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Client Information Bulletin October 2010

In this issue: Update on minimum pension payments from Super Funds, ATO Compliance program 2010/11—target areas, Continuing ATO support for businesses in financial distress, FREE superannuation clearing house for small business through Medicare Australia, MyState Financial and Tas Perpetual Trustees Merger—tax implications for 2010!, Land Tax Reforms—Shack Land Relief, New Rates and Cap Rebate.

Update on Minimum Pension Payments from Super Funds!

Further to our article in the June 2010edition of our newsletter, the Treasurer announced on 30 June 2010 that the pension drawdown relief was extended to the 2011 year.

Regulations have been made to extend the measure allowing a super fund to apply only half of the relevant percentage when paying out account based pensions and Transition to Retirement Income Streams (TRIS) to the 2011 year.

Minimum amounts are determined by age and the value of the account balance at 1 July each year. To assist you in making sure you have made the correct minimum payment, see the table below.

Age

Discounted percentage of account balance at 1 July 2010

Under 65

2

65-74

2.5

75-79

3

80-84

3.5

85-89

4.5

90-94

5.5

95 or more

7

It should be noted that these payment percentages apply to account based pensions and TRIS’s. The factors are different where you have an allocated pension, annuity or a defined benefit pension.

ATO Compliance Program 2010/11 - Target Areas!!!

The ATO recently released its compliance program for 2010/11. In relation to tax compliance for small and medium enterprises the ATO will be focussing on a variety of issues, including the following:

Business activity statements – the ATO will be focussing on compliance issues related to BASs, specifically reported property sales and acquisitions and application of the margin scheme rules.

Capital gains and losses – the ATO will be focussing on the calculation of capital gains and losses including the application of the small business CGT concessions, other CGT concessions or rollovers, calculation of cost base, and capital gains and losses on the disposal of shares and property (including non-residents).

Cash economy – the ATO will be focussing on businesses that conduct a high level of cash transactions (such as paying cash-in-hand wages) in order to identify taxpayers that may be using cash transactions to hide income and evade tax obligations. This includes the use of business benchmarks which allow comparisons between similar businesses to identify typical or expected turnover levels.

Company deregistration – the ATO will be examining the affairs of taxpayers who deregister companies.

Employer obligations – the ATO will be monitoring employers’ compliance with their PAYG withholding obligations and superannuation guarantee obligations. In relation to superannuation, the ATO will be focussing on road freight transport, automotive repair and electrical service industries. The ATO will also continue to work with promoters, industry representatives and sporting bodies to provide guidance on withholding obligations for visiting entrepreneurs and sportspersons.

Financial supplies – the ATO will be focussing on the GST consequences of transactions related to financial supplies, especially in relation to the appropriate identification and linking of acquisitions to the making of financial supplies. The ATO will focus specifically on capital raising activities, managed funds or superannuation funds, contributory mortgage schemes, small financial transactions (such as pawnbrokers etc) and mergers and acquisitions.

Fringe benefits tax – the ATO will be focussing on the treatment of motor vehicles, in particular appropriate recording of private use in relation to luxury car purchases and exempt vehicles.

GST – the ATO will be focussing on the GST impact of cross-border transactions, integrity of GST refunds, sales of property and issues concerning retirement villages.

International transactions – the ATO will be focussing on foreign source income, deductions relating to cross border transactions and the application of the thin capitalisation and transfer pricing provisions.

Losses – the ATO will be focussing on the utilisation of losses, especially the incorrect treatment of capital losses as revenue losses.

Personal services income (PSI) – the ATO will be focussing on contractors to ensure that all PSI is appropriately disclosed, with a particular focus on engineers and computer technology specialists in the mining industry.

Self managed superannuation funds (SMSFs) – the ATO will be focussing on loans to related parties, deductions claimed for exempt current pension income, treatment of losses and re-reporting of member contributions.

Shareholder loans – the ATO will be focussing on amounts paid or distributions made by private companies to shareholders or connected entities to ensure any deemed dividends are appropriately reported.

