client alert tax news | views | clues Income Tax Reform Therefore, taxpayers will be remove an inconsistency in entitled to the LITO if their the tax law relating to farm Readers will recall that in the taxable income is less than managed deposits, thereby February 2008 newsletter, we $60,000. ensuring eligible primary highlighted some of the proposed producers will be able to reforms to the income tax system, As a consequence of the increase access the concessions; which the Labor Government in the LITO, senior Australians promised as part of its election who are eligible for the senior ensure that a superannuation campaign. The Government has Australian tax offset (SATO) will lump sum payment paid to a since introduced into Parliament a have no tax liability until their person who has a terminal Bill proposing income tax rates income reaches $28,867 for medical condition is tax-free; cuts. singles and $24,680 for each and member of a couple for the For the 2008/09 income year, the 2008/09 income year. ensure the Equine Workers proposed personal tax rates and Hardship Wage Supplement tax payable for resident taxpayers The Medicare levy threshold Payment received by are set out in the table below: amount for senior Australians who individuals is tax-free. are eligible for the SATO will also increase in line with the LITO for Taxable Tax payable ($) the 2008/09 income year. The First Home Savers income ($) threshold amount will increase Accounts 0 – 6,000 Nil from $25,867 to $28,867. The Medicare levy phase-in limit for The Government has formally 6,001 – 15% of excess approved the establishment of the 34,000 over 6,000 senior Australians who are eligible for the SATO will increase from First Home Savers (FHS) 4,200 + 30% of $30,431 to $33,961. The Medicare Accounts scheme. It is anticipated 34,001 – that eligible first home buyers will excess over levy phase-in limit that applies to 80,000 benefit from the scheme. The 34,000 couples eligible for the SATO will increase from $44,647 to $49,412. scheme will be offered through 18,000 + 40% of banks, building societies, credit 80,001 – 180,000 excess over Tax Law Changes unions and life insurers. 80,000 In February 2008, the Government Although the detailed features of 58,000 + 45% of introduced into Parliament a Bill the scheme have not been 180,001 + excess over seeking to: finalised, key features will 180,000 include: remove tax deductibility for contributions and gifts to co-contribution from the The low income tax offset (LITO) political parties, members and Government of a minimum of for the 2008/09 income year will candidates, including 15% on after-tax contributions increase from $750 to $1,200. membership fees; of up to $5,000; April 2008 individuals aged between 18 the CGT small business of such assets to over 5% of total to 65 will be able to open an concessions. assets, or if the ratio already account with an initial exceeds 5%. Two basic conditions must be contribution of at least $1,000, satisfied before a taxpayer can The Tax Office has stated that a so long as they comply with access the concessions — the trustee of a SMSF, which has the eligibility criteria for the taxpayer must be a small business assets affected by the transitional First Home Owners Grant; entity or satisfy the ‘maximum net rules, needs to review their fund the minimum savings period asset value’ test, and the CGT investment structure to ensure for the scheme is four years; asset must be an active asset. compliance with the in-house Depending on the concession asset rules after 30 June 2009. interest earned will be taxed at being accessed, further conditions a rate of 15%; and must also be satisfied. Multiple Birth withdrawals will only be Where the conditions are satisfied, Allowance permitted for the purchase of the capital gain arising from the The eligibility for the multiple an eligible first home and will disposal of a CGT asset can either birth allowance has been extended be tax-free. Alternatively, be disregarded or reduced. from 1 January 2008. individuals can roll over the full amount of the account to A CGT asset is an ‘active asset’ if The changes will allow families their superannuation fund at it is used, or held ready for use, in with at least three children born in any time. carrying on a business by a the same multiple birth to be taxpayer, an affiliate or a eligible for the allowance until: Simplified Tax connected entity. the children are 16 years of System Shed Qualifies as age; or The Tax Office has released a fact sheet outlining the eligibility Main Residence if at least three of the children are in full-time study, until the criteria for the small business In a bizarre decision by the AAT, end of the calendar year in entity concessions and how the it was held that a shed used by a which the first born of the changes affect former simplified taxpayer qualified as a main three children turns 18 years tax system (STS) taxpayers. residence despite the fact that the of age. taxpayer only moved her bed into The STS was replaced by the small business entity regime from the premises. IRAs and the 2007/08 income year. The If a dwelling, which a taxpayer Assessable Income concessions available under the owns or acquires, qualifies as their In a recent Interpretative Decision, former STS are still available. In main residence, any capital gains the Tax Office states that a lump addition, where a taxpayer has arising from the disposal of the sum distribution paid to a resident been classified as a small business dwelling will be disregarded or individual taxpayer upon closing a entity, they can choose to access reduced. traditional Individual Retirement other various concessions, including accounting for GST on a In-house Assets and Account (IRA) held in the United States is included in the taxpayer’s cash basis and the FBT car SMSFs assessable income. However, the parking exemption. The Tax Office has recently reportable amount in the The requirements to be classified issued a fact sheet explaining what taxpayer’s income tax return is as a small business entity differ an in-house asset is, the reduced by any amounts from the STS. transitional rules that apply to previously reported as notional certain assets owned by a SMSF income under the Foreign CGT on Holiday Unit before 11 August 1999 and the Investment Funds measures and changes that will apply after 30 where certain exceptions are met. In a recent decision, the June 2009. Administrative Appeals Tribunal The assessable income of a (AAT) has affirmed that a holiday The in-house assets rule states that resident individual taxpayer unit that was used for short-term a trustee of a superannuation fund includes any ordinary and holiday accommodation was not must not acquire in-house assets if statutory income derived in or out an active asset for the purposes of to do so would increase the ratio of Australia. Important: This is not advice. Clients should not act solely on the basis of the material contained in this Bulletin. Items h erein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Bulletin is issued as a helpful guide to clients and for t heir private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.