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August Practice Update
 
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RMS Practice Update - August 2016

Welcome to RMS Accountants new format for newsletters. Our newsletters will keep you up to date with accounting news that may impact your farm. 

From time to time, we will also include responses to frequently asked questions (FAQ's) from clients; as well as tips for staying on top of your bookwork.

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Superannuation changes update 

Now that the Coalition government has been re-elected, they seem committed to proceeding with their superannuation policy, including the controversial measure to impose a 'lifetime cap' of $500,000 on the amount of non-concessional (i.e., undeducted) contributions that can be made into superannuation funds(calculated from all contributions made since 1 July 2007). 

The Treasurer Scott Morrison has also indicated that transitional relief provisions will be introduced in relation to the lifetime non-concessional contributions cap of $500,000.   

It is proposed that transitional provisions will allow for non-concessional contributions to be made under the rules and limits that existed prior to Budget Night where a superannuation fund has entered into a contract before 3 May 2016 to acquire an asset, and the contract settles after 3 May 2016. 

Furthermore, there will be transitional relief for self-managed superannuation funds (SMSFs) that had a Limited Recourse Borrowing Arrangement in place before 3 May 2016, and additional non-concessional contributions are to be made up to 31 January 2017 (so that the borrowing will comply with the ATO's new guidelines).  

There have also been reports that the government may also allow 'carve-outs' for extraordinary 'life events' (e.g., divorce). 

The government is scheduled to release a draft legislation for their superannuation changes in August 2016.

If you have any questions on how these proposed changes might affect your Superannuation Funds then please contact us to discuss further.


Tax time is prime time for scams 

The ATO is reminding Australians to be on the lookout for tax-related scams during tax time.

Australian Tax Officer Assistant Commissioner, Graham Whyte warns: "while most people were able to identify scams, it is important to remain alert during tax time."

Although the ATO makes thousands of outbound calls to taxpayers a week, there are some key differences between a legitimate call from the ATO and a call from a potential scammer.

The ATO would never cold call you about a debt; would never threaten jail or arrest, and staff certainly wouldn’t behave in an aggressive manner.  If you’re not sure, hang up and call us back on 1800 008 540.

The ATO is also reminding Australians to protect themselves against identify theft this tax time.  Highly organised crime networks use a range of methods to steal personal information in order to commit refund fraud. 

The ATO recommends following a few easy steps for taxpayers to protect themselves against identity theft: 

  •  Put a padlock on your letterbox; 
  • Shred documents containing personal details (especially their tax file number (TFN)) before throwing them away; 
  • Use legitimate and up-to-date antivirus, firewall and anti-spyware software; and 
  • Make sure passwords are strong, using a combination of letters, numbers and symbols, don't share them with anyone, and ensure they are changed regularly. 

The ATO also says that taxpayers should report the loss or theft of their TFN without delay, if they can’t find their TFN, and/or think their TFN has been stolen or misused. 

If you are worried that you have been the victim of a scam you can contact us for advice or visit the ATO website for more information on how to verify or report a scam.


The 'sharing economy' in the ATO's sights 

The ATO is concerned that those earning money from the 'sharing economy' may not realise they have to declare these amounts on their tax return. 

In the sharing economy, buyers and sellers are connected through a facilitator who usually operates an app or website. 

ATO Assistant Commissioner Graham Whyte said:  

“If you earn money from doing odd jobs or providing a service like task sharing, transporting passengers through things like ride-sourcing, or renting out a room or house, you need to declare it because it counts as assessable income.  If you are running a business through the sharing economy, you also need to declare this income. 

“It’s a bit different if the goods you provide or the activity you complete through a sharing economy website or platform is done as a hobby or recreational activity.  The amount you are paid may not be assessable income."   

Mr Whyte said ATO technology was keeping up with the sharing economy, and, thanks to their data collection and data matching activities, the ATO would know if taxpayers have left out a significant amount of income. 

In addition, some taxpayers may need to register for, and pay, GST (especially those earning an income from carrying on an enterprise of ride-sourcing services, regardless of how much money they earn). 

If you need help identifying if your activity needs to be reported contact our office for advice. 


SuperStream deadline extended! 

The ATO has announced that for small businesses that are not yet SuperStream ready, it will provide a further extension to 28 October 2016.


Farm Management Deposit Offset 


From 1 July 2016, amounts you hold in an FMD can be used in an interest offset arrangement against loans or other debts relating to your primary production business.
 
This product could save you significant interest if you are in the situation of having taken out FMD’s and you have loans that relate to your primary production business.  It would be worth making enquiries with your bank on this front if this relates to you.  The legislation was passed with very little fanfare.
 
