Continued Growth for Horizon Accounting

ATO is Contacting Participants in Collapsed Agribusiness MIS

GST and Requirements for Tax Invoices

Reportable Employer Superannuation Contributions

Minimum Pension Drawdown Amounts

Cooper Super Review Recommendations 
 

Continued Growth for Horizon Accounting

Horizon Accounting Group is pleased to announce that Jeff Trevarthen and Alison Palmblad have joined the firm as Partners from 1 July 2010. Jeff and Alison bring substantial expertise and experience to the firm.

Jeff has been in public practice since 1981. He was co founder of Walker Partners Pty Ltd for 15 years. In 2000 Walker Partners Pty Ltd became part of the national WHK Group where Jeff became a principal.

Alison commenced working in 1989 while completing her degree at USQ and graduated in 1992. She has worked with Jeff for most of her career and for the last 6 years assumed the role of a principal at WHK.

ATO is Contacting Participants in Collapsed Agribusiness MIS

The ATO has advised that it will be contacting approximately 60,000 identified participants of recently collapsed agribusiness managed investments schemes (MIS) during August 2010 to help them understand the tax consequences of their investments. The ATO has advised that affected taxpayers will need to factor in any changed tax implications in these schemes when they prepare their tax returns.

GST and Requirements for Tax Invoices

The GST regulations which previously specified the requirements for documents to be tax invoices or recipient created tax invoices (RCTIs) have been removed. This follows recent changes to the GST law which simplified the requirements for documents to be considered tax invoices or RCTIs by replacing those requirements with equivalent but more flexible principles. The regulations commenced on 1 July 2010 and apply in relation to net amounts for tax periods starting on or after 1 July 2010.

Reportable Employer Superannuation Contributions

On 30 June 2010, the Minister for Financial Services, Superannuation and Corporate Law announced that the Government will amend the law to clarify the scope of the reportable employer superannuation contributions (RESC) definition (see s 16-182 of Sch 1 to the TAA), which is used in determining eligibility for a range of government financial assistance programs.

'The Government has become aware that contributions made on behalf of an individual, which the individual or their employer have no real capacity to influence, are being captured by the RESC definition and hence being considered income for means-tested tax and transfer system programs,' Mr Bowen said. These contributions typically include additional employer contributons that are prescribed in legislation and not capable of being influenced by the individual or their employer.

The Minister said this is not the Government's intention and that the law ' will be amended so that RESC does not include contributions made on behalf of an individual pursuant to legislation or other requirement that the individual and their employer cannot directly control.' The changes are proposed to apply from 1 July 2009 to ensure that the contributions are not captured by the RESC definition and assessed as income for means-tested tax and transfer system programs.

Minimum Pension Drawdown Amounts

The Prime Minister has recently announced that the Government will extend for another year the 50% reduction in the required minimum payment accounts that must be made from account-based, allocated and market-linked pensions. The relevant regulations will need to be amended and the Government says this will be done in the new financial year.

The minimum amounts had been reduced by 50% for the 2008/09 and 2009/10 financial years - that will now be extended for the 2010/11 financial year. This means, for example, that the minimum annual drawdown for 2010/11 for someone aged 64 years or less will remain at 2%; and for those aged 65 - 74, will be 2.5%.

Cooper Super Review Recommendations

The Government has released the long-anticipated final report of the Super System Review. The Review Panel, chaired by Jeremy Cooper, made 177 specific recommendations aimed at improving the governance, efficiency, structure and operation of the country's superannuation system. A key proposal includes a simple low-cost superannuation product known as MySuper for investors who do not want to engage in superannuation decision-making.

In relation to self-managed superannuation funds (SMSFs), the Review Panel was not of the view that significant changes were required as it found that the sector was largely successful and well-functioning. Nevertheless, it made 29 recommendations relating to SMSF service providers, auditors and the regulatory framework. Notably, the Review Panel maintained its proposed ban on SMSFs investing in collectables and personal use assets. Examples include artwork, antiques and exotic cars.

The Government is expected to formally respond to the review within the next two months.

