax file number (TFN) will be taxed an additional 31.5%. To avoid this you must provide your TFN to your super fund.

  7. Employment termination payments will no longer be able to be rolled over into super.

Note that if you sell assets to contribute extra money to super, you should consider the CGT and possibly GST on the sale or transfer of assets. Also, ensure you have sufficient funds for the payment of stamp duties, legal and other fees.

Some strategies for boosting your super balance

  1. Do you have lost super? Have you changed your job, name or address? Chances are you may have unclaimed super so visit www.ato.gov.au/super to reclaim lost funds.

  2. If you earn less than $58,000 per year, you will be entitled to the superannuation co-contribution of up to $1,500. Contributions must be made from after-tax dollars before the end of the financial year.

  3. Salary sacrifice a portion of your salary into super. Contributions are only taxed at 15% as opposed to your marginal tax rate.

  4. Contribute super on behalf of your spouse. If your spouse earns less than $13,800 and you make super contributions of up to $3,000, you will be entitled to a maximum rebate of $540 off your tax bill

What's new for 2007 individual tax returns

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The following are some of the more common changes applicable to individual tax returns that apply from 1 July 2006:

Ceasing full-time education

If you ceased full-time education for the first time during the income year, you will no longer need to pro-rata the full year $6,000 tax free threshold.

Foreign income exemption for temporary residents

If you are a temporary resident, you will no longer be required to pay tax on foreign income and some capital gains.

Gifts to political parties

A maximum deduction of $1500 is available for donations to registered political parties, independent members of Parliament or independent candidates in an election for Parliament.

New tax rebates for individual tax returns 2006

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30% Child Care tax rebate (note: law is yet to be enacted as at 1 July 2005)

If you receive the child care benefit from Centrelink and satisfy the work/study/training test and have your children in approved child care, you will be able to claim the 30% child care tax rebate.

This means that 30% of your 2005 out-of-pocket expenses less the child care benefit from Centrelink is available as a rebate (up to a maximum of $4,000 per child) in your 2006 tax return. Make sure you keep these child care expense records and the letter from the Family Assistance Office for your 2006 tax return.

Whilst the rebate is non-refundable, any unused amount can be transferred to your spouse.

Mature Age Worker Tax Offset (note: law is yet to be enacted as at 1 July 2005)

If you are an Australian resident, aged 55 or over at 30 June 2005 and have net income from working of up to $48,000, you will be entitled to the maximum Mature Age Worker tax offset of $500 for the 2005 income year.

The offset will reduce progressively if your net income from working is between $48,000 to 57,999. No offset is available for the 2005 income year if your net income from working is $58,000 or more.

The offset is non-refundable and non-transferable.

ATO Compliance Focus for 2005 Individual Tax Returns

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The Tax Office has announced that it will again be focusing on deductions for work-related expenses, rental property expenses and on capital gains from the sale of property and other assets.

The Tax Office will also focus on employees in the following industries: construction and food preparation and processing industries; dance, drama and music instructors; health-care professionals; teachers and academics. The Tax Office review will ensure that these employees are getting their work-related deduction claims right, especially claims for motor vehicles or self-education.

The Tax Office will also cross-check tax returns against a range of data including financial institution data, state and territory revenue and property sales information and Australian stock exchange data.

2005/06 Federal Budget

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Personal Tax Cuts

The first tax cut will commence from 1 July 2005. For high income earners the government has extended the income threshold at which the 42% and 47% marginal tax rates commence.

The new tax thresholds will be as follows:

Current tax thresholds Tax rate New tax thresholds from
1 July 2005
Income range ($)
Tax rate (%) New tax thresholds from
1 July 2006
Income range ($)
Tax rate (%)
0 - 6,000
0
0 - 6,000
0
0 - 6,000
0
6,001 - 21,600
17
6,001 - 21,600
15
6,001 - 21,600
15
21,601 - 58,000
30
21,601 - 63,000
30
21,601 - 70,000
30
58,001 - 70,000
42
63,001 - 95,000
42
70,001 - 125,000
42
70,001+
47
95,001+
47
125,001+
47

These changes will result in the following tax savings in 2005/06.

