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Posts tagged with: Individual

What will change on 1 July 2015

Posted on December 12, 2018

For Business

P  Small business tax cut – 1.5% for companies and 5% tax discount for unincorporated small businesses under $2m (capped at $1,000)*
P  Employee share scheme rule changes to make the schemes more attractive particularly to start-ups (covered in our April update)*
P  ‘Fly in fly out’ and ‘drive in drive out’ (FIFO) workers will be excluded from the Zone Tax Offset (ZTO) where their normal residence is not within a ‘zone’*
P  Start-ups able to immediately deduct a range of professional expenses required to start up a business – such as professional, legal and accounting advice.*
P  The way work related deductions for car expenses are calculated will change. The ‘12% of original value method’ and the ‘one‑third of actual expenses method’ will be removed. The ‘cents per kilometre method’ will be modernised, replacing the three current engine size rates with one rate set at 66 cents per kilometre to apply for all cars.

Superannuation

P  The terminally ill will be able to access super earlier*
P  Employers with 20 employees or more must use SuperStream for employee contributions.

Individuals

P  Changes to family tax benefits – income test changes, add on child payment removed, and changes to large family supplement.

* announced change not yet law.

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Are you affected by the US Federal Tax Rules?

Posted on December 12, 2018

Do you know that all “US persons” are subject to US Federal Income Tax on their worldwide income and gains, regardless of their country of residency? This even includes US citizens who may have left the US many years ago (even as a child) to live overseas.

A US person living overseas may not have any income in US but is subject to US tax on their world wide income. This is quite different to the tax regimes of many other countries including Australia.

You would be deemed to be a US person for tax purpose in USA if you are a citizen, resident alien (meet the substantial presence test) or a Greencard holder.

Income tax is imposed on the net income and capital gains of the taxpayer, less deductions, credits and exemptions.

Complex rules apply for certain types of foreign income and anti-avoidance rules exist for certain foreign structures.

Some of the many rules affecting Australian residents that are US passport holders and their structures are listed below:

P  Graduated tax rates up to a maximum of 39.6% apply to Ordinary Income;

P  Comprehensive list of deductions are allowed against taxable income, subject to various limitations, include medical and dental expenses, mortgage interest expenses, real estate taxes paid, investment interest expenses, donations to US charities and tax preparation fees;

P  Foreign housing costs (includes rent but not mortgage costs) may also be deducted against foreign earned income up to city specific thresholds. For example, the threshold for Sydney is $32,782.

P  Income is categorised into baskets: US sources, foreign sources passive income, foreign sources general income and US sources income first taxable in a foreign country. Foreign tax paid may credit the US tax due on income in the same basket. Excess credits may be carried forward subject to timing issues;

P  There is a new tax of 3.8% on net investment income which applies where income exceeds $200,000 for single taxpayers or $250,000 for couples. Many Americans overseas are paying Federal tax for the first time in over a decade as a result of this;

P  Income generated from Passive Foreign Investment Companies (distribution of interest, dividends, rents, royalties and capital gains) is taxed as ordinary income and higher rates of tax and complex rules apply;

P  If you sell your main residence, the exclusion from tax is limited to $250,000 per taxpayer. Gain on the excess is taxable at up to 23.8%;

P  There is a potential for taxable currency gains on mortgage redemption where USD “repaid” is less than USD “borrowed” on conversion at drawdown and repayment;

P  Foreign bank account reports are made available to the US Government where aggregate maximum bank account balance exceeds $10,000 and heavy penalties for wilful non-filing apply if interest from foreign accounts is not included in the US tax return;

P  Special rules and reporting for non-US Trusts may surprise you unpleasantly with the requirements that the flow of income and capital gains are taxed in US on arising basis if you have a Foreign Grantor Trust with a US Grantor. It follows that US persons residing in Australia which are beneficiaries of Australian Family Trusts or contribute to Australian SMSF need to carefully examine their US tax obligations as they may not fall within the available exclusions. SMSFs may be deemed to be non-US trusts and the income allocated to a member who is a US citizen subject to tax in US.

P  It also may surprise you that gifts and estate distributions are not exempt from tax in the US.

  • Estate tax exemption at death is reduced by lifetime gifts. The combined exempt amount is $5,430,000 for 2015 year. A US couple therefore have a combined $10,860,000 exempt gift and estate tax threshold for 2015 year;
  • Lifetime gifts or estate distribution in excess of the exempt amount is subject to 40% tax;
  • Gifts of up to $14,000 annually (for 2015) to an unlimited number of donees are not taxable. This exemption provides a good estate tax planning strategy;
  • No spousal exemptions are available for assets passing to a non-US spouse;
  • Estate tax exemption for non-US citizens on US assets is limited to $60,000.

Due to the US tax regime and heavy penalties, many US citizens living abroad consider renunciation of their US citizenship via an act of expatriating. If this is on your mind, consider that covered expatriates are subject to an exit tax on expatriation. A covered expatriate would be a person with a average net income tax liability for the five years ending before the date of expatriation of $157,000 (for 2014 year), with a net worth of $2,000,000 or more on the date of expatriation and who has failed to comply with all federal tax obligations for the 5 preceding years (some exceptions apply).