Economic Outlook

Division 7A Applies to 'Payments by Direction'

SMSF Trauma Insurance Policies

Super System Review: Preliminary Report on SMSFs
 

Economic Outlook

Over the past few weeks, significant volatility has re-entered global financial markets with falls in equities, declines in government bank yields and sharp moves in exchange rates - including a fall in the Australian dollar. The appetite for risk has diminished and this has resulted in some large global investors reassessing asset allocations. It is likely they are taking profits after earning strong returns over the past year.

The falls in equity markets especially here in Australia, have been quite sharp, but, follow on from a period of solid recovery from the lows of March 2009.

One of the main drivers of financial market volatility and reduced global risk appetite is the sovereign debt crisis in Europe. After a period of concern over the debt level of Greece and other southern European nations, the European Stabilization Method was seen as a positive and helped avoid a liquidity crisis. Overall this is a positive but questions have been now moved to the pace of growth in Europe over coming years. Affected governments will need to reduce budget deficits and debt levels and to do this will need to increase taxes and cut government expenditure through winding back pensions and public sector wages.

For Australia the global market volatility has manifested itself in a sharp fall in the local share market (down 14% from its high in Mid April) and in a large decline in the AUD (down from US0.9350 in Mid April to near USD 0.84). Adding to the concerns has been signs that policy tightening by the Reserve Bank has started to work with recent weakness in consumer confidence, housing finance and retail sales leading to expectations that the Reserve Bank will remain on hold for several months.

One other factor that is worth highlighting is the proposed introduction of the "Resources Super Profit Tax" (RSPT). While views on the merits of the RSPT vary greatly depending on who you ask, there is a strong view that the proposed RSPT, the way in which the government went about announcing its arrival, and the public nature of the debate over its merits or otherwise, has added to Australia's country risk premium. While it could be argued that the negative market reaction to the proposed RSPT has much to do with bad timing (i.e. coming at the same time as the negative global developments). It does seem clear that proposing a significant new tax to Australia's resource sector has added an extra level of uncertainty to Australia that certainly has not been helpful in the current environment.

The extent of these concerns and the global reduction in risk appetite are unfortunately, unlikely to be unwound in the very near term so volatility can be expected to remain for a while.

Over the medium term however continued recovery in some key economies should see markets stabilise and eventually return to their recovery trend from the lows of 2009.

THIS COMMENT IS INTENDED TO PROVIDE GENERAL INFORMATION ONLY NEITHER HORIZON WEALTHINVEST, THEIR EMPLOYEES OR DIRECTORS, PROVIDE ANY WARRANTY OF ACCURACY OR RELIABILITY IN RELATION TO SUCH INFORMATION OR ACCEPTS ANY RESPONSIBILITY TO ANY PERSON WHO RELIES ON IT.

Division 7A Applies to 'Payments by Direction'

The Federal Court has confirmed that the deemed dividend provisions can apply where a payment is made by a debtor of a company to a shareholder at the direction of the company.

The taxpayer and her former de-facto spouse were the shareholders and directors in a private company. In the 2001 income year, the company directed US clients to pay over $160,000 in debts owed to the company into the account of the taxpayer (of which she was sole signatory). The funds in the account were used for the private expenditure of the taxpayer and her former de-facto spouse.

The Court held that the deemed dividend provisions can apply if a company makes a payment to a shareholder by way of directing its debtors to make the payment. In the Court's view, there was no reason to construe the notion of 'pay' as requiring a direct flow of money from the payer to the payee, or that it precludes payment by direction.

Broadly, a payment or loan by a private company to a shareholder (or their associate) will be considered a deemed unfranked dividend unless steps have been taken to avoid this.

SMSF Trauma Insurance Policies

The Tax Office has also released a Determination in which it sets out the circumstances where a trustee of an SMSF can purchase a trauma insurance policy in respect of a member and still satisfy the superannuation legislation, in particular the sole purpose test.

To briefly explain, the sole purpose test requieres an SMSF to be maintained solely for at least one core purpose (e.g. the provision of benefits for a member on or after the member's retirement) and, also possibly, at least one ancillary purpose (e.g. the provision of benefits for a member on or after the member's death).

