Archive for November, 2011

Clients are often confused as to how long and what records need to be kept to comply with the A.T.O. Confusion can arise as the A.T.O requires some records to be kept for five years and others seven years from the date on that year’s Notice of Assessment issued by the A.T.O or where no assessment is issued from the date of lodgment of the tax return.

• Five years; non-Company records, generally individuals and non-company entities that do not have employees.
• Individual tax payers should keep records for five years. If you have a rental property then you should keep all records for a further five years after the rental property is sold.
• Seven years; financial records for companies, most employee records and all records of fringe benefits and capital gains.
• If you store financial records electronically you must be able to produce a hard copy if required.
• Employee records may need to be kept longer to comply with Workers Compensation Act.

• For depreciating assets, you must keep records for the entire period over which you claim deductions for the decline in value of those assets. You must keep your records for a further five/seven years from the date of your last claim.

If you organise your records weekly including updating your registers and filing the documents away you will reduce stress and stay on top of the task. It also allows you to find documents easily when needed.

Following is a list of ‘typical’ information required to be kept for between five & seven years, although the list is typical information used by business’ not every business will use every one.

Further information is available from the Tax Office website.

When can you claim a deduction for work related clothing? This area seems to cause some confusion and here we hope to clear this up.

 Compulsory Uniforms

As stated by the ATO ‘You can claim the cost of buying, renting, repairing and cleaning occupation-specific clothing, protective clothing and certain work uniforms.

You cannot claim the cost of purchasing or cleaning a plain uniform or clothes you bought to wear for work that are not protective or specific to your occupation even if your employer tells you to wear them – for example, a bartender’s black trousers and white shirt or a manager’s suit or stockings.’

A deduction is allowable where the wearing of uniform or specific clothing is compulsory and the clothing readily identifies a particular organisation with the use of such things as logos, initials, insignias on buttons or pockets. These should be of a sufficient size to be clearly visible to the observer. Clothing is unique when it has been designed and made for only one employer and is not available to the public. You may be able to claim a deduction for shoes, socks and stockings where they are compulsory and an essential part of the distinctive uniform which is specified in your employer’s uniform policy.

Specific Clothing

This is clothing that is specific to your occupation and would allow the public to easily recognise your occupation – for example, the checked pants a chef wears.

Protective clothing

Clothing that provides a sufficient degree of protection against risk of injury or illness that may be encountered during your duties at work are claimable. Examples of these include steel capped boots, gloves, safety coloured vests, fire resistant and sun protection clothing, non-slip nurse’s shoes, heavy duty shirts and trousers.

Overalls, aprons and other clothing worn so as not to damage or soil your normal clothes is also considered protective. Keep in mind jeans and other clothing that offer no extra protective qualities are not considered protective clothing.

 Non Compulsory Work Clothes

You cannot claim expenses incurred for non-compulsory work uniforms unless your employer has registered the design with AusIndustry – if you are unsure check with your employer or go to www.ausindustry.gov.au.

Remember shoes, socks and stockings or single items of clothing can never form part of a non-compulsory work uniform.

 Laundry

Where a deduction for work clothing is allowable you will generally be able to claim the cost of laundry. You may use a reasonable basis to work out your claim if it does not exceed $150. The ATO considers reasonable $1 per load, including washing, drying and ironing if no other clothes are included in the wash. Where other clothes are in the wash the rate is reduced to 50 cents.

 Allowances

You cannot automatically claim a deduction simply because you received a uniform, clothing, laundry or dry-cleaning allowance from your employer.

 Last week I covered the increase in Superannuation that workers are now entitled to. This is great for the worker but, as a small business operator and an employer I commented on this being a new tax. Well another change that has been proposed is to allow the payment of Superannuation to all employees, not just those under 70 years young.

 n a recent news report the Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, said “As a result of strong representations from members of the Labor caucus and cross-bench, including Yvette D’Ath, Shayne Neumann, Deb O’Neill, Michelle Rowland, Rob Oakeshott and Tony Windsor, I have decided there will be no age limit for superannuation guarantee contributions. These changes will start on 1 July 2013,”

 These policies will be delivered through amendments to the Superannuation Guarantee (Administration) Act 1992. “Together with the low income superannuation contribution and Stronger Super package of reforms previously announced, the increase in the superannuation guarantee will improve the adequacy of retirement incomes and deliver a comfortable and secure retirement for current and future generations of Australian workers”

Depending on the regulations surrounding the new legislation this may be great for our Grey Nomads. As it stands now, once you turn 70 your employer can not contribute to your super fund. As all the details are not yet known, we can but speculate on what will be available but if the employer is allowed to contribute to super for a 75 year old, then it may be that the 75 year old can also contribute to super, which is now limited under current legislation. This opens the door for some very effective tax planning and would certainly encourage our civic elders to maintain their contacts at work so that by putting in that weeks work every year they may be in a position to top up their super and reduce their exposure to income tax.

As it is, every worker over the age of 55 should be looking at their superannuation in two ways, one as a retirement benefit and two, as a very effective tax saving tool. Under the right circumstances you can increase the balance of your superannuation by several thousand dollars per year with no contribution from you, just by commencing a transition to retirement pension through your super fund. The benefits available depend upon the balance of your super fund and the length of time before retirement. This strategy requires you to start drawing a pension from your super and salary sacrificing an amount back to super such that your take home pay remains the same but your tax bill is reduced and a saving in tax of $50 per week is $2,600 per year and over 10 years, with interest, this would amount to over $30,000 providing a nice increase in your super fund. Talk to your tax adviser to determine if the benefits to be derived from a transition to retirement pension suit your circumstances. Talk to your financial adviser for a second opinion but remember they cannot give advice as to the taxation implications associated with their recommendations or your choice.