Trusts – the ATO will be focussing on the TFN reporting obligations of trustees in respect of beneficiaries to whom distributions are made.

Continuing ATO Support for Business in Financial Distress

For businesses that are experiencing continuing financial distress, the ATO is offering services including flexible payment arrangements, interest-free deferrals of activity statement liabilities, cash flow relief through reduced uplift factor for PAYG and GST instalments and PAYG instalment variations.

Businesses in hardship should contact the ATO as early as possible to explore available options, otherwise the ATO may seek to take firmer action with businesses that default on payment arrangements or do not have the capacity to pay.

TIP

Businesses that are struggling in the current economic climate may want to approach the ATO to explore available assistance options. Please call your Ruddicks advisor to discuss options available to you.

Free Superannuation Clearing House for Small Business Through Medicare Australia

The ATO advised that effective from 1 July 2010, a free superannuation clearing house service is being offered to small businesses with less than 20 employees. This service is optional and is designed to reduce red tape and compliance costs for small businesses when meeting their super guarantee obligations.

The Small Business Superannuation Clearing House is administered by Medicare Australia and lets employers pay their super contributions to a single location in one simple electronic transaction. The employer registers their employees' superannuation fund details and superannuation contributions with the Clearing House for processing and the Clearing House then distributes the superannuation contributions to the relevant funds.

Once the employer has done the initial set-up, it will only take a few minutes to use the Clearing House. Each time the employer makes a contribution, the employees' preferences will be pre-populated and you would only need to enter the contribution amounts. A payment option is also available for employers to nominate a regular contribution amount for an employee.

Small businesses that register to use the service will have their super guarantee obligation discharged when payment of the correct superannuation guarantee contribution amount is accepted by the Clearing House before the superannuation payment cut-off (28 October, 28 January, 28 April, 28 July).

A payment is considered not to have been accepted by the Clearing House if it is returned to the employer. This may occur if:

  • a superannuation fund has rejected the payment on the basis of insufficient or incorrect information provided by the employer; or
  • the actual amount paid by the employer does not match the payment instructions provided by the employer.

Employers who receive an employee's choice of fund nomination will have their choice obligation discharged if they pass the information to the Clearing house within 21 days of receiving the choice of fund nomination.

Registering for the Clearing House is completed in two stages:

  1. Go to www.medicareaustralia.gov.au/super and register your business details. A user ID and password will be sent to you at the address registered. Once you receive your user ID and password, you can logon to the Clearing House to finalise your registration.
  2. You need to enter the details for each of your employees. Completing these details will take approximately three minutes for each employee and only needs to be done once. These details will then be prepopulated each time a contribution is made.

You can obtain further information online at www.medicareaustralia.gov.au/super.

MyState Financial and Tas Perpetual Trustees Merger - Tax Implications for 2010!

On 17 September 2009, MyState Financial Credit Union of Tasmania Limited merged with Tasmanian Perpetual Trustees Limited to form a new company, MyState Financial Limited.

MyState Financial Credit Union Members

As a result of the merger, members of the Credit Union received 387 shares in the new company for each member share in the credit union they held prior to the merger. The members could choose to retain these new shares or sell through a share sale facility free from brokerage charges.

The merger caused a capital gains tax event to occur in the 2010 financial year. If you had sold your new shares via the share sale facility or through a broker prior to 30 June 2010, you will need to calculate and disclose the capital gain on sale of the shares in your 2010 income tax return.

If you retained your new shares, you may be able to defer the gain until you sell the new shares at some point in the future. Please speak to your advisor at Ruddicks to ensure you qualify to defer the gain.

Tas Perpetual Trustees Shareholders

As a result of the merger, shareholders of Tas Perpetual Trustees (TPT) received 1 new MyState share for each TPT share held on 16 September 2009.

The merger triggered a capital gains tax event that may need to be addressed in your 2010 income tax return. Deferral of capital gains tax is available for this event if the merger resulted in a capital gain on your original TPT shares. If the merger resulted in a capital loss, it will have to be included in your 2010 income tax return.

If you held TPT shares at 16 September 2009, please discuss your situation with your Ruddicks advisor.

