Tax Time
Tax News
There are plenty of changes in this year’s tax return form – at a time when the proposal is well and truly out there to remove the need for individual income tax return forms! Who is kidding who?
The major change, resulting in 7 new labels in the tax return form, stems from the changes to the income tests which are used to determine eligibility to certain tax concessions and obligations. Salary sacrifice superannuation contributions, tax free pensions, “target foreign income”, and child support payments made are among the details which must now be reported on the tax return form.
There has been a change to the way in which foreign employment income is taxed. Many resident taxpayers working overseas are no longer eligible for the income tax exemption which previously applied.
For self-employed people, more detail is required for the “entrepreneurs’ tax offset”, in line with the tightening up of the income tests.
The ATO has found they require more information in correctly determining eligibility to the superannuation co-contribution. As a result, there is a new item, with three labels, in the return form.
The taxation of employee share schemes has changed, again requiring more disclosure on the return form.
What is the Tax Office doing?
The Tax Office has observed that the tax affairs of individual taxpayers are becoming increasingly complex: around 46% of adult Australians own shares; around 1.6 million own rental properties; and the number and value of work-related expenses is increasing every year.
As a result, the Tax Office is this year focusing its attention on the cash economy, work related expenses claims, deductions for personal superannuation claims, and rental property transactions.
Salary and wage earners make up the largest group of taxpayers (around 11.5 million), with around 43% of tax collected by the Tax Office coming from this group. The Tax has noted that since 2006 claims for work-related expenses have increased by 11%. Last year 7.6m taxpayers claimed deductions for work related expenses with the average claim being $1,920 (it is a point of interest that the proposal to remove the need for individual tax returns comes with the promise of a standard deduction of $500 for work expenses – a nice tax windfall!) This year they have set their sights on truck drivers, sales representatives, and electricians. Claims for car expenses are one of the largest claims made each year, and so the Tax Office is again looking closely at this area. It is worth noting that during the 2009 year the ATO conducted more than 5,900 audits on work related expense claims, resulting in $7.6m in adjustments for individual taxpayers.
Rental properties remain on the agenda, with particular attention being paid to the correct treatment of purchase related costs.
The cash economy continues to be one of the largest compliance problems for the Tax Office. Unreported income means a loss of both income tax and GST revenue, so the risk is particularly high. Consequently they are continuing to devote significant resources to enforcing compliance. In particular, they are focusing on those industries where the non-reporting of cash transactions is potentially significant. These include the building and construction industry, the taxi industry, restaurants and cafes, and parts of the retail and transport industry. In addition, and most significantly, they have also introduced benchmarks for certain trades. As at 30 June 2010 they had benchmarked more than 100 industries, and the list is increasing all the time. This means that if your performance falls outside of the norm they have established for your industry, you can expect a knock on the door. The simple advice is, if you are tempted to evade tax by using cash or barter transactions: don’t do it!
Superannuation is under close examination. The target areas are incorrect claims for personal deductions (the 10% work test) and excess contributions, under the new reduced caps from 1 July 2009.
Tax Time
When is my return due?
Income tax returns for the 2010 year can be lodged now. They are due for lodgment by 31 October, unless you are already on our lodgment program. If your 2009 return was lodged after 30 June 2010, then you must lodge this year’s return by 31 October. As always, it is best to get your information in to us early. Some people prefer to leave their lodgment as late as possible, if they are due to pay tax, in order to defer the payment. However an early lodgment does not mean that the payment will be required early, whereas a late lodgment, or lodgment on the due date, requires payment at the time of lodgment. That is, there is no benefit in delaying the lodgment. In fact it is better to know early what your liability will be, to enable you to plan better for it..
Do I need to lodge a return?
You are not required to lodge a tax return if your income is below $6,000. If you qualify for the Senior Australian Tax Offset (basically, if you are of the age to qualify for an Age Pension) then the threshold is $29,867 (or $25,680 if your spouse also qualifies).
However, if you have had tax taken out of any income, or if you have received dividends with tax credits, you will need to lodge a return to get your refund. You also need to lodge a return to claim any entitlement you may have to the Education Tax Refund. There is a simplified form for this, if you would not otherwise be required to lodge a return.
The bottom line is, if you are in any doubt, send us your information, and we will let you know what needs to be done.
What tax records do I need to send?
Our income tax worksheet is available to download at www.drtax.com.au/forms. Let us know if you cannot access it, but would like a copy, and we can mail one to you. It contains some more background information, and may be helpful to you in assembling the records we need. When you are ready you can mail, or email, your information to us, or if you prefer, you can make a time to deliver it to us in person. Sometimes, if the return is straightforward, we can prepare the return on the spot, so let us know when you are making an appointment if you would like us to do so.
Tax Facts
Personal income tax rates
|
2009/10
|
||
|
Taxable income
|
Tax payable
|
|
|
0 – 6,000
|
0
|
|
|
6,001 – 35,000
|
0
|
+ 15% of excess over 6,000 |
|
35,001 – 80,00
|
4,350
|
+ 30% of excess over 35,000 |
|
80,001 – 180,000
|
17,850
|
+ 38% of excess over 80,000 |
|
180,001 +
|
55,850
|
+ 45% of excess over 180,000 |
|
2010/11
|
||
|
Taxable income
|
Tax payable
|
|
|
0 – 6,000
|
0
|
|
|
6,001 – 37,000
|
0
|
+ 15% of excess over 6,000 |
|
37,001 – 80,00
|
4,650
|
+ 30% of excess over 37,000 |
|
80,001 – 180,000
|
17,550
|
+ 37% of excess over 80,000 |
|
180,001 +
|
54,550
|
+ 45% of excess over 180,000 |
| Medicare Levy | |
| Taxable income | Levy payable |
| 0 – 18,448 | 0 |
| 18,489 – 21,749 | 10% of excess over 18,488 |
| 21,750 + | 1.5% of entire amount |
A Medicare levy surcharge applies if you do not have private patient hospital cover, and your income exceeds $73,000 (or a combined family income of $146,000). These thresholds increase by $1,500 for each dependent child after the first.
| Low income offset | ||
| Taxable income | Offset | Effective tax-free threshold |
| 0 – 30,000 | 1,350 | 15,000 |
The offset reduces by 4c for every dollar of income over $30,000.
Note that the offset applies to children under the age of 18, so that the effective tax free threshold is $3,000 for the 2010 year. This offset will increase again next year.
Medical expenses offset
20% of excess over $1,500
It would be a hard government that should tax its people one-tenth part of their income. – Benjamin Franklin
Taxes grow without rain. – Jewish Proverb
When there is an income tax, the just man will pay more and the unjust less on the same amount of income. – Plato