Taxable income
Tax payable
Annual tax saving
Weekly tax saving
Up to $7,382
NIL
 
 
$10,000
$600
$80
$1.54
$20,000
$2,100
$280
$5.39
$30,000
$4,860
$312
$6.00
$40,000
$7,860
$312
$6.00
$50,000
$10,860
$312
$6.00
$60,000
$13,860
$552
$10.61
$70,000
$17,700
$912
$17.54
$80,000
$21,900
$1,412
$27.15
$90,000
$26,100
$1,912
$36.77
$95,000
$28,450
$2,162
$41.58

These changes will result in the following additional tax savings in 2006/07.

Additional tax savings in 2006/07:

Taxable income
Tax payable
Annual tax saving
Weekly tax saving
Up to $7,382
NIL
 
 
$10,000
$600
Nil
Nil
$20,000
$2,100
Nil
Nil
$30,000
$4,860
Nil
Nil
$40,000
$7,860
Nil
Nil
$50,000
$10,860
Nil
Nil
$60,000
$13,860
Nil
Nil
$70,000
$16,860
$840
$16.15
$80,000
$21,060
$840
$16.15
$90,000
$25,260
$840
$16.15
$100,000
$29,460
$1,090
$20.96
$110,000
$33,660
$1,590
$30.58
$120,000
$39,950
$2,090
$40.19
$125,000
$42,300
$2,340
$45.00

Note that the tax free threshold, after taking into account the low income tax offset of $235, has increased to $7,382 for low income earners. Senior Australians who receive the Senior Australians Tax Offset will also be able to earn more income without paying tax. Singles will be able to have taxable income up to approximately $21,968 and couples up to approximately $36,494 depending on the income earned by each party. This may mean a significant number of taxpayers do not have to lodge tax returns.

In addition, if you were an employee earning more than $70,000 before 1 July 2005 and may have sacrificed salary for packaged fringe benefits, such as cars, to save tax, you will need to reconsider your package in light of the new tax changes. Salary packaging will continue to be an advantage for employees in the highest marginal tax rate bracket, but the savings may not be as great.

You may consider packaging cars under the ‘employee contribution method’ to minimize the Fringe Benefits Tax (FBT).

Senior Australians

The maximum tax offset available for senior Australians has been set for each person at the following amounts –

  • Single $2,230
  • Couple (separated due to illness) $2,040
  • Couple (each) $1,602

As a consequence of the decrease in the marginal tax rate from 17% to 15% the amount of income that qualifies for the Senior Australians tax offset (and the low income tax offset) will increase in 2005/06 to:

  • Single $21,968
  • Couple (each) $18,247

The Medicare levy thresholds will also be increased to ensure that no levy is payable until the senior Australian begins to incur an income tax liability.

The seniors' concession allowance of $200 per year and the utilities allowance of $100 per year for singles (and $50 each per couple) have been classified as tax exempt.

Mature Age Worker Tax Offset

Effective from 2004/05 the government has announced changes to the Mature age worker tax offset. Entitlement to the tax offset is to be calculated on the basis of net income from working for all workers aged 55 years and over by allowing them to subtract relevant deductions before calculating whether they are eligible for the tax offset. A mature age worker will qualify if the income they derive from working is less than

  • $58,000 in 2004/05, and
  • $63,000 in 2005/06

Superannuation Changes

Surcharge to be abolished

The Government announced that it will abolish the superannuation surcharge from 1 July 2005. As a result, from that date the surcharge will no longer apply in respect of superannuation benefits that accrue, contributions made or termination payments received from that date.

If you are therefore subject to a current surcharge liability of 12.5 percent, you may consider deferring some or all of your superannuation contributions until after 1 July 2005.

Splitting of Superannuation contributions

The splitting of superannuation contributions between spouses will be available from 1 July 2006. Splitting contributions allow low income or non-working spouses to accumulate their own superannuation benefits. Both spouses will have access to their own lump sum and/or pension reasonable benefit limit and to have access to the low tax threshold.

Super Choice

Under the choice of fund rules that commence from 1 July 2005 most employees will be entitled to choose the complying superannuation fund or retirement saving account into which their employer pays their 9% compulsory superannuation guarantee contributions.  If an employee fails to choose a fund then the employer is required to make those contributions into a complying superannuation fund that meets the minimum insurance requirements.

Super Choices (available at www.fido.gov.au) is written to help employees:

  • understand more about superannuation
  • make better superannuation choices, and
  • find extra help and information.

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