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NOVEMBER 2008
Medicare Surcharge Thresholds and Luxury Car Tax
Without a majority in the Senate, the Government has struggled to pass legislation as originally announced. In its first Budget, one major commitment of the Rudd Government was to exempt a large number of Australians from the Medicare Levy Surcharge (MLS) by increasing the income thresholds at which the levy applies. The MLS imposes a 1% levy on taxpayers who do not hold private medical insurance and whose income exceeds certain levels. The Government announced it would raise these thresholds from $50,000 to $100,000 for individuals and $100,000 to $150,000 for families. Negotiations in the Senate to get the changes through have resulted in the income thresholds being substantially pared back to $70,000 for individuals and $140,000 for families.
These changes were to be funded, at least in part, by an increase in the Luxury Car Tax (LCT) rate from 25% to 33% on cars costing over $57,180. In order to get this change through, the Government has had to provide an exemption for fuel efficient cars costing less than $75,000.
If you have bought a car since 1 July 2008 and paid between $57,180 and $75,000 you may be entitled to a refund of some of the purchase price.
Super Fund Assets under Review
In this tough economic climate, Einfeld Symonds Vince expects the Australian Tax Office (ATO) to be extra vigilant with regard to taxpayers using tax or superannuation money to get themselves out of a liquidity problem. This extra vigilance is likely to be in the form of statistical analysis of BAS and tax return information, questionnaires, reviews and audits.
The ATO has recently reported that it intends to conduct more than double the number of superannuation compliance cases in the 2008-09 year compared to the prior year. With the most common contravention by trustees of superannuation investment restrictions involving loans to members and their relatives, we expect audit activities to focus on this area.
In addition, many super fund trustees are claiming their loan arrangements are to non-related parties on arm’s length terms. However, the ATO has found that, in over 20% of its audit cases, the loan arrangements had not been conducted at arm’s length.
Case Study – accessing funds to prop up a business
In one case study, the ATO tells of a fund that had made a loan to a related party. The related party, a trading company, had run into liquidity problems so the trustees lent the company $126,000, close to 100% of the fund’s assets. Only a small amount of the loan principal had been repaid since 2005 and the fund was not deriving income.
In the end, the trustees were required through an enforceable undertaking to wind up the fund and were disqualified from acting as trustees.
Superannuation and Business Real Property
Other superannuation compliance issues that have been flagged as targets by the ATO include the presence of non-allowable assets and breaches of the 5% in-house asset limit.
Trustees of superannuation funds are generally prohibited from acquiring assets from related parties and may only maintain such 'in-house assets' when their value is less than 5% of the total value of the fund’s assets. However, an exclusion from both of these requirements applies in relation to 'business real property'.
Angela Tomlinson, Einfeld Symonds Vince’s superannuation division manager, has recently fielded a number of questions on this area. Applying the “business use test”, she has had to determine whether an asset fits the description of “business real property”. It is a complex area and if you are planning acquisitions by a superannuation fund from a related party, we strongly recommend you seek our advice.
Super Fund In-house Asset Transitional Issues
Still on superannuation funds, the Commissioner has also reminded trustees that they need to prepare for the end of the in-house asset transitional period on 30 June 2009.
From 30 June 2009, if your super fund still has investments with related parties or trusts that were made prior to 11 August 1999, the fund will no longer be allowed to:
• Reinvest earnings in those investments
• Pay up any partly paid shares or units, or
• Make any additional investments.
Many trustees that used unit trusts to invest in geared properties before 11 August 1999 will be affected. If you are in this position, we recommend that you contact your Einfeld Symonds Vince advisor before Christmas.
FBT on GPS Receivers
The Tax Office has confirmed that a GPS navigation receiver provided to an employee can be a 'portable electronic device' and can, therefore, be exempt from FBT as an 'eligible work related item'.
Are You Eligible for Fuel Credit Rebates?
If you use fuel in your business operations, you may be able to benefit from the expanded fuel credit scheme that came in on 1 July 2008. You will not be entitled to claim fuel credits if your business’ use relates only to vehicles of 4.5 tonne or less which are driven on public road. However, other uses of fuel in your business such as for machinery, plant, equipment or vehicles may be rebatable. Fuel rebates are worth between 18.51 and 38.143 cents per litre. Contact your Einfeld Symonds Vince to confirm your business’ eligibility or to check that you are claiming your full entitlement.
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The information in this newsletter is quite general in nature and anyone intending to apply it practically to their own circumstances should seek professional advice to verify it’s individual applicability.
If you have any queries regarding the information contained in this
update please do not hesitate to contact us.
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