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Liability limited by a scheme approved under Professional Standards Legislation    Medicare Levy Surcharge Thresholds The Bill to increase the Medicare levy surcharge thresholds received enactment on 31 October 2008. The Bill in its final form increased the Medicare levy surcharge thresholds: ·      for individuals from $50,000 to $70,000; and ·      for families from $100,000 to $140,000. The new thresholds apply from 1 July 2008. Deductibility of Legal Expenses In a majority decision, the High Court has found that a former customs officer was entitled to a deduction for legal expenses incurred in defending charges brought against him by his former employer. The Court said that the deductibility of an expense did not require a direct connection with the income producing activity. Rather, the connection could be direct or indirect, provided the connection was not too remote. The Court also said that the deductibility of an expense should take into consideration the employment duties imposed on the taxpayer which arose from his occupation. GST and Cancellation Fees The Tax Office has released a Draft GST Ruling in which it states the Commissioner’s preliminary view on the GST consequences when an entity receives a cancellation fee that arises from a customer cancelling an arrangement (e.g. hotel accommodation and appointment for medical services). The Draft says that, generally, cancellation fees relate to the provision of a supply by an entity. It also says that where consideration is provided for the supply, the GST consequences should be considered. However, the Draft notes that the GST characteristic of a (cancelled) supply, is not necessarily determined by the GST status of the intended supply. Refunds for Indirect Taxes The Tax Office has also released a Draft Miscellaneous Taxation Ruling in which it sets out the requirements for a notification to be valid when advising the Commissioner of an entitlement to a refund for indirect taxes (e.g. GST and fuel tax). The Draft states that a notification must: ·      be in writing; ·      bring the entitlement to the Commissioner’s attention; ·      identify the entitlement; ·      identify the tax period; and ·      assert the entitlement. Generally, a four year time limit for entitlements to refunds for indirect taxes applies. Allowances and Foreign Earnings In a recently released ATO ID, the Tax Office states that allowances received by an Australian resident taxpayer to cover various expenses related to the taxpayer’s employment in a foreign country were partially assessable income. The Tax Office says that if allowances related to amounts paid to cover expenditure incurred by a taxpayer prior to engaging in, and after the completion of, foreign service, the allowances are assessable income. Foreign earnings derived by an Australian resident taxpayer engaged in service in a foreign country for a continuous period of not fewer than 91 days are exempted from tax, subject to certain exceptions. Abolishing Trust Cloning The Government has announced that it will remove the ‘trust cloning’ exception which disregards any capital gains arising when a taxpayer: ·      creates a trust over a CGT asset by declaration or settlement; or ·      transfers a CGT asset to an existing trust. The exception, generally, applies when the new trust and old trust have the same terms and beneficiaries. Trust cloning is a common practice used for succession planning and asset protection purposes. Superannuation Guarantee The Tax Office has released a Draft Superannuation Guarantee Ruling in which it states the Commissioner’s preliminary view on whether payments to employees are ordinary time earnings (OTE) and/or ‘salary or wages’. Since 1 July 2008, employers are required to use OTE in calculating the superannuation guarantee (SG) for their employees. If employers provide less than the required SG or pay the SG late, they will be liable to pay a non- deductible SG charge which is calculated using salary or wages. While the Draft has not significantly departed from the Commissioner’s established view, his view relating to certain payments appears to have changed. The Draft states that Christmas bonuses do not form part of salary or wages. However, the Commissioner currently considers these bonuses to be included in salary or wages. The Draft also states that maternity leave and jury duty leave payments are OTE. Currently, the Commissioner considers that these leave pay-ments do not form part of OTE. SMSFs and In-house Asset The Tax Office has also released a Draft SMSF Ruling in which it explains the Commissioner’s preliminary view on