140 Greenhill Road, Unley South Australia 5061 // T: +61 8 8373 5588 // F: +61 8 8373 5933 // E: kennedy@kennedy.com.au Tax Planning 2014/15 30 June 2014 Trust Distributiion Resolutions Tax Rates and Impact on Rate Changes PAYG Income Tax Instalments Small Business Asset Write Off Australian Residency Annual PAYG Withholding Reports Record Keeping Private Health Insurance Superannuation Mortgage Broker Services Kennedy & Co Foundation Update TAX PLANNING 2014/15 It s that time of the year once again as we close in on another end of financial year. This tax planning newsletter will highlight areas to concentrate on leading up to 30 June 2014 including superannuation contributions, discussions regarding the deferring of taxable income and accelerating deductions in light of the proposed budget deficit tax levy and other tax planning measures. We also take a look at record keeping requirements and in addition, the important area of Trust distribution minutes and the actions required before year end. Please do not hesitate to contact any of the directors or staff at Kennedy & Co so we can discuss your individual needs and make the tax season a lot less stressful for you. We hope you all have a successful end to the financial year. 30 JUNE 2014 TRUST DISTRIBUTION RESOLUTIONS All trustees of discretionary trusts who elect beneficiaries to be entitled to trust income by way of a resolution must do so by the end of the income year (being 30 June). This resolution will determine who is assessed on the trust s distributable income for income tax purposes. Trustees need to review their 2013/14 expected distributable income and determine which beneficiaries will be receiving a distribution from the trust and what portion of the trust s income each beneficiary will be presently entitled to by 30 June 2014. It is important to note that the tax free threshold for minors (including offsets) is only $416 so there is limited scope to include minors in distributions. The risks of including a minor in your trust distribution may outweigh the tax savings. Please contact Kennedy & Co should this be relevant to your circumstances.
TAX RATES Individuals As reported in our budget newsletter individual tax rates will remain unchanged for the year ending 30 June 2015 however a budget deficit levy of 2% will be added. Coupled with the increase in Medicare levy to cover the National Disability Insurance Scheme the top marginal tax rate will now be 49% as opposed to 46.5% for 2014. Companies As reported in our budget newsletter the corporate tax rate will reduce from 30% to 28.5% from 1 July 2014 for all companies with a taxable income of less than $5m. Companies with taxable income over $5m may pay an additional 1.5% on income over $5m, depending on whether the Paid Parental Leave Levy is passed, as it would only be introduced to fund this measure. FBT As reported in our budget newsletter, the FBT rate will increase from 47% to 49% from 1 April 2015, which is in line with the increase to the top marginal rate. Strategies for reducing your taxable income include: Consider postponing invoicing until after 30 June. Please note that the ATO will generally require you to pay tax on income that you have either received or become entitled to due to the completion of work; Capital Gains are determined by the date on which a contract is entered into. If you are considering selling shares or property you may wish to delay signing the contract until the new financial year; If you have a capital gain, it is worth considering realising the loss position on any capital assets. Maximise your deductions - this may include: A review of debtors and writing off any that are not recoverable; Making superannuation contributions, if you are under contributions limits and eligible to claim a deduction (see our section on superannuation); Review inventory and asset schedules for disposals, obsolete items and broken items; and Pay professional fees or other employment or business related deductions prior to 30 June. It is important to consider there may be reasons why you would not want to reduce your taxable income this year, but instead have the reduction in the following tax year. These may include having had low levels of income this year and therefore low or no tax will be applicable for the year and also the impact of the change in company tax rate (see below). 2 // KEN*NOTES // TAX PLANNING
