One of the biggest disappointments in my view is the reduction in deductible/concessional contribution cap for those 50+ to $25k from 1 July 2012.   This provides baby boomers with a  pre 30 June tax plan to make as much upto the $50k.

Another significant measure is the ability to claim losses back from profitable years.  A great idea, problem is that it is from 1 July and not retrospective.  So many businesses who were already taxed, and have had losses in 2011 and possibly 2012FYs, wont benefit from this.

But whats in it for each of us as individual tax payers and business owners.  Here’s Nathans summary:

Businesses

• Didn’t get a company tax rate cut
• Ability to carry back (normal revenue not capital) tax losses to offset previous years tax.  This scheme will not commence until 2013FY, so that if losses incurred in 2013FY the 2012FY profit and tax could be clawed back.  This is only available for companies and a maximum clawback of $1m in losses (tax benefit $300k).
• Small businesses (turnover less than $2m) increase to immediate writeoff for assets costing less than $6500, and $5000 immediate deduction for motor vehicles from 1 July 2012.
• Living Away from Home Allowance changes to reduce scope of the rules, including a maximum 12month claim period and home must be in Australia (not abroad).  This will affect many overseas skilled workers working predominantly in resources sector.
• Refer changes to individuals, below

Individuals

• Tax free threshold increase from $6k to $18k – let it be noted that most taxpayers effectively got a $16k tax free threshold with the low income rebate prior to 1July2012.
• Corresponding reduction in low income rebate maximum claim reduced to $445.
• Reduction in deductible/concessional (salary sacrificed) contribution cap from $50k to $25k for those 50+ from 1 July 2012.  This now means for 2013 and 2014 years that the cap will be $25k for everyone.
• Family tax benefit part A increased
• New centrelink supplement payment non-taxable to cover increase to cost of living for benefit receipients
• Schoolkids bonus to replace education tax offset, this will be a payment to parents of school age children.
• Medical expenses offset to be means tested, singles earning $84k+ and families $168k+, will have increased threshold $5kpa (up from $2k) and the rebate reduced to 10%  (down from 20%).
• Mature Age Worker offset ($500) scrapped
• Other rebates consolidated into one rebate and non refundable. (ie dependant spouse, carer, etc)
• Golden Handshake ETP means tested those earning more than $180k will pay higher amount of tax.
• Non-residents tax rates changed to more reflect residents, however no tax free threshold so they will be taxed more.

Below are the details you need to know:

Superannuation

1. Deferral of higher concessional contributions cap for over 50s

Proposed start date: 1 July 2014

The Government will defer the start date of the higher concessional contributions cap for over 50s from 1 July 2012 to 1 July 2014.

Under this measure, individuals aged 50 and over with superannuation balances below $500,000 will be able to make up to $25,000 more in concessional contributions than allowed under the standard $25,000 concessional contributions cap.

It is expected that from 1 July 2014 the $25,000 cap will likely have increased to $30,000 through indexation. Accordingly, the higher concessional contributions cap for over 50s with superannuation balances below $500,000 would then commence at $55,000.

2. 30% Superannuation Contributions Tax for incomes above $300,000

Proposed start date: 1 July 2012

Individuals with incomes greater than $300,000 will have their Superannuation Contributions Tax doubled to 30% from 1 July 2012.

If an individual’s income, excluding their concessional contributions, is less than the $300,000 threshold, but the inclusion of their concessional contributions pushes them over the threshold, then only that part of the contributions in excess of the threshold will be subject to the higher contributions tax.

For example, someone with an income (excluding their concessional contributions) of $285,000 and concessional contributions of $20,000 (taking their total income to $305,000), would only have the 30% contributions tax applied to $5,000 of their contributions.

The higher contributions tax will not apply to concessional contributions which exceed the concessional contributions cap, as they are effectively taxed at the top marginal tax rate. Further, the 15% tax on earnings within superannuation (and tax exemption for assets supporting pension payments), will not be affected by this change.

