Eclipse Accounting News - JULY 2009 

The team at Eclipse Accounting Group would like to wish all of our clients and friends a successful new financial year.

We encourage Business Owners to contact our office if you require any assistance in getting your 2009 internal financials tidied up so that you can have a clean roll forward into the 2010 financial year.  Also, now is the time to review the past year and set reasonable budgets for the year ahead so that you can really start to drive your business in the direction you want it to go.  If you need any help with this, please give us a call.

This issue includes the following topics:

Important changes to how you claim the Family Tax Benefit (FTB)
Income limit at which Family Tax Benefit Part A is no longer paid
NSW Housing Construction Acceleration Plan (HCAP)
Superannuation Obligations for Employers
Self Managed Superannuation Funds (SMSF) which own Real Estate
New First Home Saver Accounts
Failure to Lodge on Time Penalty
Occupations and Work-related Expense Claims to be targeted by ATO
Deductibility of Travel that is related to carrying Heavy or Bulky Equipment
New Rules affecting Employees who receive Shares or Options under Employee Share Acquisition Schemes

Important changes to how you claim the Family Tax Benefit (FTB)

From the 2009 income year, the Family Tax Benefit must be claimed directly  through the Family Assistance Office (FAO) rather than claiming in your income tax return.  Generally, only one member of a couple can claim FTB for all children in their family so therefore, FTB is not normally split between spouses.

If you have claimed the FTB in the past or believe you may now be entitled to it, we recommend that you contact the FAO (13 6150) as soon as you have your 2009 tax records organised.  This is particularly important if you will be claiming the Education Tax Refund in your 2009 tax return as we are unable to assess or calculate your Education Tax Refund entitlement until you know whether you are eligible for the Family Tax Benefit Part A in respect of the 2009 income year.

You may be eligible for Family Tax Benefit Part A if you have:

• a dependent child aged under 21 in your care for at least 35% of the time, or
• a dependent full-time student aged 21-24 in your care for at least 35% of the time, and
• income under a certain amount.

You may not be eligible for Family Tax Benefit Part A if, for example, your child has a yearly income of $12,742 or more.

From July 1 2009, changes to the definition of "income" means that your assessable income for Centrelink and the Family Assistance Office will also include:

• reportable superannuation contributions, and
• total net losses from rental property or investment income.

Income limit at which Family Tax Benefit Part A is no longer paid

Family Tax Benefit Part A stops being paid when your family income is equal to or over the following income limits:

*Income limit is higher than stated if customer has three children aged 13-15.

For more information, call the FAO on 13 6150 or refer to the Centrelink website at:

www.centrelink.gov.au/internet/internet.nsf/payments/claims_options_ftb.htm

NSW Housing Construction Acceleration Plan (HCAP)

From 1 July 2009, the NSW Government has introduced a housing stimulus for people outside the first home buyer market, cutting stamp duty by 50 per cent for people buying newly constructed properties with a value not exceeding $600,000.  This could result in stamp duty savings of up to $11,245 (on a $600,000 property).

It applies to agreements for sale of a new home in NSW executed on or after 1 July 2009 and before 1 January 2010, or transfers of a new home with no prior contract first executed beween the same period.

There is no limit on the number of new homes a person may purchase under HCAP.

For more information refer to www.osr.nsw.gov.au/lib/doc/factsheets/fs_hcap1.pdf

Superannuation Obligations for Employers

You are considered an employer if you employ workers under a verbal or written employment contract on a full-time, part-time or casual basis.  You may also be considered an employer if you make payments to a worker under a contract.

If you are an employer, you need to understand and meet your superannuation guarantee obligations.

