NEWSLETTER
Winter 2009 CHAIRMAN’S COMMENT
Once again another financial year comes to a close and over the next few months our members will be busy completing their clients’ tax returns. Articles in this issue deal with taxation reforms and some of the items announced in this year’s budget. I trust you will find these useful. lodge their return, figures from the ATO show. From an article by John Kehoe published in The Australian Financial Review Monday,30 March 2009.
CALL TO KEEP ACCOUNTANTS ON SKILLS LIST
The nations accounting bodies are calling on the federal government not to restrict entry to foreign accountants despite hundreds of local accountants losing their jobs, as they say more migrants will be needed to meet long-term demand. There was speculation that the Rudd government could cut the permanent skilled migrant intake by 7,000 people to 108,000 in the 2009/2010 budget which would be the second cut to such migrants since the economic turmoil struck. During the financial crisis, KPMG has sacked 200 people, PricewaterhouseCoopers laid off 170 and Ernst & Young has let about 100 staff go. Despite this, CPA Australia president Richard Petty called on the government to keep accountants on its critical skills list, and he has been backed by other groups including the National Institute of Accountants. Under changes to the permanent migration scheme announced in December 2008, the Rudd government gives priority to migrants with an occupation on this list or who are sponsored by employers. ‘There is currently, and likely to be for many years, a shortage of qualified and skilled accountants. There are thousands of accounting positions being advertised across Australia today and the latest industry forecasts are predicting growth in the profession this year despite the downturn,’ Professor Petty said. The general manager for the chartered accountants program and admissions at the Institute of Chartered Accountants in Australia,
BONUS FEVER PROMPTS RUSH TO FILE TAX RETURNS
Tax agents say taxpayers are coming ‘out of the woodwork’ to lodge tax returns to get their hands on the federal government’s stimulus payments. The increased workload for accountants coincides with preparations for the incoming tax agent services laws that passed parliament in March 2009. However, taxpayers who lodge late returns for past years and owe money could be forced to pay interest of 11 percent a year. The Australian Taxation Office can also charge a ‘failure to lodge’ penalty of up to $550 per year. Taxpayers needed to lodge their 2007/2008 income tax return by the end of June to obtain their bonus. New tax agent services laws take effect from 1 January 2010, stipulating tax agents and bookkeepers will have to meet new minimum standards of professional and ethical behaviour. ‘The tax agents are having to deal with this tax bonus payment but also they’re starting to monitor and get on top of their obligations under the new tax agent services regime so there’s a workload issue,’ Institute of Chartered Accountants in Australia tax counsel Yasser El-Ansar said. About 72 percent of individuals use a tax agent to
Sheena Frankel, said maintaining skilled migration would help avoid a return to the ‘severity’ of the accounting skills shortages. NIA acting chief executive Andrew Conway added, ‘Although demand for accountants may have slowed recently, demand for accountants will continue to grow, particularly as Australia emerges from this economic slowdown.’ CPA Australia pointed to data it has tracked on the SEEK employment website for the past 10 months, which shows the number of accounting positions advertised ranks third behind IT and health care. But since September 2008, the number of accounting positions advertised has dropped by 7,800 to 9,200 jobs in May this year. Monash University demographer Bob Birrell, who has researched the experience of migrant accountants, said it was ‘questionable’ whether accounting should stay on the critical skills list. ‘The recourse to migration has been a conspicuous failure, well documented and supported by all of the big accounting firms I’ve dealt with directly or indirectly,’ he said. ‘It has all been for the same reason: that the communication skills of non-English speaking background migrants are by and large not up to the professional requirements.’ From an article by Alexander Symonds and published in The Australian Financial Review on Monday, 11 May 2009.
It’s understood the government will outline its position on the recommendations about goods and services tax administration and foreign sourced income taxation after the reports were released. The Australian Financial Review has reported that the government would ensure managed funds have access to capital gains tax concessions for the sale of shares and property in line with Board of Taxation recommendations. Board of Taxation chairman Dick Warburton told the AFR in December 2008 the board’s GST review had identified ‘significant upgrades, which will help reduce some of the compliance costs and certainly improve the operation of the GST’, particularly for small business. Submissions to the board requested reforms to the application of GST to cross-border transactions, the sale of goodwill and other business assets, property transactions and the provision of financial services. The budget was likely to confirm the elevation of the Australian Taxation Office in the recovery of GST debts from collapsed companies, overturning the recent Federal Court decision involving property developer PM Developments, which pushed the ATO down the pecking order behind secured creditors. Corporations with offshore operations and managed funds are also expected to find out the government’s position on critical tax issues affecting investment. However, the government may not endorse all the board’s recommendations and is likely to defer some issues to the tax review chaired by Treasury secretary Ken Henry. Under current rules for offshore investment, businesses and investors are taxed on an accruals basis for investments in managed funds and assets like property and infrastructure. Market-to-market valuations or a deemed rate of return for non-listed assets are used to calculate residents’ tax on unrealised gains from offshore interests, even though there may be no or minimal cash flows. The deemed rate of return has caused particular problems since the collapse in asset prices
REFORMS EXPECTED TO MOVE INTO SPOTLIGHT
The federal government was poised to announce responses to a suite of recommendations from its tax advisory board in the 2009/2010 budget, that may benefit small business, fund managers and corporations with foreign operations. Officials have been sitting on four Board of Taxation reports that include advice on changes to foreign sourced income and anti-tax-deferral regimes, goods and services tax administration, off-market share buybacks and interim findings on managed investment trusts.