IMPACT ON TAX RATE CHANGES Companies For companies, the decrease in the company tax rate can result if potential tax savings by deferring company income from the current financial year to the year ending 30 June 2016 financial year. For every $1,000 of income deferred to the 2015/16 financial year, the tax savings would be $15. The tax saving may ultimately be recovered at a shareholder level when a dividend is paid as there has been no corresponding decrease to the individual rates. Individuals The increase of the Temporary Budget Deficit Levy will see taxpayers in the top marginal bracket temporarily paying 49% as opposed to 46.5%. It may be prudent to consider not deferring income to the year ending 30 June 2015 and instead collecting it in this financial year to save the additional 2.5%. Tax planning may be beneficial in deferring income past the planned 3 year debt levy proposed timeframe. However the time value of money to the deferral of the income and the early payment of tax should be considered, as this exercise may eliminate any potential tax savings. Salary sacrifice It may also be prudent for taxpayers on the top marginal rate to consider salary sacrificing whilst the FBT rate is only 47%. The FBT rate increased to 49% from 1 April 2015 and the tax rate from 1 July 2014 giving nine month differential tax treatment. Please contact our office should you wish to discuss this further. Dividends The change in company tax rate will impact on the franking credits available to individuals when they receive a dividend. As such, there are potential tax savings in bringing forward the declaration and subsequent payment of dividends to shareholders. Set out below is an example of how paying an additional dividend in the 2013/14 financial year can save tax compared to if the same dividend was paid in the 2014/15 financial year: 2013/14 2014/15 2015/16 Dividend 70,000 70,000 71,500 Franking Credit 30,000 30,000 28,500 Taxable Income $100,000 $100,000 $100,000 Catch Up Tax 16,500 19,000 20,500 Net Cash position for Individual $53,500 $51,000 $51,000 It is important to consider the time value of money and the impact on your PAYG instalments in any decision to bring forward tax liabilities and deferring income. PAYG INCOME TAX INSTALMENTS If you make PAYG Instalments using the instalment amount method (as opposed to the rate method) you may have a substantial PAYG Instalment for the quarter ending 30 June 2014 which is due for payment on 28 July 2014. This can be caused by an increase in your income tax payable for the year ended 30 June 2013 compared to the year ended 30 June 2012. You may vary the amount of the PAYG instalment if you believe the instalments will be too high and will exceed your tax liability at the end of the year. Please contact any of the directors or staff at Kennedy & Co should you wish to discuss this further. 3 // KEN*NOTES // TAX PLANNING
SMALL BUSINESS IMMEDIATE ASSET WRITE OFF OF LOW VALUE ASSETS For the year ended 30 June 2013, small business could: immediately write off most depreciating assets costing less than $6,500 each; and claim an accelerated initial deduction for motor vehicles. At the moment there is uncertainty around what value small business will be able to claim an immediate write off for assets being purchased after 1 January 2014. The government has announced its intention to reduce the instant asset write-off threshold to $1,000 and remove the special depreciation rules for motor vehicles from 1 January 2014, but was unable to pass this legislation through the senate in March 2014. There was no update regarding the draft taxation legislation in the recent budget Under the proposed changes, depreciating assets that are first used or installed ready for use prior to 1 January 2014 would be subject to the $6,500 threshold. The $1,000 threshold would then apply to assets that are first used or installed ready for use from 1 January 2014. Depreciating assets costing $1,000 or more would be allocated to the small business entity's general small business pool and depreciated at a rate of 15% in the income year in which they are first used or installed ready for use, and then depreciated as part of that pool at an ongoing rate of 30% in later income years. Under the existing law, a small business entity can claim a special deduction for a motor vehicle in the income year in which the vehicle was first used or installed ready for use. That deduction is equal to the taxable purpose proportion of the first $5,000 value of the motor vehicle plus 15% of any additional value. The remaining value of the motor vehicle is then allocated to the small business entity's general small business pool and depreciated as part of that pool at an ongoing rate of 30% in later income years. Prior