Client Alert Multiple Birth

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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 $24,680 for each              and
                                      member of a couple for the
For the 2008/09 income year, the      2008/09 income year.                     ensure the Equine Workers
proposed personal tax rates and                                                 Hardship Wage Supplement
tax payable for resident taxpayers    The Medicare levy threshold
                                                                                Payment received by
are set out in the table below:       amount for senior Australians who
                                                                                individuals is tax-free.
                                      are eligible for the SATO will also
                                      increase in line with the LITO for
                 Tax payable ($)      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 –
                 excess over          Tax Law Changes                       unions and life insurers.
                                      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,
    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
                                                 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.

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