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Proposed Changes to Tax Laws

The Government has introduced the Tax Laws Amendment (2009 Measures No 1) Bill into Parliament. The amendments include:

• providing reductions in PAYG instalment amounts;

• changing the reporting requirement for employees’ PAYG summaries; and

• changing the income tests for tax and social security programs.

PAYG instalment reduction

In addition to the 20% PAYG instalment reduction for small businesses for the December 2008 quarter, the Bill proposes to allow the tax regulations to reduce PAYG instalment amounts in certain circumstances.

PAYG summary reporting requirement

The Bill will ensure that reportable employer superannuation contributions (RESC) are reported on employees’ PAYG summaries.

Amendment of income tests

The Bill will amend the income tests used to determine an individual’s eligibility for tax programs and/or social security programs.

Reportable superannuation contributions, RESC, adjusted fringe benefits total and total net investment losses will be included in income tests, where appropriate.

The tax programs and social security programs that will be affected include:

• Medicare levy surcharge;

• senior Australians tax offset;

• Government superannuation co-contribution scheme;

• mature age worker tax offset;

• deductions for personal superannuation contributions;

• Commonwealth Seniors Health Card; and

• Family Tax Benefit Part A and Part B.

In broad terms, RESC include salary sacrifice amounts and superannuation contributions above the minimum prescribed support (currently 9%).

Broadly, reportable superannuation contributions consist of two components: personal superannuation contributions for which a tax deduction is available and RESC.

Ø  TIP: Total net investment losses will capture losses which arise from investment losses, margin loan arrangements and rental properties.

Ø  TIP: Individuals who currently sacrifice an amount of their salary into superannuation should
re-evaluate their eligibility for the government co-contribution payment.

FBT & the Victorian Bushfires Appeal

The Government has announced that it will amend the FBT legislation from the beginning of the 2008/09 FBT year (ie from 1 April 2008) to ensure that donations to the Victorian bushfires appeal made under salary sacrifice arrangements do not result in an employer incurring an FBT liability.

Potentially, an FBT liability arises because of the definition of an associate contained in the FBT legislation, which can deem unrelated third parties as an associate of an employee.

Ø  Donations collected through an employer’s Workplace Giving arrangements do not give rise to FBT liabilities because the donations are from employees’ post tax dollars.

Directors Beware

A recent decision handed down by the Federal Court ordered the Commissioner to refund payments made by a company when it was insolvent.

The Court also held that the directors of the company at the time of the payments were required to indemnify the Commissioner a percentage of the refund in respect of any loss resulting from the order.

Company directors should be aware of their obligations under the Corporations Act 2001. Where a company is insolvent and makes payments to the Commissioner, the company’s liquidator can apply to a court to have the payments refunded.

However, if the payments are prescribed tax payments contained in the Corporations Act (eg, PAYG withholding amounts), the directors of a company may be required to indemnify the Commissioner against any losses.

'Blackhole' Expenditures

In an Interpretative Decision, the Tax Office states that an entity cannot deduct the balance of any ‘blackhole’ expenses in the income years after the entity stops carrying on a business to which the expenditure relates.

The Tax Office says that this is because the entity will not exist for those income years.

Broadly, ‘blackhole’ expenses are expenditures incurred by a taxpayer when establishing, expanding or ceasing its business. For an expense to qualify as a ‘blackhole’ expense, it must not form part of the cost base of an asset, deductible under another provision of the tax laws and expressly made non-deductible.

The deductions for the expenses are spread over five years in equal proportions.