All property of a covered expatriate is treated as sold on the day before the expatriation date at fair market value and the tax on the gross income in excess of $651,000 calculated on the balance determined by the character of the gain.

Special rules apply to Greencard holders if they wish to give up their lawful permanent residency of the US.

If you need to file a US tax return, don’t forget that the due date for filing of your 2014 tax return is 15th April 2015 (filing extension may be granted if you reside outside US).

(Source: Westleton Drake seminar presentation at Moore Stephens Sydney in February 2015)

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Can individuals get a better tax deal?

Posted on December 12, 2018

Individuals have fewer choices when it comes to minimising tax but there are still opportunities depending on your circumstances. Salary and wage earners will have limited flexibility over direction of their income. Salary packaging can provide some tax benefits. Beyond that however it will be more a matter of how you structure your other investments to optimise your tax outcome. This applies at both an income and capital gains level. The use of trust structures, appropriate negative gearing, and maximising the benefits of franking credits can all assist in reducing your tax exposure.

Business owners and the self-employed have greater flexibility over how they receive their income and you should take advantage of this. Smart tax planning causes income to fall in the right places and maximises the use of lower marginal tax rates.

All of this requires some focus and attention early in the process. Don’t wait until your tax liability is ‘hurting’ you. Take advice early and have a tax plan to ensure that your tax outcomes are as efficient as possible.

The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

(Courtesy of KnowledgeShop)

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From 1 July 2014 – recap

Posted on December 12, 2018

Here is a quick recap of changes from 1 July 2014:

Individuals

P   Temporary Budget Repair Levy.
Adds 2% to the tax rate for every dollar of a taxpayer’s annual taxable income over $180,000

P   Increase in the Medicare Levy from 1.5% to 2%

P   Superannuation Guarantee charge increases from 9.25% to 9.5%.

P   Aged care reforms introduce new assets tests for resident’s accommodation and care fees

P   PHI information for 2014 tax returns
Changes to the way the Private Health Insurance (PHI) rebate is calculated requires extra information from individuals for their 2013/14 tax returns, which should be included on their PHI annual statement. There will be two different rebate periods – one from 1 July 2013 to 31 March 2014 and the other from 1 April to 30 June 2014.

Business

P   New ATO tax tables
The ATO has released its new 2014/2015 tax rates, updated to reflect the increase in Medicare levy from 1.5 to 2% and the Temporary Budget Repair Levy for employees earning greater than $3,461 per week (i.e. $180,000 per year).

P   No TFN or ABN
If the employee has not provided a TFN or a supplier business has not provided their ABN, the employer should withhold 49% of any payment made.

P   Increase in the Superannuation Guarantee rate.
The SG rate will increase from 9.25% to 9.5% from 1 July 2014. The government has announced that it would slow the previously announced increases to 12%, (leaving the 9.5% SG rate in place until 30 June 2018) however no legislation regarding this has been introduced.

P   SuperStream
Employers can opt-in to use SuperStream from 1 July 2014. Large and medium employers must complete their implementation by no later than 30 June 2015. Smaller employers (19 or fewer employees) are not required to start using SuperStream until 1 July 2015, and must complete their implementation by no later than 30 June 2016.

P   Paper activity statements
From 1 July, once an activity statement is lodged electronically, the ATO will no longer issue paper activity statements.

P   Company loss carry-back repeal
The government has announced that it intends to repeal the carry back tax offset for the 2013/14 and later tax years. Legislation covering this has been reintroduced, but this is not yet law.

P   Simplified depreciation rules
The government also announced that it would repeal the provision allowing small businesses an accelerated initial deduction for motor vehicles. Legislation covering this has been reintroduced, but this is not yet law.

P   Living away from home allowance (LAFHA) transitional period ended on 30 June 2014
Now, the main condition to be satisfied is that the employee must have a normal place of residence in Australia that is maintained for their “personal use and enjoyment” (i.e. still available to them, not rented out) while they are living and working in another location. In most cases, LAFHAs will also be time limited to 12 months. Employees who qualified for the transitional rules will not be entitled to another 12 month period from 1 July 2014 unless there is a change in the job location. However, if the employee is working on a fly-in- fly-out or drive-in drive-out basis the LAFHA concessions are not subject to the 12 month limit.

SMSF

P   New SMSF trustee penalties
From 1 July 2014 the ATO has greater powers to enforce the superannuation rules by levying financial penalties directly on trustees.

P   Concessional contribution cap changes
From 1 July 2014, the concessional contribution cap for taxpayers up to the age of 50 is $30,000. And for those 50 and above, the cap is $35,000.

P   Non-concessional cap changes
The non-concessional contributions cap from 1 July 2014 is $180,000 (up from $150,000) or $540,000 over 3 years.

P   Insurance inside an SMSF
From 1 July 2014, new insurance policies within a SMSF must be consistent with the death, terminal illness, and permanent and temporary incapacity conditions of release in the Superannuation Industry (Supervision) Act.

(Courtesy of KnowledgeShop)

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