Hanrick Curran 2013 Post-Budget Presentation (May 2013)

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A presentation by my colleagues regarding the Australian Commonwealth Federal Budget for 2013/2014. Includes tips on personal and business tax and superannuation issues. Also includes some tax planning tips from Jamie Towers and Chris Campbell.

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Hanrick Curran 2013 Post-Budget Presentation (May 2013)

  1. 1. 2011-2012 Budget Update 12 May 20112013 Post Budget, Pre Financial Year EndClient Update30 May 2013 Jamie Towers & Chris Campbell
  2. 2.  Mobile Phones – please turn off or to silent Bathroom – far side of reception Lucky Door Prize – Bottle of wine – business card drawHouse Keeping
  3. 3. VisionHanrick Curran is renowned across Queensland for delivering innovative solutions togrow and protect the wealth of our SME, Corporate and Personal clients byempowering our skilled creative professionals to deliver comprehensive expert advice.Audacious Goal1. Be No. 1 in Service and Quality to our Clients2. Be the No. 1 Place to Work3. Be No. 1 in our Chosen Markets4. Achieve Top Quartile Financial ResultsEach of you play a very important part in our journey to reach our Vision by 2018 We need and value your feedback We‟ve built the practice on client and associate referrals, please keep this up!
  4. 4. Budget Snapshot 2012 – 2013 – forecast surplus - $1.5 Billion (now $19.4 Billion deficit) 2013 – 2014 – forecast deficit - $18 Billion 2015 – 2016 – balanced budget 2016 – 2017 – surplus Large spending cuts required Tax Cuts planned for 2015-16 now deferred indefinitely
  5. 5. Key Policy Measures Gonski Education Reform National Disability Insurance Scheme Tax Cuts Deferred International Tax Reform Funding ATO to keep everyone honest
  6. 6. Key Opposition Policy Measures Abolish Carbon Tax (but retain personal income tax levels) Abolish Mining Tax Cut Red Tape Delay increase in superannuation rate by 2 years May not oppose any of the Budget „savings‟
  7. 7. What’s in it for me? Individuals & Families Baby Bonus Scrapped from 1 March 2014 – replaced with $2,000additional Family Tax Benefit Part A payment ($1,000 for subsequentchildren) Up front Discounts on HECS/HELP debts scrapped (1 January 2014) Medicare Levy Increase to 2% to fund Disability Insurance Scheme Tax Rate Cut Deferred Indefinitely
  8. 8. Individuals & Families – Tax Rate Cuts DeferredIndefinitely (until Carbon price gets above $25)2012/13 2015/16 2015/16 (previous)Tax Thresholds Threshold Rate Threshold Rate Threshold Rate1 18,201 19% 18,201 19% 19,401 19%2 37,001 32.5% 37,001 33% 37,001 33%3 80,001 37% 80,001 37% 80,001 37%4 180,001 45% 180,001 45% 180,001 45%
  9. 9. Individuals - Non-Resident Tax Rates2012/13 2015/16 2015/16 (previous)Tax Thresholds Threshold Rate Threshold Rate Threshold Rate1 0 32.5% 0 33% 0 33%2 37,001 30% 80,001 37% 80,001 37%3 80,001 37% 180,001 45% 180,001 45%4 180,001 45%
  10. 10. Individuals – Net Medical Expenses Tax Offsetto be phased out – Use it of Lose it! Currently can claim 20% of excess over $5,000 of out of pocketmedical expenses Only eligible to claim it in 2014 year if you claim it in 2013 year If considering a procedure and 2013 expenses are currently below$5,000 – bring the procedure forward (or at least pay for it) by 30June 2013 to get over the limit and keep your eligibility open forfuture years. Will be phased out altogether by 2019
  11. 11. Individuals – Self Education Expenses Capped at $2,000 Currently Self Education Expenses are uncapped Proposal to Cap expenses at $2,000 from 1 July 2014 If paid by employer and not „salary sacrificed‟ the rules will not apply Remuneration Planning – Employers Offer to pay for education for allkey employees as a „standard‟ benefit (not salary sacrificed) (AskAvaillio for Assistance to redesign remuneration policy) Subject to consultation
