Funny Stuff Tax Policy

Some people will find a way to complain…

This is a very good parable about how individual tax cuts will always have some people complaining…

Every day, ten men go out for beer and the bill comes to $100. They pay their bill the way progressive taxes work. The poorest four pay nothing. The fifth pays $1. The sixth $3. The seventh $7. The eighth $12. The ninth $18. The tenth man (the richest) pays $59.

The ten men are content, until the bar owner says he wants to reward their custom by reducing their bill by $20.

How will they divide the $20 windfall so everyone gets a fair share?

The owner suggests reducing each man’s bill by a higher percentage the poorer he is, to follow the principle of the tax system.

So the fifth man, like the first four, now pays nothing (100% saving). The sixth pays $2 (33% saving). The seventh $5 (28% saving). The eighth $9 (25% saving). The ninth $14 (22% saving). And the tenth now pays $49 (16% saving).

Each of the six is better off and the first four still get free beer. But outside the bar they compare their savings.

“I only got a dollar,” says the sixth man. He points at the tenth man, “but he got $10!”

The others agree. “Why should he get $10 back, when I got only $2?” yells the seventh man.

“We didn’t get anything at all,” yell the first four. “This new tax system exploits the poor!”

So they beat up the tenth man.

The next night he doesn’t show up at the bar so the other nine drink without him. But when it comes time to pay the bill, they discover they don’t have enough money between them to pay even half.

Cases FBT

FBT and Canberra Airport – my vicarious victory

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Many years ago I prepared to take the ATO to the AAT for a large entity on whether the car park at Canberra airport was a commercial car parking station. If it was, FBT was payable when employers provided parking at the airport for employees.

The definition of commercial car parking station states that the car park must be open to the public. The terms of parking at Canberra Airport are you must be a passenger or a “meeter or greeter”. I was ready to argue this was not the public, when the Commissioner conceded the case less than a week before the hearing.

I was happy with the outcome, the large refund for my client, and the lunch that the owner of the airport took me on… But… I wanted to argue my case. I wanted a judgement not a concession letter.

It might be a few years after my little victory but the same argument I ran just won the day again… But this time there is a judgement – See (Qantas v Commissioner of Taxation ).

I am going to claim that Qantas found out my little argument from the private ruling I put together or from the wonderful guys at Canberra Airport Group and claim a little piece of this victory.

By the way, do you think every airport will now change the conditions of its parking stations???

Please appeal the case Commissioner as I want another win!

Funny Stuff Tax Policy

Stop saying the rich should pay more tax, just do it

I am over rich people talking about that the rich should pay more taxes.

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Its not that I don’t think it is a good or bad idea (I recommended it in my pre budget ideas) but before they start telling others what is the right and proper thing to do they should start doing it themselves – practice what they preach.

In Australia most “rich people” own their wealth in entities. But these companies and trusts operate on a self assessment system. This means that the entity assesses what its tax is, not the Commissioner.

Therefore, if they really believe the rich should pay more they can do so. They just need to add an amount of income to these tax returns and watch their tax bill rise.

An easier option that even individuals can do is to just stop claiming any deductions. Throw away all receipts so you can’t make a claim.

The businesses they run could also stop claiming back the GST they incur. That would make a BAS a lot easier to prepare.

It not like the Commissioner is going to take you to court to repay you an amount…

An inspirational example might encourage other rich people to do the same…

There is nothing stopping them from doing what they say every rich person should do… So why don’t they do it? I would just be guessing if I suggested their heart was more interested in being known for saying it than actually doing it.

Don’t complain about fast food if you own a McDonalds and have a Big Mac in your hand…

And by the way the top 16.7% of the 12 million taxpayer individuals in Australia (who earn more than $80,000) pay 63.6% of all the income tax collected from individuals and the top 2.3% (who earn over $180,000 a year) pay 26.2% of all the income tax collected from individuals.

So if you think the top 16.7% are the rich and you earn more than $80,000, that makes you the rich…


Budget 2014/15 – Tax and Super announcements

Yes… I got it wrong…

The first Budget of the current government is pretty much as expected on a tax and superannuation front.

The big news, which we already knew about, is that the Government will introduce a three-year levy, called the Temporary Budget Repair Levy from 1 July 2014.

The Temporary Budget Repair Levy will apply at a rate of 2% on individuals’ taxable income in excess of $180,000. This effectively means the highest marginal tax rate will go from 47% to 49% (remember that the Medicare Levy goes from 1.5% to 2% on 1 July 2014 so the highest marginal tax rate goes to 47%).

Therefore, for these high wealth individuals, if they can bring income into this year, or push deductions to the following year they can save 2% of the amount. Year-end tax planning this year will be interesting.

A number of other tax rates that are currently based on calculations that include the top personal tax rate will also be increased. For example, the FBT rate will be increased from 47 per cent to 49 per cent from 1 April 2015 until 31 March 2017.

On the Superannuation front the main announcement is that the Government will allow individuals the option of withdrawing superannuation contributions in excess of the non‑concessional contributions cap made from 1 July 2013. This will mean inadvertent breaches of the non-contribution cap will result in a disproportionate penalty.

The second super change is to the schedule for increasing the superannuation guarantee rate to 12%. The superannuation guarantee rate will increase from 9.25% to 9.5% from 1 July 2014. The rate will remain at 9.5% until 30 June 2018 and then increase by 0.5% each year until it reaches 12%.