Taxation

Personal Tax measures

1. Personal Tax rates

Applying from 1 July 2012 (Already legislated)

* Excludes Medicare levy/Flood levy (2011/12 only)

** Includes the effect of the tax-free threshold and LITO

Note that:

• The tax-free threshold will initially increase from $6,000 to $18,200 and, according to the Government, will free up to one million low-income earners from needing to lodge a tax return from 2012/13.
• The LITO will initially be reduced from $1,500 to $445.
• The combined effect of the higher statutory tax-free threshold and the LITO is that the effective tax-free threshold will initially rise to $20,542. This means that individuals will be able to earn up to $20,542 from 2012/13 without paying any net income tax.

2. Increasing Medicare levy low income threshold

Proposed start date: 1 July 2011

The Government will increase the Medicare levy low income thresholds to $19,404 (up from $18,839) for individuals and $32,743 (up from $31,789) for families, with effect from 1 July 2011. The additional amount for each dependent child or student will also increase to $3,007 (up from $2,919).

The Medicare levy threshold for single pensioners below Age Pension age will also be increased to $30,451, with effect from 1 July 2011.

3. Net medical expenses tax offset

Proposed start date: 1 July 2012

The Government will introduce a means test for the net medical expenses tax offset from 1 July 2012.

For people with adjusted taxable income above the Medicare levy surcharge thresholds ($84,000 for singles and $168,000 for couples or families in 2012/13), the threshold above which a taxpayer may claim the tax offset will be increased to $5,000 (indexed annually thereafter) and the rate of reimbursement will be reduced to 10% of eligible out of pocket expenses incurred.

People with income below the surcharge thresholds will be unaffected.

4. Consolidation of dependency offsets

Proposed start date: 1 July 2012

The Government will consolidate eight dependency tax offsets into a single, streamlined and non-refundable offset that is only available to taxpayers who maintain a dependant who is genuinely unable to work due to having a carer obligation or disability from 1 July 2012.

The offsets to be consolidated are the invalid spouse, carer spouse, housekeeper, housekeeper (with child), child-housekeeper, child-housekeeper (with child), invalid relative and parent/parent-in-law tax offsets.

The new consolidated offset will be based on the highest rate of the existing offsets it replaces, resulting in an increased entitlement for many of those eligible for this measure.

Taxpayers who are currently eligible to claim more than one offset for multiple dependants who are genuinely unable to work will still be able to do so.

5. Mature age worker tax offset phase out

Proposed start date: 1 July 2012

The Government will phase out the mature age worker tax offset from 1 July 2012 for taxpayers born on or after 1 July 1957. Access to the offset will be maintained for taxpayers who are aged 55 years or older in 2011/12.

6. Limiting the employment termination payment tax offset for golden handshakes

Proposed start date: 1 July 2012

The employment termination payment (ETP) tax offset ensures that the taxable component of an ETP up to the ETP cap amount ($175,000 in 2012/13) is taxed at a concessional rate (a maximum tax rate of 15% for those over preservation age and 30% for those under preservation age). The amount in excess of the ETP cap amount is taxed at the top marginal rate.

This tax treatment is to continue for certain ETPs relating to genuine redundancy (including to those aged 65 and over), invalidity, compensation due to an employment-related dispute, and death.

However, where the ETP is not paid due to these circumstances, for example where it is a golden handshake payment, the tax offset will from 1 July 2012 be potentially reduced.

Only that part of the ETP cap amount that takes a person’s total annual taxable income (including the ETP) to no more than $180,000 will receive the ETP tax offset and concessional tax treatment. Amounts above this $180,000 total income cap will be taxed at marginal rates with no offset.

Business tax measures

Corporate loss carry back

Proposed start date: 1 July 2012

The Government will provide new business tax relief with a loss carry-back initiative to help companies improve their cash flow.

Currently, taxpayers can only carry forward their tax losses to offset future profits and reduce future tax liabilities. This new initiative will allow companies to also carry back their losses to offset past profits and get a refund of tax previously paid on that profit.

A one year loss carry back will apply in 2012/13, where tax losses incurred in that year can be carried back and offset against tax paid in 2011/12. For 2013/14 and later years, tax losses can be carried back and offset against tax paid up to two years earlier.

Companies will be able to carry back up to $1 million of losses each year – providing a cash benefit of up to $300,000 a year. The measure will apply to revenue losses only and will be limited to a company’s franking account balance.

Non-resident tax measures

The Government announced a number of measures to adjust the personal income tax rates and thresholds that apply to non-residents’ Australian income.