Attention!! The new MyState Financial Limited shares received from the merger paid two dividends during the 2010 financial year at $0.10 per share each. These will also need to be disclosed in your 2010 tax return!

Land Tax Reforms - Shack Land Relief, New Rates and Cap Rebate

Shack Land Relief

Effective from 1 July 2010, a new land tax classification has been introduced for shack land, meaning that land tax is no longer charged for properties classified as ‘shack land’!

To be able to apply for the shack land classification, you must:

  • be a natural person, or a trustee of a fixed family trust, who is over the age of 18 years;
  • reside permanently in Tasmania;
  • not own any other land classified as shack land; and
  • not have a spouse (including de facto) who owns any other land classified as shack land.

For land to be classified as shack land, the following requirements must be met:

  • a permanent building that is residential in character (i.e. the shack) must be affixed to the land;
  • the shack dwelling must not be subject to a closure order issued by council under the Public Health Act 1997 i.e. habitation of the shack dwelling is not prohibited by council on the basis of unhealthy or unsafe premises;
  • any building work carried out on the property from 1 July 2004 onwards must comply with the requirements of the Building Act 2000;
  • the shack dwelling must be held solely for the recreational purposes of the owner or his or her family and must not be used as a principal residence by any person;
  • the land must not be advertised or made available for lease or rent; and
  • the assessed land value must not exceed $500,000.

TIP: The above matters must be satisfied as at 1 July in any given year for which the classification is applied for.

It must be noted that for the land to remain eligible for the shack land classification, no business, rental or lease income can be derived from the land whilst the classification is in place. This means that no income can be earned from business activity conducted on the land and no fee can be charged, either formally or informally, in connection with the use of the land.

TIP: The requirement that no business, rental or lease income is received from shack land is ongoing and is relevant for the whole financial year, not just as at 1 July each year.

You can apply for the shack land classification online on the State Revenue Office website at www.sro.tas.gov.au.

Changes to Land Tax Rates and Thresholds

For owners of land with an assessed land value of less than $350 000, the land tax rates and thresholds remain unchanged.

For owners of land with an assessed land value of $350 000 or more, the land tax rates and thresholds have been reduced to 1.5 cents in the dollar. This applies to a single parcel or multiple parcels of aggregated land.

These changes to rates and thresholds will be automatically applied to your land tax assessment from 1 July 2010.

The table below shows the new land tax rates that apply from 1 July 2010:

Assessed Land Value

Old Tax Scale 2009/2010

New Tax Scale 2010/2011

$0 - $24,999

Nil

Nil

$25,000 - $349,999

$50 + 0.55% of value above $25,000

$50 + 0.55% of value above

$25,000

$350,000 - $749,999

$1,837.50 + 2% of value above $350,000

$1,837.50 + 1.5% of value above

$350,000

$750,000+

$9,837.50 + 2.5% of value above $750,000

Land Tax Cap Rebate

In December 2009, the Premier announced land tax reforms, in which the Cap Rebate was introduced. The Cap Rebate was designed to mitigate, in part, the impact of sudden increases in land valuations of business land.

The Cap Rebate provides relief for business owners whose total taxable Assessed Land Value is greater than $350,000 and had significantly risen as a result of land revaluations. The Cap Rebate works by capping increases in the land tax liability for the 2009/10 and 2010/11 years as follows.

Taxpayers who own eligible business land will have any increase in their land tax liability capped at:

  • 100% of their 2008/09 land tax liability for the 2009/10 financial year; and
  • 200% of their 2008/09 land tax liability for the 2010/11 financial year.

TIP: To be eligible for the Cap Rebate, the land owner must have continuously owned the business land, and it must have been eligible business land, since 1 July 2008.

The State Revenue Office (SRO) has recently been contacting every land owner who they believe may be eligible for the 2010/11 Cap Rebate.

TIP: If you believe you are eligible for the rebate and you have not been contacted by the SRO, please contact them on (03) 6233 8070 or via email taxhelp@treasury.tas.gov.au or contact your advisor at Ruddicks.

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