  12. 12. BUSINESS
  13. 13. Research & Development – R & D Tax Offset R & D Tax Incentive removed for Businesses with turnover > $20Billion Turnover < $20 Million still able to claim refundable tax offset From 1 January 2014 – can claim the refundable tax offset on aquarterly basis Lodge 2013 return and R & D Tax offset early to ensureimmediate availability of quarterly offsets in 2014 year
  14. 14.  Large Companies (>$1 Billion turnover) will pay PAYG (company tax)instalments monthly from 1 January 2014 Will apply to all entities with >$20 Million turnover from 1 January2016. Small Business (Currently unaffected)Monthly PAYG Instalments
  15. 15. Mining Exploration Deduction Tightened Currently an immediate deduction for exploration expenses and costof obtaining mining rights and information Will be restricted to only Mining Rights and Information acquired fromGovernments and those costs incurred directly Mining Rights and Information acquired second hand (eg acquiring atenement) will be deductible over the lesser of 15 years or life of theasset
  16. 16. Trusts ATO given a further $67.9 Million to target trusts to pick up anadditional $379 Million in revenue (Good investment?) Tax avoidance through mischaracterising and concealing incomePlan 2013 trust distribution resolutions before 30 June to ensurethey legally and effectively distribute income to achieve familygoals
  17. 17. International Measures Thin Capitalisation – „safe harbour‟ debt level reduced from 3:1 to1.5:1, BUT an exemption is allowed for debt deductions of less than$2 Million pa (increased from $250,000) 10% withholding tax for non-residents disposing of taxable Australianassets (excludes residential real estate of < $2.5 Million) Further review into offshore profit shifting – waiting on OECD report
  18. 18. Charities Removal of Tax Concessions for „commercial activities‟ of charitieswhere funds not directed back to altruistic purposes – delayed byanother 2 years New proposed start date 1 July 2014 Proposed small scale exemption of $250,000
  19. 19. SMALL BUSINESS Not many changes from last year Small Business = <$2 Million turnover Can claim 100% of assets costing $6,500 as an immediate deduction(from 1 July 2012) Can claim the first $5,000 of the cost of a car as an immediate taxdeduction with the balance written off in a depreciation pool at 30%(15% first year) (Consider financing costs – Chattel Mortgage vLease)Tax Planning Initiatives for Financial Year End 2013
  20. 20. SMALL BUSINESS Consider pre-paying expenses to claim the expense this year (noteffective for larger businesses) If selling a business / key business asset, speak to us first to accessthe small business CGT concessions to minimise taxTax Planning Initiatives for Financial Year End 2013
  21. 21. ALL BUSINESS Loss Carry Back Rules Not yet law but supposed to apply from 1 July 2012 If business profit and paid tax in 2012 year but loss in 2013 – carryback the loss and amend 2012 tax return to receive a refund Deferring income / bringing forward expenses may have an evengreater effect on cashflowTax Planning Initiatives for Financial Year End 2013
  22. 22. ALL BUSINESS Defer income until after 30 June Bring forward expenditure (subject to prepayment rules) Ensure employee superannuation is paid before 30 June to getdeduction this yearTax Planning Initiatives for Financial Year End 2013
  23. 23. ALL BUSINESS Review asset registers and scrap / write off old assets no longer used Review stock and write down / off obsolete stock Can value individual items of stock differently Review Debtors and write off Bad Debts before 30 June (reducesincome and claim GST back)Tax Planning Initiatives for Financial Year End 2013
  24. 24. ALL BUSINESS Division 7A – Deemed Dividend Rules Ensure interest has been paid and minimum repayments made toavoid a deemed dividend. Consider paying an actual dividend to make the repaymentTax Planning Initiatives for Financial Year End 2013