Social security and aged care

Liquid Assets Waiting Period (LAWP) – increase in the amount of allowable assets

Proposed start date: 1 July 2013

From 1 July 2013, the Government is proposing to increase the amount of assets that a claimant can have before they are affected by the LAWP. Under the proposal, a recipient will be affected by LAWP if their liquid assets equal:

• $5,500 or more for an individual who is not a member of a couple and does not have a dependent child.
• $11,000 or more for an individual who is a member of a couple and/or has a dependent child.

New Income Support Supplement

Proposed start date: 20 March 2013

From 20 March 2013, recipients of the following benefits will receive an additional payment in the form of a new Income Support Supplement:

• Newstart Allowance
• Sickness Allowance
• Youth Allowance
• Austudy
• Abstudy
• Special Benefit
• Parenting Payment
• Transitional Farm Family Payment
• Exceptional Circumstances Relief Payment.

The new supplement will provide $210 per annum for singles and $175 per annum for each member of an eligible couple. The supplement will be paid in two instalments – in March and September each year.

The new Income Support Supplement is proposed to be paid to eligible recipients in addition to any payments received under the Clean Energy Household Assistance Package.

Tightening of the overseas portability rules

Proposed start date: 1 January 2013

Under the current rules, most income support and family payment recipients can travel overseas for a period of up to 13 weeks and continue to receive their benefits. If their absence is greater than 13 weeks, a benefit may be paid at a reduced rate or cancelled. From 1 January 2013, the Government proposes to reduce this period from 13 weeks to 6 weeks.

The maximum rate of Family Tax Benefit Part A will be restricted to the base rate for temporary absences greater than 6 weeks.

Tightening of Age Pension overseas portability rules

Proposed start date: 1 January 2014

Age Pension recipients either living or travelling overseas are subject to a different set of portability rules to those mentioned above.

An Age Pension recipient can be absent from Australia for an indefinite period. However, if this is greater than 26 weeks, the maximum payment rate is calculated with reference to their Australian Working Life Residence (AWLR) and usual means testing.

From 1 January 2014, an Age Pension recipient will be required to have residence of 35 years (up from 25 years) between the age of 16 and their pension age – in order to be eligible for the maximum rate of pension (subject to usual means testing).

In addition, all partnered pensioners residing overseas will be paid on their own AWLR rather than their partner’s AWLR. Grandfathering provisions will protect existing customers who are currently being paid under an international agreement.

Aged care

The Government is proposing a range of significant reforms in aged care.

1. Changes to means testing

Proposed start date: 1 July 2014

The Government is proposing a range of changes to means testing of both home care and residential aged care recipients.

1.1. Home care package recipients

Home care package recipients will be asked to pay a new means tested care fee in addition to the existing basic fee. Care recipients with total income less than the maximum income level for a full pensioner will not be asked to pay a care fee.

Care recipients with total income greater than the maximum income level for a full pensioner, but less than the maximum income level for a part pensioner will have their care fee calculated as 50% of their total income above the relevant threshold, up to an annual cap amount of $5,000 (indexed).

Care recipients with total income greater than the maximum income level for a part pensioner will have their annual care fee equal to $5,000 (indexed) plus 50% of their total income above the relevant threshold. The annual cap amount for these recipients is $10,000 (indexed) per annum.

The Government is also proposing a lifetime cap of $60,000 (indexed) on all care fees.

1.2. Residential aged care recipients

The Government proposes a single means test for people entering care after 30 June 2014. This new test will combine the current income and asset tests. Residents who can afford to will pay a means tested contribution comprising of:

• a basic fee of up to 85% of the single basic pension (currently $15,364 per annum),
• a means tested contribution to their accommodation, and
• a means tested contribution to their care (‘the care fee’).

There will be protection measures in place for people with low income or asset levels. People that do not fall into this category will be asked to pay the maximum. The maximum means tested contribution will be as follows (based on 2012 thresholds):

• 50% of income above the income threshold, plus
• 17.5% of the value of assets between $40,500 and $144,500, plus
• 1% of the value of assets between $144,500 and $353,500, plus
• 2% of the value of assets above $353,500.

A maximum cap of $25,000 per annum (indexed) and a lifetime cap of $60,000 (indexed) will apply to a resident’s contribution towards their care costs.