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 An article in the Australian Financial Review last week commenced with the words “ It was smiles all round among Superannuation types yesterday as the Gillard Government finally tabled legislation for a sharp rise in the level of compulsory contributions.” Federal Government members were again congratulating themselves on the introduction of a new tax. This refers to the new tax on wages paid by business who now have to find extra money to contribute an additional 3% to their employees superannuation. Now this is great news for the employed, provided they can keep their jobs given the additional burdens that are continually heaped onto the small business employer.

  The positive spin put on this legislation, which is great for the employee , states that in the biggest change to superannuation in 20 years, around 8.4 million Australians will have their superannuation savings boosted as a result of the superannuation guarantee rate legislation introduced into the Parliament.  The Superannuation Guarantee (Administration) Amendment Bill 2011 increases the superannuation guarantee (SG) rate from nine per cent to 12 per cent.  The Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, said “This is an historic reform. Today, the Gillard Labor Government has taken another important step towards increasing the adequacy and fairness of retirement incomes for Australian workers.”

“Australians should not have to work hard and retire poor. Nine per cent super is simply not enough.” For example: An employee aged 30 earning around $70,000 today will retire with an extra $108,000 in superannuation under these reforms. 

The increase in the SG will boost the superannuation savings of Australian workers by around $500 billion by 2035. A proportion of these savings will be channelled back into the Australian economy to fund jobs and nation-building infrastructure. 

Big business have no problem in finding the extra cash, they just put up prices. Small business is not so lucky as they have to manage their budget a lost closer just to stay competitive. When the Superannuation Guarantee Levy was first introduced, it was supposed to be in place of a pay increase for the workers. They were to get a 9% pay increase which was to be put aside for their retirement. Well this “benefit” has long been forgotten and now with the 9% being increased to 12%, albeit over several years, the employees do not see this as a pay increase but a deserved benefit, even if unearned.

This increase, although some see it as being tiny, is still a hefty impost on small business, no wonder there are many small businesses out there having trouble paying the Super Contribution for their staff.  Not only does this Super increase cost small business but other costs tied to Super also increase such as payroll tax and that other State Government tax known as Workers Compensation Insurance. To call it workers comp insurance is a misnomer as it is not insurance, it is a Government tax that assists workers injured at work and is a great idea. The trouble with workers comp is that if an employer has a worker injured, the worker receives the benefit but the employer’s premium is increased such that the payment to the employee is recouped from the employer. The other problem here is that the premium for Workers Comp includes the Super paid by the employer but when the employee receives his payout from the Insurance Company no payment is made to the employee’s super fund. 

More on the changes to Superannuation next week.

I had the unenviable task of attending the funeral of a friend the other day and as happens at this sort of event everyone chooses a non-death related topic to talk about. Well as is the case when talking to an accountant, the subject usually turns to Tax and how best to avoid it. The old chestnut about the only two certainties in life being Death and Taxes and how we can avoid at least one of them was mentioned a few times.

 The funeral was a sad/happy affair where the life of the departed was celebrated. The attendants from Macarthur Lady Funerals were an absolute treat and if any of your loved ones leave this earth I would suggest you give Macarthur Lady a call as their professionalism is beyond words.

 The other thing I would suggest is that you ensure you, and your loved ones, have a will in place. I recently had a client whose affairs were, to say the least, tangled. He died without a will and the business partner managed to squander the estate such that the children ended up with nothing.

Even if you do have a will in place, the Tax Man may still try and get an uneven share of what is not his.

 If someone dies whist at work then the payment of unused annual leave, leave loading and long service leave to the beneficiaries is not taxed and is not included on a Group Certificate. This is a win for the taxpayer, although it is once off opportunity to get that last payout tax free and a tax break I am in no hurry to benefit from.

 On death, the payment of monies held in a Superannuation Fund are tax free if paid to a dependant but may be taxed at the top marginal rate if paid to other family members.  A dependant is identified at the time of death and, according to the Tax Office, would be the taxpayer’s spouse or defacto spouse, a former spouse or former defacto spouse, a child of the deceased under 18 years of age or someone who relied on the deceased for financial maintenance at the time of death, or any other person with whom the deceased had an interdependency relationship just before death.

An interdependency relationship exists between two people where they have a close personal relationship, and they live together even if they are not related by family, and one or each of them provides the other with financial and domestic support and personal care.

What this all means is that if Dad has $1m in super, and this is made up of Employer super contributions, then when he kicks the bucket, if he leaves this money to his kids, and they are all aged over 18, then tax will be payable by the children on that payout. Now, is it possible to beat the taxman? Of course, where there is a WILL, there is a way. If the balance of the Super fund is left to Mum, then as a dependant, no tax is payable and she can then give the money to the children without anyone having to pay tax. If there is no Mum, then Dad has to play a smarter game and draw down on his super , tax free, over the years so that when his time is up, the Fund is empty and no Tax is payable.

 There are a couple of other options which depend on age and work status but these tend to be more specific to the individual rather than generic and it may be to your benefit to talk to your Accountant as to the taxation implications associated with the dispersal of your estate.