  25. 25. ALL BUSINESS R & D Tax Offset Contact us early to have the 2013 claim prepared Quarterly Credits commence 1 January 2014Tax Planning Initiatives for Financial Year End 2013
  26. 26. INDIVIDUALS & FAMILIES Prepay Interest on your investment loans Maximise Super Contributions Salary Sacrifice June salary (must organise this before you „earn‟the salary, or it will not be effective) Spouse Contribution Co-ContributionTax Planning Initiatives for Financial Year End 2013
  27. 27. INDIVIDUALS & FAMILIES – Employee Share Schemes If receive employee shares or options – nearly always result in a taxliability in the year the taxing point arises Adjust salary withholding to reduce the cash flow impact Consider tax effective investments (incl prepaying interest) to defer thetaxing pointTax Planning Initiatives for Financial Year End 2013
  28. 28. INDIVIDUALS & FAMILIES – Capital Gains Review Share / Investment Portfolio and consider selling any shareswith underlying capital losses to offset gains made earlier in the year Speak to a broker or other licensed adviser to review strategiesTax Planning Initiatives for Financial Year End 2013
  29. 29. INDIVIDUALS & FAMILIES - Trusts Review family income to end of May and likely income in June toformulate a trust distribution strategy to minimise family income Consider commercial / asset protection and other issues (not just tax)when resolving who to distribute to Ensure the trustee resolution is in accordance with trust deed and iseffective from a tax perspective (should be recorded in writing by 30June in some instances to be effective) – Hanrick Curran can assistTax Planning Initiatives for Financial Year End 2013
  30. 30. INDIVIDUALS & FAMILIES – Medical Expenses Consider bringing forward planned procedures to ensure your 2013tax offset can be claimed ($5,000 minimum out of pocket) If no claim in 2013 – no further claims (Use it or Lose it)Tax Planning Initiatives for Financial Year End 2013
  31. 31. Superannuation Update: Impact of Federal Budget 2013/ 2014 changes Other recent changes & announcements Financial year end tips & traps
  32. 32.  Superannuation policy changes were announced on Friday 5April 2013 by Minister for Superannuation, Bill Shorten No Superannuation changes in Federal Budget 2013/2014! Released early due to damaging press speculation about super changes Some measures are “effective” from 5 April 2013
  33. 33. Concessional Super Contribution Caps (tax deductible) Proposal to increase concessional cap to $50,000 over age 50 if < $500K in super Increase to concessional cap to $35,000 over 2 years:* You need to be at least 59 as at 30 June 2013Federal opposition, if elected: Committed to eventually restoring $100,000 concessional cap from age 50(subject to “affordability” i.e. inherited state of Federal finances)Opposition SenatorMathias Cormann“The Terminator”
  34. 34. Reform to Excess Contributions Tax LawsBudget proposal: Allow withdrawal of excess concessional contributions; & Tax at the individuals marginal personal tax rate (instead of a flat 46.5%)Current rules for Excess Contributions Tax (ECT) Exceed concessional contribution cap: 15% + additional 31.5% = 46.5% Exceed non-concessional contribution cap: 46.5% Exceed both caps: 15% + 31.5% + 46.5% = 93.0% Only current relief is : One time only allowance for excess contributions up to$10,000 No mention of reform on taxation of excess concessional non-concessional“undeducted”contributions. i.e. Private savings (which you have already paid taxon) contributed to super in excess of $150K or $450K over 3 years if under age65, is taxed at 46.5% as a deterrent. 99.999% of all such excess contributions are “genuine mistakes” however theATO will not accept that argument or allow rectification of mistakes. Beware!