The Commissioner says any benefits payable under a trauma insurance policy must be payable to a trustee of the SMSF and become part of the assets of the SMSF, at least until the relevant member can satisfy a condition of release. If an SMSF trustee purchases a trauma insurance policy for benefits payable under the policy to be paid directly to someone other than a trustee of the SMSF (e.g. the insured member or member's relative), the Tax Office says this would contravene the sole purpose test. 

Super System Review: Preliminary Report on SMSFs

The Super System Review has released its preliminary report, Self-Managed Super Solutions, which contains a host of recommendations. While the Government has not responded to the recommendations, if implemented, they will impact on the SMSF landscape.

The report makes the following key recommendations:

• Exotic assets prohibited - Investments in collectables and personal use assets should be prohibited, such as paintings, jewellery, antiques, wine, exotic cars and yachts.
• In-house assets prohibited - SMSFs should be prohibited from any in-house assets. (In brief, an in-house asset is an investment in a related party of the fund.)
• Leverage and instalments warrants - A review of the borrowing exception (i.e. instalment warrants) should be carried out in two years to ensure that borrowing has not become a significant focus of SMSFs.
• Annual member disclosure - The corporations legislation should be amended to ensure SMSFs' members are provided with key information annually.
• Illegal early release - Existing tax laws should be amended so that amounts illegally early released are taxed at the superannuation non-complying tax rate (currently 46.5%) rather than an individual's marginal tax rate.
• Binding SMSF rulings - The Tax Office should be given the power to issue binding rulings in relation to SMSFs.

   

2010 Budget and Henry Tax Review

Don't Exceed Your Contribution Cap

Deductions and Refinancing Home Loans

Superannuation Funds and Illegal Early Release
 

2010 Budget and Henry Tax Review

The 2010 - 11 Budget will be delivered by the Treasurer on Tuesday 11 May 2010.

Wayne Swan has also announced that the much-anticipated Henry tax review would be made public by the time the budget is delivered.

These two events promise to substantially impact our clients in both the short and long term.

Horizon Accounting Group will be focused in the coming months on providing you with recommendations after the Henry Review and the Budget are analysed.

Don't Exceed Your Contribution Cap

Earlier this year the Australian Taxation Office sent letters to approximately 24,000 Australians advising that, according to Tax Office records, those receiving the letter may have either made, or had made on their behalf, superannuation contributions that exceeded the relevant contribution caps.

Just to recap, effective from 1 July 2007, the Government introduced new limits on the amounts that could be contributed to a superannuation fund without incurring a tax penalty. The limit applying to concessional (i.e. generally tax deductible) contributions was $50,000 ($100,000 for those aged 50 or over). For non-concessional contributions (i.e. personal contributions where a tax deduction is not being claimed), the limit was $150,000 per financial year, with the capacity for those under 65 to bring forward up to three years contributions.

The letter from the tax man suggested that those taxpayers's receiving the letter should check their contributions made during the relevent period and if the ATO's records appear to be incorrect, an invitation was extended to correct the information. The ATO has found that in some cases, superannuation funds had incorrectly reported contributions, leading to an assumption that an excess contribution may have arisen.

Where a contribution has exceeded the relevant contribution cap, the excess contribution is effectively taxed at a rate of 46.5%.

In certain circumstances the Taxation Commissioner may exercise discretion and agree to either disregard an excess contribution, or have it applied to another financial year. But, in such cases discretion will generally only apply in those cases where the taxpayer had little or no influence over the payment of the conrtribution (such as the timing of contributions made by their employer). It appears that the ATO will not be sympathetic where a taxpayer simply didn't understand the limits applying to contributions!

The Government announced, in their 2009 Budget, the cap, or limit, on concessional contributins for the financial year commencing 1st July 2009 (and beyond) would be halved. This will significantly reduce the amount of tax deductible contributions that can be made in the future, particularly for self employed people, and those making contributions under a salary sacrifice arrangement.

Non-concessional contributions limits remain unaltered.

So, for the current financial year (2009/10), the cap applying to superannuation contributions are: 

*concessional contributions may be limited to a lesser amount where the three year being forward provision has been triggered in a previous financial year. If aged 65 or over, a work test must be met in order that concessional contributions can be made.