to 1 January 2014, these rules would only apply where the motor vehicle cost $6,500 or more (as motor vehicles that cost less than $6,500 would be written-off under the general instant asset write-off rule). It is proposed these concessions also be removed from 1 January 2014. The question remains whether the instant asset write-off and motor vehicle rule changes will still apply from 1 January 2014, if it happens to be passed by the incoming Senate sometime after 1 July 2014. The conservative approach is to assume the legislation will be passed and the immediate deduction for assets from 1 January 2014 will be limited to $1,000. If you are planning on acquiring a low value asset in the coming months it might be worth considering acquiring it before 30 June 2014 to take advantage of the 15% depreciation in this financial year and potentially be eligible to claim the whole amount outright if the legislation is not backdated. 4 // KEN*NOTES // TAX PLANNING
AUSTRALIAN RESIDENCY There has been several recent tax law cases regarding Australian tax residency status where individuals who thought they were non-resident individuals have been found to be Australian residents for tax purposes. Your residency status can have a significant effect on your taxable position and as such it is of high importance that your personal situation is considered and reassessed each year. The ATO generally considers you an Australian Resident for tax purposes if you have always lived in Australia, have lived in Australia for more than half of the income year in question or if you are an overseas student enrolled in a course with a longer than 6 month duration. In addition, for past Australian residents moving overseas residency status requires careful consideration. Simply being outside of Australia for 6 months does not in itself make you a non resident and several other tests need to be applied. In light of these cases it may be prudent to review your Australian tax residency status. Please contact any of the directors or staff at Kennedy & Co if you would like to discuss this matter further. ANNUAL PAYG WITHHOLDING REPORTS In the past annual PAYG reports have been lodged by Employers either by using CD s, disks or flash drives. The ATO now requires information reports to be lodged online for the year ending 30 June 2014. You will be able to use your existing AUSkey when lodging your annual reports online by: 1. lodging directly from your accounting or payroll software if it is Standard Business Reporting (SBR) enabled.; or 2. Using the file transfer facility on the ATO business portal. If you do not have an Auskey please contact our office to discuss alternate lodgment options. You will need to provide payment summaries to your employees by 14 July 2014.and send your payment summary annual report to the ATO by 14 August 2014. Please note most book keeping software packages require you to start a new payroll year before you run the first payroll of the new year. You will be required to update the new tax tables onto your payroll system before processing this first pay run. If you require any assistance with the lodgment of your PAYG reports please contact Kennedy & Co. RECORD KEEPING ESSENTIALS PRIOR TO 30 JUNE 2014 Now is the perfect time to start your motor vehicle logbook prior to 30 June 2014; If you use the logbook method for your vehicle please remember to record your vehicles closing kilometers at 30 June 2014; If you use a home office please start a diary of your home office usage prior to 30 June 2014 to enable us to claim a cents per hour deduction; Reminder you must keep your records for five years from the date you lodge your tax return; If you have any queries about substantiation or record keeping requirements please do not hesitate to contact any of the directors or staff at Kennedy & Co. 5 // KEN*NOTES // TAX PLANNING
PRIVATE HEALTH INSURANCE UPDATE Private health insurance continues to evolve and further complicate tax planning. To assist you with understanding all the consequences and highlight potential tax planning matters, we have summarised key components for the 2014 financial year. 2013/2014 Rebate Thresholds Since 1 April 2014 the private health insurance rebate is income tested and the rebate will be progressively reduced as your income level increases. Set out below is a table detailing the thresholds and rebate amounts: Singles Families <$88,000 <$176,000 $88,001-102,000 $176,001-204,000 $102,001-136,000 $204,001-272,000 >$136,001 >$272,001 Rebate Standard Tier 1 Tier 2 Tier 3 <Age 65 29.04% 19.36% 9.68% 0% Age 65-69 33.88% 