  35. 35. No tax on investment earnings of pension fund assets! Tax free interest Tax free capital gains Tax free dividends & franking credits refunded (30%company tax – nil super tax = 30% tax refund) No limit on tax free earnings & capital gains!Superannuation PensionsCurrent Taxation of Pension Funds:Income stream (pension)Pension: Age 60+: Tax freeAge 55 to 59: 15% tax rebate **based on individual circumstancesSuperannuation fundinvestment earnings: Interest, rentdividends on sharesrealised capital gains
  36. 36. Superannuation PensionsCurrent Taxation of Pension Funds::Income stream (pension)Pension: Age 60+: Tax freeAge 55 to 59: 15% tax rebate **based on individual circumstancesNo tax on investment earnings of pension fund assets! Tax free interest Tax free capital gains Tax free dividends & franking credits refunded (30%company tax – nil super tax = 30% tax refund) No limit on tax free earnings & capital gains!Superannuation fundinvestment earnings: Interest, rentdividends on sharesrealised capital gains
  37. 37. Income stream (pension)Pension: Age 60+: Tax freeAge 55 to 59: 15% tax rebate **based on individual circumstancesSuperannuation fundinvestment earnings: Interest, rentdividends on sharesrealised capital gainsProposed changes to tax exemption on pension fund earnings: Only the first $100,000 of investment earnings of a super fund permember will be tax free Remainder of fund earnings taxed at 15% (10% capital gains > 1 year held) Proposed date: 1 July 2014Proposed Taxation of Pension Funds
  38. 38. Capital Gains Tax relief:For Super Fund assets purchased prior to 5 April 2013Can sell tax free up to 1 July 2024, thenGain that accrues from 1 July 2024 until sold is includedFor Super Fund assets purchased from 5 April 2013,Can sell tax free up to 1 July 2014, thenGain that accrues from 1 July 2014 until sold is includedFor Super Fund assets purchased from 1 July 2014,Gain that accrues from 1 July 2014 until sold is includedDetails of proposed changeEach member‟s pension super balance must earn over $100K (excluding contributions)before any tax is payableGovernment’s simplistic example:Pension SMSF: Dad $1M + Mum $1M = $2M @ 5% earnings = $100K so all tax freeHowever, what about a large capital gain realised? e.g. on:Real estate such as your business premises in an SMSF; orListed shares, managed funds & other investmentsTransitional rules i.e. “grandfathering” of exemption on capital gains. Some realisedcapital gains may be included in $100K per member fund earnings threshold.Proposed Taxation of Pension Funds
  39. 39. “Clever” strategies will no doubt emerge (depends on legislation as not seen yet)Fund investments: “Segregated” investments are permitted for each member (costly to administer) Periodically selling listed shares that are accruing capital gains, before they gettoo large then re-buying those shares? ATO says may be tax avoidanceMember balances:In SMSFs one spouse often has more benefits that the otherRe-allocation of “minimum benefits” is not permitted within a fund Spouse contribution splitting (up to 85% of concessional contributions) Withdrawal of lump sum & non-concessional re-contribution in spouses name Must have access to large withdrawals e.g. retired & eligible to re- contribute?? Multiple Super Funds paying pensions?The Upside?If net capital gains realised added to other fund investment income is less than$100k earnings share per member threshold, all will still be tax free.Even if threshold is exceeded, the excess of earnings to be taxed are taxed at15% & 10% for capital gains (realised after 12 months)These tax rates are the same as your current “accumulating” superannuation fund.Accumulation fund tax rates are still generally superior to tax rates for:Personal investingUse of trusts or companiesProposed Taxation of Pension Funds
  40. 40. From 1 July 2012:30% tax on Concessional Contribution for individuals with “income” over $300,000“expanded” definition of notional income to include: Gross “assessable” income + concessional superannuation contributions + Reportable fringe benefits Reportable Super Contributions (salary sacrifice) Add back investment losses15% tax only applies to the amount of contributions that take notional income over $300,000Concessional Contribution Caps: Taxed at 15% in receiving superannuation fund(instead of up to 46.5% personally) e.g. 46.5% - 15% = 31.5% tax saving) Taxed at 30% in receiving superannuation fund(46.5% - 30% = 16.5% tax saving)Legislation still not tabled but is still to be effective for year ending 30 June 2013
  41. 41. Example 2012/2013:Salary: $275,000Fringe benefits: $10,000Compulsory super (9%): $16,000Salary sacrifice super: $9,000Total super contrib: $25,000Notional assessable income: $310,000Contributions tax:Notional income: $310,000Income threshold: $300,000Excess over threshold: $10,000Tax on contributions:$25,000 @ 15% = $3,750$10,000 @ 15% = $1,500Total $5,250Effective tax rate = $5,250/ 25,000 = 21% (46.5% - 21% = 25.5%)
  42. 42. Superannuation Update: Financial year end tips & traps
  43. 43. Things to do by 30 June 2013