Even the once simple task of making a contribution to a superannuation fund has its complexity. Once excessive contributiosn have been made, there is a very limited opportunity to undo the transaction. It is therefore increasingly important to seek appropriate advice before making contributions to a superannuation fund.

Deductions and Refinancing Home Loans

The Tax Office has also issued a Taxpayer Alert in which it alerts taxpayers about sham arrangements being promoted as 'mortgage management plans'. The arrangements involve homeowners refinancing their home loans and establishing investment loans to fund the purchase of shares in bogus companies. Homeowners then claim tax deductions for interest incurred on the loans.

The Tax Office says the arrangements may give rise to various taxation issues, including whether:

• the general anti-avoidance provisions may apply to the arrangements; and
• any interest incurred on the investment loans is deductible.

Superannuation Funds and Illegal Early Release

New steps to prevent the rollover of funds to self-managed superannuation funds (SMSFs) created for the purpose of illegal early release of benefits have been implements by the Tax Office.

The steps are being implemented in two stages.

The first stage commenced in January 2010 and introduced improvements to the SMSF registration process to help prevent non-legitimate SMSFs from being displayed on the Super Fund Lookup (SFLU) web page.

As a result of improvements to the registration process, trustees of SMSFs should be aware that: 

• a new SMSF application will take seven days to be assessed by the Tax Office and to appear on the SFLU; and
• a superannuation fund will not process a rollover request by an SMSF unless the SMSF is listed on the SFLU.

   

Club USQ Sponsorship
 

Employment Relation Changes - Wages, Awards and Agreements 
 

Club USQ Sponsorship

 Horizon WealthInvest are proud to announce that we will be sponsoring the Club USQ Breakfast Series for 2010.

The Breakfast Series is held 4 times during the year with the first one being 4th March, 2010. We are excited to have already been able to secure 2 great speakers. The first being Todd Russell, Beaconsfield Mine Survivor and the second being Duncan Free, Gold Medallist in the 2008 Beijing Olympics.

Horizon would like to invite our clients to come along and listen to Todd who will share his experiences on his survival with Brant Webb for 14 days whilst they were trapped almost 1km underground in a 2 x 4m pocket of air.

The cost for the breakfast is $40 per person to be held at Encores - seats are limited - please phone Leigh at Horizon WealthInvest on 07 4659 4666 to secure your place.

Employment Relation Changes - Wages, Awards and Agreements

The Queensland Government has referred the state's industrial relations powers for the private sector to the Commonwealth with an effective date of 1 January 2010.

As from this date all employers and employees, with the exception of state and local government, will be covered by the national industrial relation system administered by the Commonwealth Government.

The Commonwealth Government has implemented its award modernisation process including the National Employment Standards (NES). As part of the introduction of the National Employment Standards (NES), employers will be required to give each person employed on or after 1 January 2010 an information statement. For this NES statement, and how these changes will affect you as an employer, you should contact the Fair Work Ombudsman on 13 13 94 or go to www.fairwork.gov.au and download the relevant information.

Where an employer has Workplace Agreements with their employees prior to the introduction of the National Employment Standards and the new award modernisation, you should contact a workplace relation specialist, for clarification of your Workplace Agreements. Horizon Accounting can help you here, by referring you to a workplace relations lawyer.

50% Investment Allowance

Night with Duncan Free - 2008 Olympic Gold Medallist

Non-commercial Losses

Why Should Business Owners Consider Business Insurance?
 

50% Investment Allowance

As the year is drawing to a close, so too is the governments investment allowance which finishes on the 31 December 2009.

In order to take advantage of this opportunity businesses have until the 31 December 2009 to commit to investing in a new asset. In addition to committing to the purchase before 31 December 2009, the asset must be delivered or built before 31 December 2010.

If you are a small business (i.e. your business and any business connected with yours turns over less than $2 million a year) you may be eligible to claim the additional 50% tax deduction. Your business will need to spend a minimum of $1,000 on an eligible asset. 

However, if your business turns over $2 million or more a year, you maybe able to claim a 10% additional tax deduction. Please note you will need to spend a minimum of $10,000 on an eligible asset.

The investment allowance is a tax deduction in addition to any depreciation that the owner can claim. The investment allowance is claimed in the year that the asset is first used or is installed ready for use.