24.20% 14.52% 0% Age 70 + 38.72% 29.04% 19.36% 0% If your income is above $88,001 (Single) or $176,001 (families) your private health insurance rebate will start to be reduced according to the above table. Please note the rebate receivable is adjusted based on the oldest person covered by private health cover policy. Potential benefit of prepaying your premium if your income will exceed the family limit next year but not this year It may be beneficial to pre pay your 2013/2014 private health insurance premium before 30 June 2014 to allow you to access the applicable government rebate if in the 2015 financial year, your taxable income will exceed a higher threshold. Private health cover to avoid Medicare Levy Surcharge If you and your dependants do not have an appropriate level of private health cover for the full year and your income is more than the relevant income threshold, a higher rate of Medicare Levy Surcharge may apply. The surcharge is calculated at the rate of 1% to 1.5% of your taxable income and is in addition to the Medicare Levy of 1.5% which is paid by most taxpayers. To avoid the Medicare Levy Surcharge for incomes over $88,001 (single) or $176,001 (Family), it may be beneficial to obtain private health insurance. Private health cover to stop lifetime limit increases. It may be beneficial to obtain private health insurance before 1 July if you are turning 31 years of age. You will be levied an additional 2% loading on top of your premium per year for every year you are aged over 30 and do not have private hospital cover. The maximum loading that can be applied is limited to 70% of your premium. To avoid paying the additional loading, taxpayers must ensure that they hold an appropriate level of private hospital cover. Should you have any queries with regards to private health insurance please do not hesitate to contact any of the directors or staff at Kennedy & Co. 6 // KEN*NOTES // TAX PLANNING
SUPERANNUATION SUPER GUARANTEE INCREASE Super Guarantee Increase The super guarantee rate has now increased to 9.5% effective from 1 July 2014 and will keep increasing at 0.5% per annum until it reaches 12% as set out in the table below: Year Commencing Current Rate Proposed Rate 1 July 2013 9.25% 9.25% 1 July 2014 9.50% 9.50% 1 July 2015 10.00% 9.50% We note that the federal government currently plans to freeze the rate at 9.50% for four years before resuming a 0.5% increase per year until it reaches 12%. SUPER CONTRIBUTIONS LIMITS Superannuation Contribution Limits For your information we have detailed in the below table the superannuation contribution thresholds for the years ending 30 June 2014 and 30 June 2015. Should you be unsure of what your limits are or wish to discuss strategies for maximising your superannuation contributions please do not hesitate to contact our office. Age Group Year Ending 30 June 2014 Concessional Contributions Non-Concessional Contributions Bring Forward Maximum 49 and Under $25,000 $150,000 $450,000 50 to 59 $25,000 $150,000 $450,000 60 to 64 $35,000 $150,000 $450,000 65 to 74 $35,000^ $150,000^ $0 Over 75 $35,000* Age Group Year Ending 30 June 2015 Concessional Contributions Non-Concessional Contributions Bring Forward Maximum 49 and Under $30,000 $180,000 $540,000 50 to 59 $35,000 $180,000 $540,000 60 to 64 $35,000 $180,000 $540,000 65 to 74 $35,000^ $180,000^ $0 Over 75 $35,000* *Once aged 75 or over the only contributions able to be accepted by a superannuation fund are employer mandated superannuation guarantee amounts. ^ When aged between 65 and 74 you must meet the work test in order to make any contribution. The work test requires that you are gainfully employed, that is, you must work for at least 40 hours during a consecutive 30-day period in the financial year. We note that unpaid work does not constitute being gainfully employed. 7 // KEN*NOTES // TAX PLANNING
SUPERANNUATION IS TRANSITION TO RETIREMENT AN OPTION TO CONSIDER? Is Transition to retirement an option to consider? For individuals who are currently between 55 and 60 years of age there exists the opportunity to begin a TRAP. A TRAP is generally where a member begins a pension while still working and contributes an additional amount of their earnings to superannuation such that their take home pay remains the same but their overall tax liability may be reduced. It is also designed to assist those scaling back working hours and to supplement their salaries. A tax saving may be generated because once a member account within the superannuation fund is switched from accumulation mode to pension mode there is no income tax