Care needs to be taken to ensure that the loan involved in this offset is related to the primary production business and not some other purpose.  You may be liable to a penalty if the FMD is offset against loans or other debts that do not relate to your primary production business.  The way to find out the purpose of a loan is to check what the funds were used for when the loan was created.
 
As we understand it, the way this legislation will work is that if you have FMD of $100K and the related farming business has a loan of $350K, this should allow interest being paid on $250K only.  There are bound to be some bank fees on the way through, but it would result in a significant benefit overall to the primary producer if they can take advantage of the offset.  I am aware of one small bank that is offering this product but the big banks seem to be slow on the uptake even though they are aware of the legislation.
 
Below is a reference to the FMD scheme.
 
https://www.ato.gov.au/Business/Primary-producers/In-detail/Farm-management-deposits-scheme/Farm-management-deposits-scheme/


2016/17 Tax Rates


Each year, the Government advise the tax rates which will apply to the following year in the May budget.  Before I get into the current rates of tax, let me make the following points:

  • Partnership and Trusts do not pay income tax in their own right.  The income is distributed to partners and beneficiaries and they pay tax on the net income received by the partnership or trust.

  • Individuals, Companies and Superfunds do pay tax in their own right


Individual Rates of Tax
Once we have calculated the taxable income, we then calculate the tax applicable to this income.  The following rates of tax will apply from 1 July 2016 for the 16/17 financial year:
Taxable income Tax on this Income
$0 to $18,200 Nil
$18,201 - $37,000 19c for each $1 over $18,200
$37,001 - $87,000 $3,572 plus 32.5c for each $1 over $37,000
$87,001 - $180,000 $19,822 plus 37c for each $1 over $87,000
$180,001 and over $54,232 plus 45c for each $1 over $180,000.
 

It is worth noting that 2% Medicare Levy needs to be added  on top of these amounts where applicable.

For example, if an individual has a taxable income of $19,200, the tax applicable will be $Nil for the first $18,200 and 19c/$ for the next $1,000 making $190 tax in total.  (You do not have to pay Medicare Levy if your taxable income is below $21,335.)   For this individual, he/she has a marginal tax rate of 19c/$.   This means that any additional income will cost the taxpayer an additional 19c/$. 
Referring back to the above table, if a taxpayer has a taxable income of $50,000, he/she will have a marginal tax rate of 32.5c/$ plus an additional 2c/$ (making 34.5c/$) if the Medicare Levy is included.  

Company Rates of Tax
From 2001 to 2015, all companies paid a flat rate of tax of 30c/$ on net income.  This tax applied from the first dollar of company income and there was no threshold at which this tax changed to a different rate.
There are however some modifications to this for 2016 financial year and 2017 financial year:
  • For the period 1 July 2015 to 30 June 2016, the company tax rate for a Small Business Entity (with a turnover of less than $2m) was reduced to 28.5c/$
  • For the period 1 July 2016 to 30 June 2017, the company tax rate for a Small Business Entity (with a turnover of less than $10m) is proposed in the Budget to be 27.5c/$.
It is worth noting that the definition of Small Business Entity (SBE) has changed for the 16/17 year from $2m turnover to $10m turnover – which has opened up the benefits of the reduced tax rate for SBE to a lot more businesses.  

Superfund Rates of Tax
The flat rate of tax applicable for Superannuation Funds is 15c/$ on all earnings, however if the Superannuation Fund is in pension phase (in its entirety), there is 0% tax earnings in a Superfund.
These tax rates listed above give you the current situation for rates of tax applicable as a general rule for the three types of taxpaying entities for the period 1 July 2016 to 30 June 2017.

Highlight changes for tax time


Car depreciation limit for 2016/17 

The car limit is $57,581 for the 2016/17 (up from $57,466 for the previous year).  This amount provides a limit on depreciation and GST input tax credit claims. 


Cents per km deduction rate for motor vehicle expenses  
The ATO has determined that the rate at which work-related motor vehicle expense deductions may be calculated using the cents per kilometre method is 66 cents per kilometre for the income year commencing 1 July 2016.

 

Overtime Meal Allowance Amounts 
The reasonable amount for overtime meal allowance expenses for 2016/17, where an allowance is paid under an award, order, determination, industrial agreement or a Commonwealth, State or Territory law, is $29.40 per meal.

 

Div.7A benchmark interest rate 
The benchmark interest rate for 2016/17, for the purposes of the deemed dividend provisions of Div.7A, is 5.40% (down from 5.45% for 2015/16).

 

CGT:  2016/17 Improvement threshold 
The CGT improvement threshold is $145,401 for the 2016/17 income year, up from $143,392 for 2015/16.


For more information on key changes for the 2016/17 financial year visit the ATO website >>>

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Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.
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