the core concepts in the definition of ‘in-house asset’. The core concepts are ‘asset’, ‘loans’, investment in’, ‘lease’ and ‘lease arrangement’. Broadly, the in-house asset rules prevent SMSFs from lending money to or investing in assets held by its members. Contravention of the rules may result in an SMSF becoming non-compliant. Trustee of SMSF Charged In a media release, ASIC said that a trustee of an SMSF has been charged for breaching the sole purpose test as required by the superannuation legislation. This is the second case that ASIC has brought against trustees of SMSFs. Broadly, the sole purpose test requires a trustee to ensure that an SMSF is maintained for the provision of benefits upon a member’s retirement or the member attaining 65 years of age. Ø      TIP: A trustee who contravenes the sole purpose test may be liable for a civil penalty which attracts a fine of $220,000 and/or five years imprisonment. Social Security Payments Deeming rates for income test From 17 November 2008, the social security income test deeming rates have been lowered to take account of deceased returns on financial investments. The new deeming rate is 3% for the first $41,000 of a single person’s financial investments ($68,200 for a couple). For financial investments over the threshold, the rate is 5%. Payments affected by the new rates include the Age Pension, Disability Support Pension and Department of Veterans’ Affairs payments. Lump sum payments The Government’s Economic Security Strategy will provide a one-off lump sum payment of $1,400 for singles and $2,100 for couples combined, which will be paid during the fortnight commencing 8 December 2008. Eligible recipients include those receiving an Age Pension and holders of a Commonwealth Seniors Health Card.

Budget Overview 2007/2008 Personal Taxation Income tax rates The Government has reaffirmed its commitment to cutting personal income tax rates. The tax rates and thresholds for the 2008/09 and 2009/10 income years are as follows: 2007/08 Current Income ($) Rate (%) 6,001–30,000 15 30,001–75,000 30 75,001–150,000 40 150,001+ 45   2008/09 From 1 July 2008 Income ($) Rate (%) 6,001–34,000 15 34,001–80,000 30 80,001–180,000 40 180,001+ 45   2009/10 From 1 July 2009 Income ($) Rate (%) 6,001–35,000 15 35,001–80,000 30 80,001–180,000 38 180,001+ 45 Medicare levy low income threshold From the 2007/08 income year, the Medicare levy low income thresholds have increased, as follows:     2006/07 income year ($) 2007/08 income year ($) Singles 16,740 17,309 Families 28,247 29,207 Threshold increment for each dependent child or student 2,594 2,682 Pensioners below Age Pension age 21,637 22,922 Medicare levy surcharge The Government has announced that the 1% Medicare levy surcharge for singles will increase from $50,000 to $100,000, and for families, from $100,000 to $150,000, with effect from 1 July 2008. Employee share schemes Election required The Government has announced that a taxpayer will be required to make an election to access the tax concessions available when receiving qualifying shares or rights under an employee share scheme. No further details were provided. Removal of double taxation The Government has announced that it will remove double taxation that arises in relation to certain employee share schemes (ESS) that use employee share trusts. Entrepreneurs’ tax offset The Government will introduce a family income test for the entrepreneurs’ tax offset. The test will limit access to the offset by restricting eligibility when the adjusted taxable income (ATI) per year exceeds the amounts given below: Taxpayer Maximum ATI ($) Date of effect Singles 75,000 1 July 2008 Families 120,000 1 July 2008 Income test for benefits The Government has announced that it will introduce an income test for the following benefits: Offset Maximum income threshold ($) Date of effect Dependent spouse 150,000 1 July 2008 Housekeeper 150,000 1 July 2008 Child-housekeeper 150,000 1 July 2008 Invalid relative 150,000 1 July 2008 Parent/parent-in-law offset 150,000 1 July 2008 Family Tax Benefit Part B From 1 July 2008, FTB Part B will only be available to families where the annual adjusted taxable income of the principal earner does not exceed $150,000. Furthermore, FTB will only be delivered through Centrelink and Medicare, thereby removing claims through the tax system. Child Care Tax Rebate The Government has confirmed that the Child Care Tax Rebate will increase from 30% to 50%. The cap on the amount that can be paid will be lifted from $4,354 to $7,500 per child. In addition, the rebate will be paid quarterly.   