Winter 2009

Once again another financial year comes to a         lodge their return, figures from the ATO show.
close and over the next few months our
members will be busy completing their clients’       From an article by John Kehoe published in
tax returns.                                         The Australian Financial Review
                                                     Monday,30 March 2009.
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.          CALL TO KEEP ACCOUNTANTS ON
                                                     SKILLS LIST
                                                     The nations accounting bodies are calling on the
BONUS FEVER PROMPTS RUSH TO                          federal government not to restrict entry to foreign
FILE TAX RETURNS                                     accountants despite hundreds of local accountants
Tax agents say taxpayers are coming ‘out of the      losing their jobs, as they say more migrants will be
woodwork’ to lodge tax returns to get their          needed to meet long-term demand.
hands on the federal government’s stimulus
payments.                                            There was speculation that the Rudd government
                                                     could cut the permanent skilled migrant intake by
The increased workload for accountants               7,000 people to 108,000 in the 2009/2010 budget
coincides with preparations for the incoming         which would be the second cut to such migrants
tax agent services laws that passed parliament       since the economic turmoil struck.
in March 2009.
                                                     During the financial crisis, KPMG has sacked 200
However, taxpayers who lodge late returns for        people, PricewaterhouseCoopers laid off 170 and
past years and owe money could be forced to          Ernst & Young has let about 100 staff go. Despite
pay interest of 11 percent a year. The               this, CPA Australia president Richard Petty called
Australian Taxation Office can also charge a         on the government to keep accountants on its
‘failure to lodge’ penalty of up to $550 per year.   critical skills list, and he has been backed by
                                                     other groups including the National Institute
Taxpayers needed to lodge their 2007/2008            of Accountants.
income tax return by the end of June to obtain
their bonus.                                         Under changes to the permanent migration
                                                     scheme announced in December 2008, the Rudd
New tax agent services laws take effect from         government gives priority to migrants with
1 January 2010, stipulating tax agents and           an occupation on this list or who are sponsored
bookkeepers will have to meet new minimum            by employers.
standards of professional and ethical behaviour.
                                                     ‘There is currently, and likely to be for many years,
‘The tax agents are having to deal with this tax     a shortage of qualified and skilled accountants.
bonus payment but also they’re starting to           There are thousands of accounting positions being
monitor and get on top of their obligations          advertised across Australia today and the latest
under the new tax agent services regime so           industry forecasts are predicting growth in the
there’s a workload issue,’ Institute of Chartered    profession this year despite the downturn,’
Accountants in Australia tax counsel Yasser          Professor Petty said.
El-Ansar said.
                                                     The general manager for the chartered
About 72 percent of individuals use a tax agent to   accountants program and admissions at the
                                                     Institute of Chartered Accountants in Australia,
Sheena Frankel, said maintaining skilled              It’s understood the government will outline its
migration would help avoid a return to the            position on the recommendations about goods
‘severity’ of the accounting skills shortages.        and services tax administration and foreign
                                                      sourced income taxation after the reports were
NIA acting chief executive Andrew Conway              released.
added, ‘Although demand for accountants may
have slowed recently, demand for accountants          The Australian Financial Review has reported that
will continue to grow, particularly as Australia      the government would ensure managed funds have
emerges from this economic slowdown.’                 access to capital gains tax concessions for the sale
                                                      of shares and property in line with Board of
CPA Australia pointed to data it has tracked on       Taxation recommendations.
the SEEK employment website for the past 10
months, which shows the number of accounting          Board of Taxation chairman Dick Warburton told
positions advertised ranks third behind IT and        the AFR in December 2008 the board’s GST review
health care.                                          had identified ‘significant upgrades, which will help
                                                      reduce some of the compliance costs and certainly
But since September 2008, the number of               improve the operation of the GST’, particularly for
accounting positions advertised has dropped by        small business.
7,800 to 9,200 jobs in May this year.
                                                      Submissions to the board requested reforms to the
Monash University demographer Bob Birrell,            application of GST to cross-border transactions, the
who has researched the experience of migrant          sale of goodwill and other business assets, property
accountants, said it was ‘questionable’ whether       transactions and the provision of financial services.
accounting should stay on the critical skills list.
‘The recourse to migration has been a                 The budget was likely to confirm the elevation of
conspicuous failure, well documented and              the Australian Taxation Office in the recovery of
supported by all of the big accounting firms          GST debts from collapsed companies, overturning
I’ve dealt with directly or indirectly,’ he said.     the recent Federal Court decision involving property
                                                      developer PM Developments, which pushed the
‘It has all been for the same reason: that the        ATO down the pecking order behind secured
communication skills of non-English speaking          creditors.
background migrants are by and large not up to
the professional requirements.’                       Corporations with offshore operations and managed
                                                      funds are also expected to find out the government’s
From an article by Alexander Symonds and              position on critical tax issues affecting investment.
published in The Australian Financial Review on
Monday, 11 May 2009.                                  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
REFORMS EXPECTED TO MOVE                              secretary Ken Henry.
                                                      Under current rules for offshore investment,
The federal government was poised to                  businesses and investors are taxed on an accruals
announce responses to a suite of recommend-           basis for investments in managed funds and assets
ations from its tax advisory board in the             like property and infrastructure.
2009/2010 budget, that may benefit small
business, fund managers and corporations with         Market-to-market valuations or a deemed rate of