There are severe penalties for employers not meeting these obligations which include:

• Making super contributions for your eligible employees by the cut off dates each quarter (Note:  this is 28 July 2009 for the June 2009 quarter);
• Making at least the minimum 9% contributions amount of the earnings base (generally ordinary times earnings, from 1 July 2008 ordinary time earnings should always be used) for each eligible employee;
• Paying the superannuation guarantee charge to the Tax Office if you don't make the required super contributions by the due dates;
• Checking if any of your employees are eligible for a choice of super fund;
• Providing your eligible employees with a 'standard choice form';
• Passing on your employees' tax file numbers to their super fund;
• Paying super contributions for any eligible contractors;
• Keeping records of your super contribution payments and that you have offered your eligible employers choice of super fund.

Self Managed Superannuation Funds (SMSF) which own Real Estate

If you are the trustee of a SMSF which owns property, in June or July each year, you should get a written valuation, or at least a market appraisal, by a licenced real estate agent or valuer.  This valuation should then be kept with your Fund's records and provided to us with all other relevant information to prepare the annual financial statements and annual return of the Fund.

New First Home Saver Accounts

The new First Home Saver Account ('FHSA') is a special purpose savings account which has been available to eligible individuals since 1 October 2008 through certain financial institutions, such as banks, credit unions and building societies.

A FHSA provides eligible individuals with a simple and tax-effective way of saving for their first home.  This is achieved in the following two ways:

1. By providing tax concessions for FHSAs; and
2. By having the government match personal contributions made to the account (in a similar way to the superannuation co-contribution concession).

Who can qualify?

An individual can only open a FHSA where the following criteria are satisfied:

1. The individual is aged 18 or over and under the age of 65.
2. The individual has never owned a dwelling in Australia which has been their main residence.
3. Subject to certain exceptions, the individual has not previously opened a FHSA.
4. The individual quotes their tax file number and meets proof of identity requirements.

If an individual has only owned a dwelling which was only ever used as a rental property, they can still be eligible to  open a FHSA.

The Government's Co-Contribution

For a particular income year, the Government will make a contribution equal to 17% of an account holder's personal contributions made to a FHSA up to a maximum of $850.  This equates to a contribution of $5,000.

Failure to Lodge on Time Penalty

A Failure to Lodge ('FTL') Penalty is an ATO administrative penalty which may be applied where you are required to lodge a tax return, activity statement, notice or other document with the Tax Office by a particular date and fail to do so.  A FTL penalty is not tax-deductible.

Generally, the ATO will not apply FTL penalties unless they have warned you.  This warning may be made verbally or in writing and may have been issued to you in relation to a current document that is outstanding or a recent document that you lodged after its due date.

In most circumstances, a penalty will not be applied to late lodged Income Tax returns, fringe benefits tax returns, Annual GST returns or Activity Statements where the lodgement results in:

• a refund, or
• a nil result, i.e. neither a debt nor a refund.

However, where a FTL penalty has already been applied (because the document was not lodged) the fact that the subsequent lodgement of the document may result in a refund or nil result may not be sufficient reason for the penalty to be remitted.

The amount of FTL penalty is calculated at the rate of 1 penalty unit (currently valued at $110) for each period of 28 days, or part thereof, which a document is overdue up to a maximum of 5 penalty units.  Taxpayers classified as medium entities will have the penalty amount multiplied by a factor of 2 (i.e. $220 per unit) and entities classified as large by a factor of 5 (i.e. $550 per unit).

The ATO calculate the period of time the document is overdue from the day the document is due to the day before the document is received.  Therefore, the longer you take to lodge a document after the due date the higher the amount of penalty that may be applied.  The maximum amount of FTL penalty may be applied if the document is not lodged within 113 days of the lodgement due date or $550 for a small entity, $1,100 for a medium entity and $2,750 for a large entity per late lodged document.

The size of an entity (for penalty purposes) is related to its assessable income, withholder status or current annual turnover.  A medium entity is either a 'medium' withholder for pay as you go (PAYG) income tax withholding purposes, or has assessable income or current annual turnover of more than $1 million and less than $20 million.  A large entity is either r a 'large' withholder for PAYG income tax withholding purposes, or has assessable income or current annual turnover of $20 million or more.  A small entity is an entity that is neither a medium or large entity.

