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Talking your Language
February 2009 Newsletter
As we have all heard on the news, working Australian’s will be receiving a one-off $900 tax bonus payment to help stimulate the economy. These payments will be sent out from early April 2009 for taxpayers who have lodged their 2007/08 income tax return. You have until 30 th June, 2009 to lodge your income tax return to qualify for the tax bonus.
To be eligible for the Tax Bonus Payment you must meet the following conditions:-
- Be an Australian individual who is a resident for taxation purposes
- Have a net tax liability after considering your tax payable, Medicare levy and Medicare levy surcharge less any offsets or imputation credits (these are set out at labels A, O and G in your taxation notice of assessment)
- Have a taxable income up to and including $80,000 ($600 tax bonus will be paid if the taxable income exceeds $80,000 up to $90,000 and $250 for taxable incomes between $90,000 and $100,000)
The bonus will be a direct payment to taxpayers and will be made to the bank account or address that people nominated as their preference for the 2007-08 tax return. The bonus will not be used to offset a taxpayer’s tax liability.
Other one-off bonuses include:-
- $900 Single-Income Family Bonus for families with one main earner. The family must have been entitled to Family Tax Benefits Part B (FTB-B) on the 3 rd February, 2009 and is irrespective of the number of children. These payments will commence the fortnight beginning 11 th March, 2009 to families who receive their family assistance as fortnightly instalments. If you receive your family payments as a lump sum at the end of the financial year, the one-off payment will be made with the rest of your FTB-B payment.
- $950 Back-to-School Bonus for families with school aged children aged 4 to 18 who were entitled to Family Tax Benefit Part A (FTB-A) on the 3 rd February, 2009. A payment will be received for each child that qualifies and payments will be made in the same manner as the single-income family bonus.
- $950 Farmer’s Hardship Bonus for recipients of exceptional circumstances relief payments, effective 3 rd March, 2009:- The payments will be made automatically by Centrelink in the fortnight commencing 24 th March, 2009.
- $950 Training and Learning Bonus for people receiving Centrelink Youth Allowance, and various other allowances relating to training and learning. Please contact Centrelink regarding your eligibility. Recipients are not entitled to the training and learning bonus if they receive the back-to-school bonus.
INVESTMENT ALLOWANCE
The Small Business and General Business Tax Break will mean -
- An additional tax deduction of 30% of the cost of eligible new depreciating assets acquired under a contract, or started to be constructed after 12.01am AEDT 13 December, 2008 and before the end of June 2009; a nd have installed ready for use by the end of June 2010.
- An additional tax deduction of 10% of the cost of eligible new depreciating assets acquired under a contract, or started to be constructed, between 1 July 2009 and 31 December 2009 ; and installed ready for use by the end of December 2010.
The deduction is claimable in the income year in which the asset is installed ready for use.
The allowance will take the form of a tax deduction on top of the usual capital allowance deduction (depreciation) able to be claimed for the asset as part of the taxpayer’s income tax return.
Small businesses will be able to claim the deduction for eligible assets costing $1,000 or more. To benefit from this tax break a small business must have a turnover of $2 million a year or less to qualify.
Other businesses can receive the same deductions for eligible assets costing more than $10,000.
What kinds of assets will qualify?
Assets eligible for the allowance are new depreciating assets used in carrying on a business, and new expenditure on existing assets used in carrying on a business. The assets must be used in
Examples:
- A small business that buys and installs a $2,000 computer before the end of June 2009 can claim an additional $600 deduction in the 2008/2009 tax return.
- A business that buys a $60,000 backhoe before the end of June 2009 can claim an additional $18,000 deduction in the 2008/2009 tax return.
Land and trading stock are excluded from the definition of depreciating assets, and will not qualify for the deduction.
THE FARMER HAS A CLEARING
One of our mature aged primary producer clients recently mentioned that his farming neighbour told him it wasn’t worth having a clearing sale, because he’d lose most of the proceeds in taxation. With advance planning it doesn’t need to be this way.
When plant and equipment is sold, if the proceeds exceed their written down (“book”) value (WDV), the excess is assessed as income for tax purposes. For example, if plant which cost $200,000 has been written down to $30,000 (by claiming a total of $170,000 in depreciation deductions since it was acquired), and that plant is sold for $150,000, $120,000 will be assessed as income (that is the proceeds of $150,000 less the WDV of $30,000).
Assume a farming couple run a farming partnership and they each have a taxable profit of $40,000 in 2008/09. Ignoring averaging, they will both pay tax of $5,640 on their farm profits. If they also have a clearing sale in 2008/09, and they gross $150,000 (excluding GST) from the sale, they will have a taxable profit of $120,000 if the WDV of the plant was $30,000 (as above).
This will take both of their taxable incomes from $40,000 up to $100,000 in their 2008/09 tax returns. Again ignoring averaging, they would both have to pay an extra $21,860 as a result of the clearing sale profits. This makes a total of $43,720 tax payable on the clearing sale.
A strategy which could reduce their “Clearing sale tax” would be to make a tax deductible contribution into superannuation in the same year as the clearing sale.
Assuming they are both over 50 years of age (and under 75), they could contribute up to $100,000 into their super fund and claim a tax deduction. If they both contribute $60,000 into super, this will reduce their taxable incomes from $100,000 down to $40,000. The total tax they would be required to pay on their clearing sale effectively drops to $9,000 each, being due to the $60,000 tax deductible contributions being taxed at 15% inside their super funds. This makes a total “clearing sale tax” of $18,000.
This strategy has cut the tax they will pay on their clearing sale by just over $25,000. If they retire from the workforce, they can withdraw the proceeds from their superannuation funds. If they are over 60 and retired, these withdrawals will be entirely tax-free.
From their $150,000 clearing sale proceeds, our husband and wife team could keep $132,000 after paying their tax bills. This is a much better result than our client’s neighbour suggested.
Whilst we’ve ignored the averaging system from these calculations, the averaging provisions are likely to reduce the tax savings calculated above. However, there will still be substantial tax savings for virtually every primary producer who uses advance planning to optimise their circumstances. Please contact us if you would like us to tailor calculations to your unique circumstances.
Please note that the above information is general in nature and everyone’s circumstances are different. For example, how much you can contribute into superannuation differs with a person’s age and whether or not you work; the tax deductibility of superannuation contributions can change if a primary producer also has salary or wages income in a particular financial year. For these reasons, this article is not intended to constitute professional advice. We strongly recommend that you call us to discuss your specific situation before acting on this matter.
As always, if you have any queries, please contact your team accountant.