News Update July 2012

Welcome to the Simeoni Monthly News Update. This month we look at the following topics:
  • Moving around:  Why the tax office plays a role in your plans
  • What changed on 1 July?
  • Quote of the Month

                                

July News Update

 

Moving around:  Why the tax office plays a role in
your plans 

When you’re making a decision about

whether to accept a lucrative job overseas,

the Tax Man is generally the last person

you’re thinking of - family members, what your life might be like, whether you can

afford a maid, maybe, but the Tax Office? Generally not. Whether you are taking

up a role overseas or a bringing talent into the country for your business, the tax

office needs to play a role in the decisions you make.


Individuals moving overseas

I have a friend who is moving to the United Arab Emirates (UAE) to take up 

contract.  His first comment to me was how great it will be because the individual 

tax rate in the UAE is zero and it’s a lucrative contract. But life is never that simple. 

For example, you might be living and working in the UAE but if you are not leaving 

Australia for good, the Australian Tax Office (ATO) might consider you to be a 

resident of Australia and tax any income you make overseas as if  you were here.

As a general rule, residents of Australia are taxed on all income in Australia 

regardless of where the income is sourced. 

If you are considered to be non-resident you are generally only required to pay

tax on the income you earn from Australia.

Working out whether or not you are a resident of Australia can be difficult as

it requires the exercise of judgement rather than applying a single black and white

test.  Many people believe it is just a matter of how much time you spend out of the

country but this is not always the case.  There are four tests that are used to work

out your residency status.


The first test looks at whether you reside in Australia. 

For example, are you moving out of the country permanently and migrating, or just

moving away for a while?   The actions you take, for example do you appear to cut

ties with Australia or do you have a life to walk back into, help determine this test.

If your spouse stays behind, it may be difficult to argue that you are a nonresident.


The second test looks at your place of domicile as well as where you have your

your permanent home. 

Someone who was born or migrated to Australia will generally retain their

Australian domicile unless they leave Australia permanently.  Someone with an

Australian domicile will be treated as a resident for tax purposes unless they can

show that their permanent home is overseas. 

There is range of factors to consider in order to determine whether someone’s

permanent home is overseas.


The third test is the 183 day test.  

Assuming you are not already considered to be an Australian resident by the other

tests, the 183 day test looks at how long you are physically present in Australia

during a particular income year.


The final test is the superannuation test. 

If you are a current member of certain superannuation funds covering 

Commonwealth Government employees then, you will generally be considered a

resident for tax purposes regardless of how long you intend to live overseas.

Once you have worked out whether you are a resident or a non-resident you need

to look at the impact of your residency status on the assets you have.  If you

become a non-resident this can trigger a capital gains tax liability based on the

market value of certain assets at that time. In some cases you can choose to defer

the tax liability, but this could mean paying more tax in Australia on the eventual

disposal of those assets.   Proposed changes also mean that non-residents will

pay a higher level of CGT than residents, as they will no longer have access to the

50% CGT discount.

The residency tests can be confusing.  If you are planning on working overseas,

get professional assistance before moving so you fully understand the implications

of the move.


For businesses bringing talent into the country

If you bring employees into the country for periods of time, the tax concessions

that apply to compensate them for the additional expenses and disadvantages

they might suffer because they need to live away from home to do their job are

about to end.  The rules dealing with Living Away From Home Allowances

(LAFHAs) will fundamentally change if the Bill currently before Parliament becomes

law.

The changes, originally intended to apply from 1 July but have now been pushed

back until 1 October, will mean that it is almost impossible for foreign workers to

access this concession.  The main condition for accessing the concession under

the new rules is that the employee must have a usual place of residence in

Australia that is maintained for their personal use and enjoyment while living and

working in another location (i.e., it cannot be rented out or sub-let while they are

away). Employees will only be entitled to claim deductions against a LAFHA for a

maximum period of 12 months for a specific work location (there is an exception for

fly in fly out workers).  This means that to qualify for the concession from 1

October, a foreign worker will need to have an Australian residence then live away

from it.

The new LAFHA rules tax employees on the allowances they receive under the

income tax regime, instead of taxing the employer under the FBT regime.  LAFHAs

will need to be included in the taxable income of the employee and will be taxed at

their marginal tax rates. There may be an exception if the allowance covers the

ordinary food costs, in which case they will still be taxed through the FBT system.

LAFH benefits that are not paid in the form of a cash allowance (e.g., 

reimbursement of actual expenses) will still be taxed under the FBT system in the

hands of employers.

There are transitional rules for those with agreements already in place but any

material changes to the employment agreement will bring the agreement into the

new system.  The Bill before Parliament to enact the LAFHA changes appears to

have a fairly strict interpretation of what a material change is and notes common

issues like an extension of time of a contract, a change to the salary of the

employee or a change in the working hours of the employee.

LAFHAs will still be of benefit to Australian employees living away from home but

will be severely restricted for anyone else.

The changes are not yet law so for many employers it is a case of wait and see. If

you are already providing LAFHA or similar benefits to employees then it’s

important to consider the impact of these new rules as soon as possible. 


What changed on 1 July? 

For business

Small businesses now have access to:

An immediate deduction for depreciating assets costing less than $6,500 (GST exclusive)  

An immediate deduction on the first $5,000 for motor vehicles used for the business (new or second hand)

All other assets depreciated at 15% in year of purchase and 30% inn future years

Companies now able to ‘carry back’ up to $1m of losses offset against previous tax paid

New reporting regime for building & construction industry

• GST changes to hire purchase agreements entered into from 1July. Businesses accounting for GST on a cash basis can claim the full tax credits up front.  All components of the arrangements are now subject to GST, even if credit component is disclosed separately.

Carbon Tax introduced

Wider range of businesses will qualify for fuel tax credits

For SMSFs

• Concessional contribution cap for those 50 and over now same rate as everyone else at $25,000.

For Individuals

Income tax rates changed

• 15% tax on super abolished for low income earners

Household assistance package introduced

What’s pending or deferred

LAFHA changes deferred until 1 October 2012.

For SMSFs, the off market transfer restrictions due to commence on 1July 2012 have been deferred until 2013 2012 have been deferred until 2013.

If there is anything we can assist you with, or are concerned about, please contact us today to discuss.

 

 

   

 Quote of the Month


"Don’t limit yourself. Many people limit themselves to what they think they can do. You can go as far as your mind lets you. What you believe, remember, you can achieve."

Mary Kay Ash  

Suites 101-104, 118 Great North Road, Five Dock, NSW, 2046
PO Box 725, Five Dock, NSW, 2046
P: (02) 9370 0400 | F: (02) 9370 0444 | E: simeonico@simeoni.com.au
 

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