  44. 44. Super Contribution Tax DeductionsRules for Excess Contributions Tax (ECT) Exceed concessional contribution cap: 15% + additional 31.5% = 46.5% Exceed non-concessional contribution cap: 46.5% Exceed both caps: 15% + 31.5% + 46.5% = 93.0% One time only allowance for excess contributions up to $10,000More than one source of income & super contributions? Contribution cap is are your personal limit from all sources Deductible limits do not apply to employers Up to taxpayer (not employer) to ensure Contribution Cap is notexceeded
  45. 45. Super Contribution Tax DeductionsATO Tax Ruling TR 2010/1:When is a super contributionconsidered to have been made? Cheque?When the cheque is “in the hands of the trustee of the super fund”. Even ifnot banked e.g. by 30 June, is still “made” unless cheque is subsequentlydishonored. However, Commissioner says in TR 2010/1 if cheque dated onor before 30 June in an income year, must be banked within a few businessdays”) Electronic funds transfer?Only when credited to receiving fund’s bank a/c, NOT when transferredfrom the contributors account. Beware internet transfers between differentbanks which may be next “working” day Transfer of Assets?“Made” when legal or beneficial ownership passes to the superannuation fund.e.g. shares, when fund receives off- market transfer form, not on later processing at share registrye.g. real estate, only when the fund is registered at the owner (titles registration)
  46. 46. “Off-Market” transfers of listed sharesContribution to SMSF by “off-market transfer of listed shares Timing“Made” when legal or beneficial ownership passes to the SMSF i.e. when fund receives off-market transferform, not on later processing at share registry Transfer at arms-length market valueASX price on the day of transfer Are you realizing a personal capital gain that will be taxable?Off-market transfer of listed shares is a “disposal” by you for capital gains tax purposesSMSFs no longerpermitted to acquire listedshares via “off-market”transfer from a relatedparty from 1 July 2013
  47. 47. Things to do by 30 June 2013Increase of compulsory Superannuation GuaranteeContribution rate from 9% to 12% by 1 July 2019 From 1 July 2013 increase SGC to 9.25% of anemployee’s ordinary time earnings For salaried employees, consider “salary packaging” anyincreases?Example:Cash salary: $80,000+ SGC 9% $7,200Total salary package $87,20001/07/13 Pay increase: $3,000Cash salary: $82,563+ SGC 9.25% $7,637$90,200cash salary increase $2,563super increase $437Total spend $3,00001/07/13 Pay increase: $3,000Cash salary: $83,000+ SGC 9.25% $7,637$90,637cash salary increase $3,000super increase $437Total spend $3,437Salaried director ofyour own business?Quarterly SGC appliesto you, no exemption!
  48. 48. Drawing a retirement pension or transition to retirement pension fromyour SMSF?ATO gets serious about minimum pension payment requirements Minimum pension withdrawal “in cash” must be made by 30 June 2013(no book entries or payment in kind) Drawing the minimum amount is a “condition” of a pension. If notsatisfied, your SMSF will not enjoy tax free investment earnings, and willrevert to being taxed at 15% ATO will only allow tax free earnings status if a shortfall in pension paidif: Shortfall is no more than 1/12th of the annual minimum pension Is corrected within 28 days of a trustee of a SMSF “becoming aware” You can demonstrate was an honest mistake You can only “self assess” such a mistake once. If you do it again, you have toapply to ATO to keep tax free pension earnings status30 June 2013 is a Sunday! Beware last minute or weekend internet transfersbetween different banks which may be next “working” day in JulyThings to do by 30 June 2013
  49. 49. Things to do by 30 June 2013
  50. 50. Questions?
  51. 51. Please feel free to contact us with any queries:Jamie Towers, Tax Partner:Jamie.towers@hanrickcurran.com.auChris Campbell, Superannuation Director:Chris.Campbell@hanrickcurran.com.au07 3218 3900
  52. 52. Thank youwww.hanrickcurran.com.auDisclaimer:These notes contain factual information concerning taxation and superannuation matters. The notesare intended as a guide only and may not apply to circumstances of particular individuals. Do not acton the contents of these notes without first obtaining specific advice from a qualified tax or legalprofessional about your particular circumstances.Hanrick Curran Group, its associates and the presenter hereby disclaim any responsibility forpersons relying in whole or in part on these notes or the information presented at this seminar.The Corporations Act 2001 deems superannuation funds, self managed superannuation funds(SMSFs) and pensions to be “financial products” and may consider a recommendation to contributeto a fund, establish or join a SMSF, or to commence a pension to be financial product advice asdefined by that Act. We are not licensed to give such advice. You should consider taking advice froman AFS License holder before making a decision on any financial product.

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