Occupations and Work-related Expense Claims to be targeted by ATO

The ATO have expressed concern over the increase in work-related expense claims between the 2007 and 2008 years.  Expense claims for cars, travel, uniform, laundry and self-education are expected to be targeted in 2008 and future year reviews or audits.

The ATO have also advised that its work-related expense audit program for the 2009 income year will particularly focus on claims made by the following occupations:

• Employee chefs;
• Employee nurses; and
• General and Specialist medical practitioners.

Please note this does not mean all other occupations will be free from the risk of an ATO audit or review.

Deductibility of Travel that is related to carrying Heavy or Bulky Equipment

Generally, travel between an employee's home and a place of employment or work is ordinarily private travel and, therefore, not deductible under  S.8-1.  However, travel between home and work will be accepted as deductible travel where the use of an employee's car can be attributed to the  transportation of an employee's heavy or bulky equipment.

Travel which involves the transportation of bulky or heavy equipment  will only be regarded as deductible travel where all of the following conditions are satisfied:

1. The employee is required to supply their own equipment for work purposes;
2. The equipment is required for the employee to carry out their duties on that particular day;
3. The equipment is "sufficiently bulky and/or heavy", so as to make it impractical to transport other than by use of the employee's own vehicle.
4. There is no reasonably secure storage area provided by the employer for the storage of the employee's equipment; and
5. The employer does not compensate the employee for any equipment that is stolen.

The ATO does not provide guidance on what is "sufficiently bulky and/or heavy" however; Australian Case Law suggests that  a weight of less than 20kg may be challenged by the ATO.

New Rules affecting Employees who receive Shares or Options under Employee Share Acquisition Schemes

For the 2009 income year, where an employee acquires shares or rights ("options") under an Employee Share Acquisition Schemes ('ESAS'), any discount given in respect of the acquisition is generally assessable (and taxed) to the individual in the income year in which the share or option is acquired.  This will generally affect employees who acquire shares or options for less than  their market value in respect of their employment.

Different taxing rules generally apply in respect of  "qualifying shares" or  "qualifying options" (refer to your employer or accountant if unsure).  In this case, an employee effectively has the choice of the following two concessions:

1. The employee can elect to be taxed on their discount in the year of acquisition by making an election under S.139E.  In this case, the first $1,000 of any assessable discount will be tax-free if certain conditions are satisfied ('up-front method'); or
2. The employee can defer the tax liability on their discount until a later time (until an event occurs, referred to as a 'cessation time'), for up to 10 years, by not making an election  ('deferral method').

For the period from 1 July 2008 to 30 June 2009 (2009 income year), where an employee chooses to pay tax on a discount for that year, they must generally now make their election in their tax return and separately disclose their taxable discount in the return.

If an employee fails to disclose a discount on their tax return for the acquisition year, by default, the employee's discount will be calculated and taxed under the 'deferral method'.  This places greater importance on the need to make the right choice.

As a general rule, an employee should consider making a S.139E election (ie. the 'up-front method') where the ESAS shares or options are expected to increase in value over the period they are held by an employee, and the 50% Capital Gains Tax discount is likely to apply on a subsequent disposal.

This is because, where an election is made, any increase in value of shares or options from the time of acquisition will be taxed under the CGT rules (and not as part of a fully assessable discount) with the potential benefit of a 50% reduction.

If the share or option value is expected to decrease, an employee should consider the 'deferral method', as this will generally result in a lower taxable discount.

These are quite complex rules so please do not hesitate to contact Eclipse Accounting Group if you believe that you may be affected.

Thought for the year
"Never look down on anyone unless you are helping them up" (Jesse Jackson)

Joke of the month
What did the cross eyed school teacher say to his disruptive children?
"I can't control my pupils."

If you would like to share any inspiring quotes or short, clean jokes please send them to Matt Bell at matthew@wscaccountants.com.au

An Important Message
While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.