abroad, because investors may still be paying tax as if the asset value is appreciating. Ernst & Young international tax partner Alf Capito said: ‘I’m hoping we will get some reform around the ability to invest overseas, whether that investment is by fund managers or corporates generally.’ The head of funds management at Equity Trustees Ltd, Harvey Kalman, said: ‘We want to see the same advantage for FIF (foreign investment fund) exemption, not just to collective investment vehicles with 100 percent superannuation investors.’ From an article by John Kehoe published in The Australian Financial Review on Monday, 11 May 2009
The new test for taxpayers with adjusted taxable income greater than $250,000 will restrict the ability of such taxpayers to claim losses for noncommercial activities that are more likely to be in the nature of lifestyle choices or hobbies. Taxpayers will be able to apply to the tax commissioner for relief if there are exceptional circumstances. The Government is also cracking down on the use of overseas companies to reduce tax. It aims to raise $675 million by taxing income earned while working overseas. Taxpayers will be able to claim back any foreign tax paid. A crackdown on hiding income in order to avoid Australian tax has also been announced, but Treasury said the impact on the Budget would be ‘unquantifiable’. An additional $200 million is to be raised by slashing tax exemptions on shares issued as part of salary packages. Employees are no longer able to defer tax on the shares, and an up front concession of $1,000 is now limited to those earning less than $60,000 a year. Limit to income tax bills The Government has given a helping hand to small businesses struggling from the economic slump, slashing an anticipated rise in income tax bills. Businesses that pay their employee’s income tax in quarterly instalments were facing a 9 percent rise next year. In the budget the increase was cut to just 2 percent. The move will cost the Government $720 million next year, which will be recovered in the following year. On behalf of their employees, small businesses pay income tax to the Tax office every three months. The amount they pay is an estimate equal to the same tax bill in the previous year plus a ‘GDP adjustment factor’ based on economic growth. The reduction in the adjustment factor will provide cash flow benefits to around 1.5 million eligible small businesses, trusts, and small superannuation funds, by ensuring that their
2009/2010 FEDERAL BUDGET
Ben Butler reported the following in the Herald Sun, Wednesday May 13, 2009. A tighter rein on negative gearing High-income earners face a crackdown on negative gearing that will reap the Federal Government an extra $700 million over the next four years. The change is part of a $1.755 billion package of measures targeting tax avoidance by highincome earners, including cutting tax exemptions for employee share schemes and a crackdown on the use of overseas tax havens. Taxpayers with an income of more than $250,000 a year will have tax deductions from unprofitable business activities ‘quarantined to the business activity’. Under existing rules, all losses from business ventures, such as farming or property development can be claimed against income tax. By borrowing more than a business venture earns, an investor can reduce their tax bill and at the same time build up capital in an asset. Negative gearing was introduced in the mid1980s by the Hawke Government. Existing rules will continue to apply to those who earn less than $250,000 a year.
pay-as-you- go instalment amounts more closely approximate their actual income tax liability. The Government has also committed $141 million to increasing a tax deduction for capital expenditure by small business from 30 percent to 50 percent. Small businesses will be able to make a claim for the additional deduction on assets, such as vehicles, bought after 13 December 2008. In other measures, the Australian Tax Office is to get $168 million to help small business remain viable, and a telephone help line is to be established. The hotline, to cost $10 million over two years, will provide advice and referral services. Super cap to slow cash flow The rivers of cash pumped into the market by Australia’s biggest investors, the superannuation funds, may be slowed by a government cap on contributions. Treasurer Wayne Swan is instead betting that a ‘Clean Energy Initiative’ and tax breaks for research and development will drive a new wave of green enterprise to lift Australian industry out of recession. The Budget halved the amount of money a worker can put into their superannuation before paying, from $50,000 to $25,000. The move is expected to save the Government $2.81 billion over the next four years. But it may discourage workers from putting money into Australia’s $1 trillion super sector.
If so, it would then affect how much money large superannuation funds, which rank among the nation’s largest shareholders, put into the share market. Co-contributions made by government when low-income workers put extra money into their superannuation have also been cut by a third, saving $1.4 billion. The Rudd Government has promised the cut, which potentially affects about 1.4 million low income earners, will be a ‘temporary’ measure which will be reversed by 1 July 2014. In another measure, under new rules, businesses with annual turnover of $20 million or less will be able to claim up to 85 percent of research and development costs back on tax. The program will cost $1.4 billion over four years, but the Government expects it will not reduce taxation revenue. Because the new rules do not come into force until 1 July 2010, the expenditure cap under existing rules has been lifted from $1 million to $2 million effective 1 July 2009. From an article by Ben Butler and published in the Herald Sun on Wednesday, May 13 2009.
For more information contact ABACUS Claims Committee: L.W.E. Charlton (Chairman) L.W. Tyson P.F. Sutton