END OF FINANCIAL YEAR LOOMING
IT’S TOO LATE AFTER 30/6/10
Don’t leave your “RUN” too late to see how your business is tracking.
We are able to assist you to determine what your taxable income is before the 30th June 2010. So you can do something about it.
Some Tips - prior to 30/6/2010 for small business entities.
* Purchase plant or vehicles (if under $1000, 100% tax deductable).
* Stock up on consumables such as fuel, tyres, parts etc.
* Pay expenses or interest in advance.
* Consider contributions to superannuation.
* Delay invoicing.
CHILDREN WHO WORK
If you have school kids that are under 18 years old and work in your shop/business or on a farm you can pay them a wage commensurate with their capability to perform the work.
If they can, then you can pay them a wage that is tax deductable to their employer, even if that employer is the parents.
Note
- You must pay workcover.
- You don’t have to pay superannuation (but can voluntarily).
- You should give the child a statement of earnings.
- Each year you can contribute $1000 as an Undeducted contribution to a super fund for the child and the government will add a co-contribution of $1000 each time you do.
On the Wild Side
If your child fits the above you can contribute up to $150,000 each year as a Undeducted Non Deductable contribution.
Tax Rates
| Taxable Income |
|
| $0 - $6,000 |
Nil |
| S6,000 - $35,000 |
15c for each $1 over $6,000 |
| $35,001 - $80,000 |
$4,350 plus 30c for each $1 over $34,000 |
| $80,001 - $180,000 |
$17,850 plus 38c for each $1 over $80,000 |
| $180,000 & above |
$55,850 plus 45c for each $1 over $180,000 |
REGISTERED MORTGAGES
On land, houses, farms etc are noted on the title records held at the land titles office.
When the loan is fully repaid, the registered mortgage is not automatically removed from the title, quite often not for many years. In fact if it is not removed by the original lender its stays on the title forever, or until it is removed by the original lender.
This removal is in a written form that is lodged with the titles office and a fee is payable.
WILLS
(This is not legal advice)
If the deceased has a will and the assets are left to beneficiaries, a document known as a “Letter of Probate” must be drawn up to list the assets of the deceased and to prove that the will is current and correct and that it is the will of the deceased. Before those assets can be transferred to the beneficiaries.
Property or investments held in the deceased name only are listed. Jointly held assets, like bank accounts, land held as joint tenants and shares in joint names are not assets of the deceased and automatically transfer to the other joint owner without reference to the will or the “letter of probate”, normally a death certificate is all that is required.
A land broker who transfers land out of the name of a deceased who owns land as an individual without reference to a letter of probate can go to jail.
A “letter of probate” costs up to $5000 to draw up (legal fee) and $1100 government fee to lodge with the supreme court.
You can not transfer land held in one name without a “letter of probate”. To avoid problems put land, buildings, shares in joint names with the person you want to get the asset when you die, but do it before you die.
ATO LOOKS AT EMPLOYERS EMPLOYING “CONTRACTORS”
In a recent speech reported on the ATO’s Website, Second Commissioner Bruce Quigley gave the “heads up” to employers that the Tax Office may be looking at their arrangements with so-called “contractors”, who might be better described as employees.
Mr Quigley said that “when times are tough, businesses may be tempted to cut corners to stay afloat or prop up their cash flow. This is especially relevant when it comes to employer obligations.”
The ATO’s strategy for tackling non-compliance in this area focuses on businesses that do not withhold from payments to workers as required and fail to make superannuation guarantee contributions.
This can be through deliberate and straight forward non-compliance by payment of cash wages and can also involve using an ABN to mask underlying employment relationships.
“Increasingly it seems that many employers prefer to treat workers as contractors as it can enable them to cut costs in terms of workers compensation, payroll taxes and superannuation guarantee. They can also negotiate pay rates outside of normal wages and conditions and do not withhold tax”.
With increasing costs of super, workcover, and employee conditions and pay rates many small businesses are tempted to call former employees contractors to avoid these costs.
The following case study looks at a case that is non-compliant with the current law.
Evidence suggests that the current tighter economic conditions have increased the prevalence of such arrangements as more businesses feel the need to cut costs, and labour market conditions can make employees more vulnerable to these practices.
Case Study
A business claims its several workers are all independent contractors. They are required to quote an ABN. No tax is withheld under PAYG and superannuation guarantee is not paid.
Workers are contracted to perform the work personally at the premises of the business, using equipment and information supplied by the business.
They do not provide any assets and they have very limited control over how they perform their duties.
They are not contracted to achieve a specific result or outcome by working on their own account or in their own business, but are contracted to work in
and are integral to the business and are paid on an hourly basis.
This case study shows that the employer is clearly incorrect. Back paying super and workcover can be extraordinarily costly to an employer.
Superannuation penalties can be up to 100% of the unpaid super plus interest and not deductable.
ABN OR TFN
We continue to warn employers that the misuse of an ABN to avoid Workcover and Superannuation can lead to extreme financial pain. Get it right or the Tax Office will penalise your business.
Ask your contractors to become a Proprietary Limited Company.
NATION OF LANDLORDS
We’ve become a nation of Landlords. One in seven taxpayers now owns at least on investment property claiming $33 Billion in tax deductions.
Question is: Will the Henry Tax Review change any of this?
ANOMOLY AND UNFAIR TAX
If you are a small business entity and if a business asset or farm is sold there are big tax
discounts on capital gains made.
Active assets held for more than 15 years don’t attract any capital gains tax likewise active assets held for less than 15 years are discounted by two reductions of 50% each and the remaining balance up to $500,000 is exempt.
Example: Farm or business cost $4 million (owned by husband and wife).
1st discount in 50%
$2 million
$2 million
2nd discount
$1 million
Not taxable $1 million
Each has a $500,000 lifetime exemption from capital gains tax, so no tax is payable by either partner.
Contrast
A gain made on a rental property by a taxpayer on wages can only get the 1st 50% discount.
Example: Rental house cost $200,000
Sold for $400,000
Less 50% discount $100,000
Taxable is $100,000
It is important to distinguish between active assets and non-active assets. Only active assets get both discounts. Shares in public companies and rental homes are not active assets.
Farms and Business goodwill are active assets and the gain is twice discounted.
Disclaimer
Because laws are complicated this Newsletter should not be regarded as offering a complete explanation and should not be used for making decisions. We will be pleased to discuss any items that interest you.
Glyn Morris & Co Pty Ltd
Public Accountants and Tax Agents 