In relation to financing of assets please be careful, as the financing option taken can affect 'the investment commitment time'; therefore please consider entering into any financial contract before the 31 December 2009.

Also, care should be taken as to the type of finance selected as it may impact on your ability to claim the investment allowance. It should be noted that lease finance does not result in a deduction to the lessee. 

Night with Duncan Free - 2008 Olympic Gold Medallist

Horizon Accounting Group and Horizon WealthInvest were fortunate to have Beijing Olympics Gold Medallist Duncan Free, to give an inspirational talk to clients and staff about the lead up to his gold medal win with Drew Ginn in the rowing men's pair at the Beijing Olympics in 2008.

Duncan's story is one of enormous courage and sacrifice with the pair battling injuries (including a slipped disc in Drew's back); replacement rowers hiding in the bushes so as not to upset the mental psyche of the pair; ice baths to cool their core temperature due to the extremely humid and high temperatures in Beijing and so on. Everyone was able to hold the gold medal and have their photo taken with Duncan.

Professional Investment Services organised Duncan's visit and we thank them for the inspiration that Duncan was able to pass on.

Non-commercial Losses

Currently, an individual who is carrying on a business either as a sole trader or a partner in a partnership can only apply losses arising from the business activity against their other income in an income year if the activity satisfies one of four objective tests. (Note special rules apply to taxpayers conducting a primary production or a professional arts business.)

The Bill will amend the non-commercial losses rules to prevent individuals with an adjusted taxable income of $250,000 or more in an income year from offsetting losses from non-commercial activities against their salary, wages or other income. That is, individuals with an adjusted taxable income above the threshold cannot access the tests. However, an individual can apply to the Commissioner to exercise the discretion not to apply the non-commercial losses rules.

The proposed amendments will apply to the 2009/10 and later income years.

Why Should Business Owners Consider Business Insurance?

Every business with two or more owners should consider what might happen to the business if one of the owners dies, becomes totally and permanently disabled, or suffers a terminal or traumatic illness.

A business generally depends on a few people to produce the profits, provide the capital or manage the business. If there is no viable succession plan, there may be significant financial hardship for the surviving business owners, as well as for the surviving family members.

The core business insurance concepts are:

• Buy/sell insurance (asset or equity)
• Debt reduction or guarantor protection insurance (liability), and
• Key person insurance (liability)

Business insurance is an area of insurance which involves undertaking a full and detailed interview to determine your needs, including the:

• Needs of the business
• Amount of insurance necessary to satisfy these needs
• Cost of the insurance
• Prioritisation of the business needs and insurance (having regard to the cost); and
• Underwriting requirements necessary for the amount of insurance proposed.

To arrange a review of your business insurance needs please contact your client manager or Tim Blakeley at Horizon WealthInvest.

Superannuation Guarantee Charge

Superannuation Rates and Thresholds

Rates and Thresholds

GIC and SIC Rates

Assistance for Small Businesses

GIC-free Payment Arrangements

Deferral of Payment Due Dates
 

Superannuation Guarantee Charge

• the level of control between an individual and the other party;
• the mode of remuneration;
• the provision for annual leave; and
• the right to suspend or dismiss an individual by the other party.

Superannuation Rates and Thresholds

• Superannuation guarantee maximumcontribution base:
  $40,170 for each quarterly contribution period. An employer does not need to provide the minimum 9% superannuation guarantee support for an employee’s ordinary time earnings above this limit.

• Superannuation co-contribution income thresholds:
  The lower total income threshold to qualify for the maximum co-contribution is $31,920. The higher income threshold where the co-contribution completely phases out is $61,920.

Rates and Thresholds

• CGT improvement threshold:
   $124,258
• Car depreciation limit and luxury car limit:
  $57,180
• Overtime meal allowance expenses:
  $24.95
• Benchmark interest rate for the deemed dividends provision:
  5.75%

GIC and SIC Rates

Assistance for Small Businesses

GIC-free Payment Arrangements

• A business can renegotiate an existing payment arrangement entered into before 1 June 2009 to take advantage of the GIC-free payment arrangement.

Deferral of Payment Due Dates