Contributions that residents may have made as recipients of Home Care Packages will be taken into account in calculating their lifetime care expenditure.

2. Other proposed measures

Among other proposals, the Government is also looking to develop an aged care gateway as a single point of contact to access aged care services. This includes establishing a My Aged Care website, a call centre and developing a common assessment process for accessing aged care services, and ensuring that all residents who enter care after 1 July 2014 have the choice to pay for their accommodation through a refundable lump sum payment, periodic payments, or a combination of the two. The Government also aims to increase the total number of residential places and home care packages over the next 5 years and beyond.

Families

Changes to Family Tax Benefit Part A

1. Change to age of eligibility

Proposed start date: 1 January 2013

Currently, Family Tax Benefit (FTB) Part A is generally available to families who have a dependent full-time student under 21 years of age.

The Government is proposing to limit availability of Family Tax Benefit Part A to:

• Children under 18 years of age, or
• Where a child remains in secondary school – until the end of the calendar year in which they turn 19.

Individuals who no longer qualify for FTB Part A may be eligible to receive Youth Allowance, provided they meet the usual eligibility criteria.

2. Increasing the maximum rate

Proposed start date: 1 July 2013

The Government is proposing to increase the maximum payment rate of Family Tax Benefit Part A by $300 per annum for families with one child and $600 per annum for families with two or more children.

For families receiving the base rate of Family Tax Benefit Part A, the proposed increase is $100 per annum for families with one child and $200 per annum for families with two or more children.

Replacing the Education Tax Refund with a Schoolkids Bonus

Proposed start date: 1 January 2013

Under the current rules, the Education Tax Refund (ETR) is a refundable tax offset available to families who receive Family Tax Benefit Part A.

The Government proposes abolishing the ETR and replacing it with a new Schoolkids Bonus. This will be paid to eligible recipients in two equal instalments in January and July each year.

Every family with a child at school will receive $410 per annum for each primary school student and $820 per annum for each secondary school student.

The new Schoolkids Bonus will be available to families with children enrolled and attending school who are in receipt of:

• Family Tax Benefit Part A (FTB A), or
• Other qualifying income support payments or allowances under a prescribed educational scheme that precludes the family from receiving FTB A.
• The Government also proposes that as a transitional measure, the ETR in 2011/12 will be replaced by a one-off lump sum payment to eligible families in June 2012.

The ATO have released a number of press releases and messages to us tax agents regarding why.  Here’s the official reason http://www.ato.gov.au/content/1440.htm.  The ATO claim “We have a responsibility to government and the community to make sure that everyone pays the correct amount of tax under the law. We conduct programs each year where selected returns are reviewed before issuing the assessment. Tax returns that are held for review and action before release include returns identified as containing ‘high risk’ refund claims.”

Further:

“To date, four out of five reviews have resulted in a reduction in the net refund and in many instances a penalty has also been imposed. The total value of community revenue protected so far is around $85 million.

Cloud and Ecommerce Solution

We are all about educating our clients and those in our community network on how to improve their business.  In particular at the moment we are helping businesses get onto the latest cloud accounting, POS and eCommerce solutions that work together to create an advanced operation for a fraction of the cost of a traditional system.

For example a retailer client – sales automatically go from POS and eCommerce applications to the accounting system, drastically reducing the time and money spent on bookkeeping and compliance work.

There’s no need to spend your time or money installing software or maintaining expensive servers. All you need is a computer, smartphone or tablet and you’re ready to go — from anywhere.

See these systems in action in the video below:

http://www.youtube.com/watch?v=SNuCD9wZE_I

Whilst that’s a retail example, there are numerous solutions that work together across most businesses and we know how to make that into a solution that works for you.

The benefits that this accounting solution will bring to your business include:

• Reduction of data entry time
• Increasing efficiency and profitability
• Daily bank feeds
• Real time business accounts
• Up to date business reporting
• Complete payroll function
• Suitable for small to large businesses
• Easy integration of applications (inventory etc) and other industry specifics applications
• Bank level security
• Offsite remote backup done automatically (no more prompting for backup and forgetting where the zip file is)
• Regular updating of program/application without additional costs (as opposed to MYOB/Quickbooks asking you to upgrade your product for $XX
• Multi-user login (no more expensive multi-user programs like Premier)
• Enable your bookkeeper, accountant, finance broker access to the file (no more sending files to accountant)
• Accountant and bookkeeper can make changes to your live file, no more version conflicts etc
• And more

Features include dashboard and reports per pictures below

That’s just the beginning. We can give better advice when your information is up-to-date and easy for us to access. Rather than tell you how you did in the past, we’ll use real-time data to help you:

●  Manage cashflow

●  Reduce expenses

●  Boost profits

We would be happy to discuss how this can improve your business, but more importantly hope you connect with us to keep informed of other developments in business improvement, taxation and other areas that you need to know in your business.