payable on the earnings of the superannuation fund. However, bear in mind those members who are under 60 a proportion of the amount that you withdraw as a pension will be taxable individually. As everybody s circumstances are different and the tax savings (if any) will vary depending on a wide range of factors (such as the members balance, the makeup of that balance, your personal income tax rate etc.) we would recommend, should you wish to investigate the possibility of commencing a TRAP, that you contact any of the directors or staff at Kennedy & Co to discuss it further. MORTGAGE BROKING SERVICES When was the last time you reviewed your loans? With the end of the financial year just around the corner there is no better time to get your loans in order. Do you have residential or investment loans? If the answers is yes, then now is the perfect time to be reviewing them. Please contact Kennedy & Co now to make an appointment with our Mortgage Broker, Esteban Mesa. The consultation is complimentary and you may be missing out on savings! JARGON BOX MAKING SENSE OF YOUR ABC S IN BUSINESS ATO Australian Taxation Office CGT Capital Gains Tax FBT Fringe Benefit Tax PAYG Pay As You Go TRAP Transition to Retirement Pension 8 // KEN*NOTES // TAX PLANNING
140 Greenhill Road, Unley South Australia 5061 T: +61 8 8373 5588 // F: +61 8 8373 5933 // E: kennedy@kennedy.com.au KENNEDY & CO FOUNDATION UPDATE What an incredibly busy year the Kennedy & Co Foundation has had! I take this opportunity to thank all our clients, associates and supporters as we enter our fourth year of supporting families and making a difference to the community. In the past 12 months we have raised over $16,900 and donated more than $21,000 to organisations with a family focus. We also continue to provide pro bono accounting and auditing services to many Not for Profit organisations. In November 2013 we were delighted to host a special evening with renowned Artist Emma hack at her pop up gallery on King William Road. An intimate gathering was treated to Emma's amazing story and details behind her incredible art work. Emma generously donated 50% of the proceeds from sales that evening and we raised over $7,500. We thank Emma for generously donating her time and sharing with us her story. These funds were put towards Grant Applications we call for annually. In lieu of sending traditional Christmas Cards in 2013, our Foundation directed a $1,000 donation to KickStart for Kids to go towards their breakfast and lunch programs. During the past year we have also provided support the Hutt Street Centre, the Australian Paralympic Committee, the Australian Melanoma Research Foundation and the Peter Couche Foundation. We are delighted to announce that the Foundation has also established a partnership with the Childhood Cancer Association for the next two years. Kennedy & Co will be involved with providing accounting and consulting services and the Foundation will provide financial support, to be directed to the Super Important Brothers and Sisters (SIBS) program. In addition to this partnership we are also delighted to be supporting Families- 4Families, a Not For Profit organisation that was established by people with Acquired Brain Injury and their families and supporters. As with the Childhood Cancer Association, Kennedy & Co will provide assistance through accounting and audit services. In addition, Tara Adams of Kennedy & Co will join the Advisory Committee on a voluntary basis. As the end of the financial year approaches, if you are considering making a tax deductible donation, we welcome your donation to assist us with our endeavours to support families and give back to the community. Any donation above $2 will be tax deductible and we will provide you with the necessary receipt for income tax deduction purposes. If you would like any further details about our Foundation please do not hesitate to call me. Again, I thank all who have supported the Kennedy & Co Foundation. Without your support we would not be able to provide assistance, financially or otherwise to such important organisations. Antoinette Tatarelli CA Chairperson Kennedy & Co Foundation PLEASE NOTE This newsletter is for the general information and exclusive benefit of clients and associates of Kennedy & Co. It contains brief comments not intended to be the basis for decision making nor to be taken as a substitute for specific advice. Please contact Kennedy & Co to discuss any matters that may be relevant to your individual situation. 9 // KEN*NOTES // TAX PLANNING All Rights Reserved. E&OE Kennedy & Co 2014