foreign operations.                                   return for non-listed assets are used to calculate
                                                      residents’ tax on unrealised gains from offshore
Officials have been sitting on four Board of          interests, even though there may be no or minimal
Taxation reports that include advice on changes       cash flows.
to foreign sourced income and anti-tax-deferral
regimes, goods and services tax administration,       The deemed rate of return has caused particular
off-market share buybacks and interim findings        problems since the collapse in asset prices
on managed investment trusts.
abroad, because investors may still be paying       The new test for taxpayers with adjusted taxable
tax as if the asset value is appreciating.          income greater than $250,000 will restrict the ability
                                                    of such taxpayers to claim losses for non-
Ernst & Young international tax partner Alf         commercial activities that are more likely to be in
Capito said: ‘I’m hoping we will get some           the nature of lifestyle choices or hobbies.
reform around the ability to invest overseas,
whether that investment is by fund managers or      Taxpayers will be able to apply to the tax
corporates generally.’                              commissioner for relief if there are exceptional
The head of funds management at Equity
Trustees Ltd, Harvey Kalman, said: ‘We want         The Government is also cracking down on the use
to see the same advantage for FIF (foreign          of overseas companies to reduce tax.
investment fund) exemption, not just to
collective investment vehicles with 100 percent     It aims to raise $675 million by taxing income
superannuation investors.’                          earned while working overseas. Taxpayers will be
                                                    able to claim back any foreign tax paid.
From an article by John Kehoe published
in The Australian Financial Review on               A crackdown on hiding income in order to avoid
Monday, 11 May 2009                                 Australian tax has also been announced, but
                                                    Treasury said the impact on the Budget would be
                                                    An additional $200 million is to be raised by
Ben Butler reported the following in the Herald     slashing tax exemptions on shares issued as part
Sun, Wednesday May 13, 2009.                        of salary packages.
A tighter rein on negative gearing                  Employees are no longer able to defer tax on the
High-income earners face a crackdown on             shares, and an up front concession of $1,000 is now
negative gearing that will reap the Federal         limited to those earning less than $60,000 a year.
Government an extra $700 million over the next
four years.
                                                    Limit to income tax bills
The change is part of a $1.755 billion package      The Government has given a helping hand to small
of measures targeting tax avoidance by high-        businesses struggling from the economic slump,
income earners, including cutting tax               slashing an anticipated rise in income tax bills.
exemptions for employee share schemes and a
crackdown on the use of overseas tax havens.        Businesses that pay their employee’s income tax in
                                                    quarterly instalments were facing a 9 percent rise
Taxpayers with an income of more than               next year.
$250,000 a year will have tax deductions from
unprofitable business activities ‘quarantined to    In the budget the increase was cut to just 2 percent.
the business activity’. Under existing rules, all   The move will cost the Government $720 million
losses from business ventures, such as farming      next year, which will be recovered in the following
or property development can be claimed against      year.
income tax.
                                                    On behalf of their employees, small businesses pay
By borrowing more than a business venture           income tax to the Tax office every three months.
earns, an investor can reduce their tax bill and    The amount they pay is an estimate equal to the
at the same time build up capital in an asset.      same tax bill in the previous year plus a ‘GDP
                                                    adjustment factor’ based on economic growth.
Negative gearing was introduced in the mid-
1980s by the Hawke Government.                      The reduction in the adjustment factor will
                                                    provide cash flow benefits to around 1.5 million
Existing rules will continue to apply to those      eligible small businesses, trusts, and small
who earn less than $250,000 a year.                 superannuation funds, by ensuring that their
pay-as-you- go instalment amounts more              If so, it would then affect how much money large
closely approximate their actual income tax         superannuation funds, which rank among the
liability.                                          nation’s largest shareholders, put into the share
The Government has also committed $141
million to increasing a tax deduction for capital   Co-contributions made by government when
expenditure by small business from 30 percent       low-income workers put extra money into
to 50 percent.                                      their superannuation have also been cut by a
                                                    third, saving $1.4 billion.
Small businesses will be able to make a claim
for the additional deduction on assets, such as     The Rudd Government has promised the cut,
vehicles, bought after 13 December 2008.            which potentially affects about 1.4 million low
                                                    income earners, will be a ‘temporary’ measure
In other measures, the Australian Tax Office is     which will be reversed by 1 July 2014.
to get $168 million to help small business
remain viable, and a telephone help line is to be   In another measure, under new rules,
established.                                        businesses with annual turnover of $20 million
                                                    or less will be able to claim up to 85 percent of
The hotline, to cost $10 million over two years,    research and development costs back on tax.
will provide advice and referral services.          The program will cost $1.4 billion over four
                                                    years, but the Government expects it will not
Super cap to slow cash flow                         reduce taxation revenue.
The rivers of cash pumped into the market by
                                                    Because the new rules do not come into force
Australia’s biggest investors, the
                                                    until 1 July 2010, the expenditure cap under
superannuation funds, may be slowed by a
                                                    existing rules has been lifted from $1 million
government cap on contributions.
                                                    to $2 million effective 1 July 2009.
Treasurer Wayne Swan is instead betting that a
                                                    From an article by Ben Butler and published in
‘Clean Energy Initiative’ and tax breaks for
                                                    the Herald Sun on Wednesday, May 13 2009.
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.

                                  For more information contact
                                  ABACUS Claims Committee:

                    L.W.E. Charlton (Chairman) L.W. Tyson P.F. Sutton

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