Other than these changes, most of the other changes to the tax system are minor, and include the following:

  • Both the Dependent Spouse Tax Offset and the Mature Age Worker Tax Offset, which have been limited over the last years, will not be available for anyone from 1 July 2014.
  • The income thresholds for the private health insurance offset and the Medicare levy surcharge will be frozen for 3 years from 1 July 2015.
  • The Research and Development Tax Incentive will see its rates reduced by 1.5%, effective from 1 July 2014. This will mean the rate for the refundable offset will be 43.5%.
  • The Seafarer Tax Offset will be abolished from 1 July 2015 – has anyone ever heard of this before this budget????

Some other interesting announcements include in the budget are that:

  • The Government will introduce a receipt for taxpayers providing information about “where and how their taxes were used”. You will start seeing these from 1 July 2014;
  • The Government will reduce ATO funding by $142.8 million over three years from 1 July 2015; and
  • The Government will abolish the First Home Saver Accounts scheme form Budget night, with no further Government co‑contribution from 1 July 2014 and not tax concessions from 1 July 2015.

Late last year the Government announced what it is doing regarding the announced but unenacted measures of the previous government.  In the Budget the Government has changed its position in relation to some of these measures. The Budget states that the Government has decided to:

  • Not proceed with changes that would have applied to multiple entry consolidated groups;
  • Modify integrity measures in relation to the foreign resident CGT regime;
  • Modify integrity measures in relation to the consolidation regime;
  • Defer the start date of the new tax system for managed investment trusts by 12 months to 1 July 2015;
  • Defer the start date of reforms to the offshore banking unit regime to 1 July 2015;
  • Defer the start date of the legislative elements of the measure to improve tax compliance through third party reporting and data matching to 1 July 2016; and
  • Not proceed with changes to better target tax concessions provided to charities and other not-for-profits organisations.

In summary, other than year end tax planning for individuals with taxable income over $180,000, there is little for us to be concerned about.


Budget lotto

Having worked as a lobbyist for the Institute of Chartered Accountants (the exact title was a tax specialist) and in the office of the Assistant Treasurer under the previous Government, I am supposed to have my inside information on what will happen on Tuesday night…

But my imaginary inside mole has forgotten to email me the complete Budget papers… So I am going to tell you what will be in the Budget for tax and super from consulting the stars, my crystal ball and a my wife’s tea leaves.

The best part of doing this is that you can all chuckle at me when I get it very, very wrong.

No points for guessing that the highest marginal rate goes to 49% or that indexation is back for the fuel excise… But I reckon they will announce changes to the taxation of super but they will come in AFTER the next election.

If you want to share the pain then super is a place to tinker with – changes to earnings tax rate, changes to contributions tax rate… But only after the 2016 election as there have been enough broken promises.

There is a lot of reasons to change the taxation of super.

1. Since 1992 when SG kicked off there has been no reduction on the percentage of the elderly on the pension – super concession are not keeping people off the pension as is regularly argued.

2. I spoke to lots of people when Div 293 tax was introduced (the extra 15% contributions tax for those earning $300,000+) and everyone said they were not going to decrease super contributions – so the Goverment decreased the “encouragement” to put amounts into super and there was no change in the amounts contributed… This means the original concession was obviously too generous.

I don’t want to guess exactly what they will do but the guess is super changes in 2016… And pretty much nothing else.

You can all laugh at me at 7:30pm tommorrow!!!!

Income Tax Legislation Planning Idea

Thin capitalisation is a thing of the past… For most

Thin capitalisation is one of those thing many of us learned to pass a tax exam, and have never thought of again.

In summary (a very, very quick summary) if you decide to fund your Australian operation with lots of debt rather than equity, you might have to pay heaps of interest but the thin capitalisation rules will deny tax deductions for the excessive interest.

Going forward that is about all most of us will need to know…

The Government has just released some draft legislation changing the thin capitalisation rules. The most important change is that “To minimise compliance costs for small businesses, the de minimis threshold for the application of the thin capitalisation limits will be increased from $250,000 to $2 million of debt deductions.”

This means that before you even need to consider thin capitalisation you need to have interest expenses for a year over $2 million. And thats the interest, not the loan. Unless the entity has loans upwards of $20 million to them, they wont have $2 million in interest and you can ignore thin cap…

Yeah… One less thing to worry about for SME advisors.

Tax Policy

Iphone your tax returns…

If you have always want to lodge your tax return through a smartphone, tablet or computer using their web browser you only have to wait till 1 July.

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From 1 July, the new “MyTax” website will allow certain taxpayers to review prefilled information before lodging their return.

So who can use MyTax?

– Australian residents
– income only from salary, wages, allowances, bank interest, dividends and/or Australian government payments;
– deductions are for work-related expenses, expenses related to interest or dividend income, donations and/or the costs of managing their tax affairs; and
– only offsets they want to claim are the senior and pensioner tax offset and/or zone and overseas forces tax offset.

But the most interesting thing is that if you fit within these categories last year, you are going to get an SMS or email from the ATO telling you that your return is prefilled and ready to go.

Which young tech savy taxpayer is not going to log on to check out this return… And if all they need is to complete some work related deductions they will be very tempted to lodge… Even if they have used a tax agent before.

It is expected that more than 10% of the 12.7 million individual taxpayers will use this. My guess it will be even more.

So if you don’t have…

– business income or losses
– rental properties
– partnerships or trusts income
– capital gains or losses
– foreign income
– lump sum payments
– employee share schemes
– superannuation income streams and – superannuation lump sum payments

You might never use a tax agent again…

And if you make money preparing “basic” returns…