Don’t ever hesitate to contact our office if you have a question, we are only too happy to help.  Look forward to meeting you soon. Please contact our office 1300219818, info@morrisaccounting.com.  For more information and current articles checkout our latest newsletter,  website or connect with us on Facebook and Twitter.

Nathan Morris, Founding Director of Morris Accounting reminds investors “Superannuation is not an investment.  It is a tax and asset protection structure for investing.  Perfect for long term investment, and great low or zero tax rates in retirement.

Some Financial Planners suggest that you need $200k-$300k to setup your own fund to make it worthwhile.  However a number of Morris Accounting clients have started with less.  “If the client has the right attitude towards contributions, types of investments, using leverage options available, then there is a very strong case for employees and business owners alike to get a great super strategy in place” remarks Nathan.

At the moment there is also the opportunity to purchase property using superannuation funds for either business or residential investment property. Before December 2007 no leverage was available however we have an opportunity to borrow at rates similar to outside the superannuation environment.  As such the rates of return are higher, and the costs in relation to setting up and maintaining a superfund based on gross assets make it worthwhile.

Want to get your superannuation back on track?  Talk to Nathan and the team at Morris Accounting.  Sharper Money Management. info@morrisaccounting.com.au 1300 219 818.

Whats more it will fund government initiatives like increased superannuation which will help to close the retirement gap that currently exists in the superannuation system between funds contributed now and funds available at retirement.

It will also give a lot more businesses a needed tax break, only 1% but nonetheless a tax break to help businesses already struggling to keep their doors open.

Labor or liberal or other, we all elect our representatives to get on with managing our national business, the national economy.  Let them get on with it, especially when its for everyones benefit!

According to the ABS Nov 2011 report Australian Average earnings are $1333 a week = $69,316 a year.  9% compulsory super is $6,238.

With most people working for 40 years before retirement this should equate to super balances of around $750k.  However will this be enough when you retire?

If you can live off $50k, this would require a balance of approximately $770k so it will be close, however with costs rising more than inflation, we need to put more away.

Did you know that by salary sacrificing superannuation of only $100 this would only be a tax home pay cut of approximately $70, you would save $1,560 a year in tax, and your nest egg would increase to approximately $1.3m, much more comfortable retirement.

We also helped a client put in place a property investment strategy that would increase this estimated nest egg to $4.1m and they only earn $80k a year.

Come and see the team at Morris Accounting to do the basic math about how superannuation can really make you wealthy, and retire sooner than you think!

Structure list from five pillars

Product/service
Research what your clients would like , ie do they like the beers/wines you serve
Would they like a menu change

Marketing
Social media foursquare get into it
Website and update urban spoon

Sales
Always have a water on the table, and ask for sparkling, easy $$ there
Offer multi course specials, ie $10 entrée/desert when a main purchase or a $50 three course

Delivery/technical
When your client sits down ask if they already know what they would like to drink/eat
Remember regulars, know their names and what they like

Admin
Review pos and record keeping system (MA has a great hospitality system for you)
Review and refine sales process and train staff.

For more tips and help how to improve your business get in touch with the team at Morris Accounting 1300 219 818 or info@morrisaccounting.com we look forward to hearing from you!

When the subject of insurance comes up, it is generally not met with a great deal of interest or enthusiasm much of the time. However, having adequate insurance coverage of all types is an integral part of keeping your financial security and best interests in line. While it may be an appealing proposition to think that your home will never be damaged by a natural disaster or that you will never get into an automobile accident, the truth is that the best course of action is to prepare for the worst and hope for the best.

click here to read more…

In this months issue:

• planning for 2012
• review your business goals
• review your business marketing
• why your business accounting/bookkeeping should be online
• what todo with ATO emails (spam)