Education Tax Refund The Government has confirmed it will provide eligible parents with an Education Tax Refund from 1 July 2008. Baby Bonus From 1 July 2008, the Baby Bonus will be increased to $5,000. In addition, from 1 January 2009, the Baby Bonus will be paid in fortnightly instalments and will only be available where family income does not exceed $150,000 a year. Measures for carers The following measures to support carers were announced in the 2008/09 Federal Budget: ·         Carer Allowance recipients will receive a $600 tax-free bonus for each eligible care receiver; ·         Recipients of Carer Payments and Department of Veterans’ Affairs Carer Service Pensions will each receive $1,000 tax-free. Carer Allowance recipients who receive a Wife Pension or the Department of Veterans’ Affairs Partner Service Pensions will also receive $1,000; ·         Eligible carers looking after children with a profound disability will have fairer and simpler access to financial support of up to $546.80 per fortnight; and ·         Disabled children whose ageing parents can no longer care for them at home will be provided with additional supported accommodation. Bonus payments are expected to be automatically made before the end of June 2008. Those receiving both payments on 13 May 2008 will receive both lump sum payments. Expanded definition of income Income eligibility for Government support programs, including the Age Pension and superannuation co-contributions, will include certain “salary sacrificed” contributions to superannuation, effective from 1 July 2009. Net financial investment losses and net rental property losses will be included in determining the eligibility for certain government support programs, including senior Australians tax offset, Medicare levy surcharge and dependency tax offsets, effective from 1 July 2009. From 1 July 2009, reportable fringe benefits will be included when determining the eligibility for certain tax offsets, including dependency tax offsets, senior Australians tax offsets and pensioner tax offsets. Business Taxation Luxury car tax The Government has announced that the Luxury Car Tax (LCT) will increase from 25% to 33% with effect from 1 July 2008. However, the Government has stated that the luxury car limit will remain at $57,123. FBT Jointly held investment assets The Government has announced that the FBT law will be amended to ensure it applies appropriately where an employer provides an employee and their associate with a fringe benefit in relation to a jointly held investment asset The measure will take effect from 7.30 pm (AEST) on 13 May 2008 with respect to new arrangements. Work-related items The government has announced that the FBT exemption for work-related items will only apply if the items are used primarily for work purposes and be limited to one item of each type per employee per FBT year, unless they are replacement items. The list of FBT-exempt work-related items will be extended to all work-related portable electronic devices, including those with multiple functions. The government has also announced that the tax law will be amended to disallow employees from claiming depreciation for the work-related percentage of FBT-exempt items. The changes to the FBT exemption for work-related items will apply to items purchased after 7.30 pm (AEST) on 13 May 2008. The changes that disallow depreciation for FBT-exempt items will take effect as follows: ·         for items purchased after 7.30 pm (AEST) on 13 May 2008, this measure will take effect from that time; ·         for items purchased before 7.30 pm (AEST) on 13 May 2008, employees will be denied depreciation for the 2008-09 and later income years. Superannuation The 2008/09 Federal Budget did not announce any substantive changes concerning superannuation. There are no changes to the current superannuation regime. Other Budget Measures Family trusts The Government has confirmed that the following changes to family trusts, which were introduced by the previous Government, will be rolled back to revert to the following situations: ·         the definition of “family” in the family trust election rules will be changed to limit lineal descendants to children or grandchildren of the test individual or of the test individual’s spouse. This will take effect from 1 July 2008; and ·         family trusts will be precluded from making a once-off variation to the test individual specified in a family trust election. This will take effect from the 2007/08 income year.

Important: This is not advice. Clients should not act solely on the basis of the material contained in this Bulletin. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Bulletin is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.