Tag: employees

Compulsory cashing now abolished in law

On 30 June 2006, following amendments to the SIS regulations*, the abolition of compulsory cashing of superannuation benefits was made law. This is the first 2006 Federal Budget superannuation proposal to be made law.

Originally, it was proposed to abolish compulsory cashing from 1 July 2007. A press release from the Treasurer on 13 June 2006 advised that the compulsory cashing rule would be brought forward to 10 May 2006.

Old compulsory cashing rules
Prior to the Budget announcements, a member’s superannuation benefits had to be cashed “as soon as practicable” after the occurrence of any of the following events:
1. the member attained age 65 but not age 75 and was not gainfully employed for at least 240 hours in the previous financial year; or
2. the member reached age 75 on 30 June 2004 and was not gainfully employed for at least 30 hours per week; or
3. the member reached age 75 on or after 1 July 2004; or
4. the member’s death.

New compulsory cashing rules
Compulsory cashing still applies if the member dies. The amendments only apply to cashing events 1, 2 and 3 above.

The amendments confirm that:

1. During the period 10 May 2006 to 30 June 2007 a member’s benefits in a regulated superannuation fund are not required to be cashed.
2. During the period 10 May 2006 to 30 June 2006 if a trustee cashed a member’s benefits under the old cashing rules, it is not a breach of the new compulsory cashing rules.

The wording of the amendments does not cover the period after 30 June 2007. It is assumed that the regulations will be amended in full prior to 30 June 2007 to address the ongoing abolition of compulsory cashing.

Tax Commissioner on SmallBusiness Compliance

The Tax Commissioner gave a speech to the Council of Small Business Organisations of Australia (COSBOA) in Melbourne yesterday [Mon 26.6.2006]. He talked about the Australian Tax Office’s approach to small business compliance and what the Tax Office is doing to make it easier for business to comply with its taxation obligations.
Some points from that speech included:

  • in 2004-05, the Tax Office collected about $4 billion of the total net tax receipts of $214 billion — the rest came in as voluntary compliance, supported by systems such as PAYG;
  • the Tax Office’s approach to administering the tax system is threefold: (i) it wants to maximise the number of taxpayers who choose to voluntarily comply by providing service excellence and by making it as easy as possible for them to understand and meet their obligations; (ii) the Tax Office seeks to treat taxpayers fairly in accordance with the law; and (iii) at the same time, it has strategies to deter, detect and address non-compliance;
  • Tax Office research has shown the majority of people starting a new business do not get information about tax obligations early enough. In response, the Tax Office has just released on its website an updated checklist for people new to business;
  • while 95% of micro-businesses use tax agents to prepare their income tax returns, over 50% prepare their own activity statements;
  • Tax Office staff answering phone calls now have a complete history of interactions with taxpayers onscreen in front of them;
  • in June 2004, the Tax Office gave small businesses with debts under $25,000 an opportunity to clear their debt under favourable terms. As at 5 May 2006, the Tax Office has negotiated some 2,000 promises to pay by instalments or in full to the value of approximately $50 million.

    • Rental Property deductions

    The Tax Office has identified common mistakes made by people declaring rental income and claiming deductions.

    In their returns for the 2004 tax year almost 1.5 million taxpayers declared rental income with 250,000 of these claiming deductions for the first time.
    Advice for first-timers

    For tax purposes there are two categories of rental property expenses you can claim:

    * expenses for which you can claim a deduction in the year they are incurred, such as council rates, insurance and loan interest, and
    * expenses which are deductible over a number of years, such as borrowing costs, deductions for capital works and deductions for the decline in value of depreciating assets.

    You cannot claim acquisition or disposal costs, although they may form part of the cost base of the property for capital gains tax purposes.

    You also cannot claim as immediate deductions the costs to repair damage, defects or deterioration that existed when you first purchased the property. They are capital expenditure and should be claimed as capital works deductions over either 25 or 40 years depending on when they were carried out.

    Renovation costs are also capital expenditure and should be claimed as capital works deductions over the relevant number of income years.
    Common mistakes

    There are some common mistakes made by both first-time and other rental property owners:

    * Incorrectly claiming the cost of the land as a capital works deduction, that is, as part of the cost of constructing or renovating the rental property.
    * Incorrectly claiming the cost of improvements such as remodelling bathrooms or kitchens or adding a deck or pergola as repairs. These are capital improvements and should be claimed as capital works deductions.
    * Overstating claims for deductions on the interest on the loan taken out to purchase, renovate or maintain the property. A loan may be taken out for both income-producing and private purposes, such as to purchase motor vehicles or other goods or services. The interest on this private portion of the loan is not deductible and should not be claimed.
    * Incorrectly claiming the full cost of an inspection visit when it is combined with another private purpose, such as a holiday. In such cases, you can only claim that portion of the travel costs that relate directly to the property inspection.
    * Claiming deductions for properties which are not genuinely available for rent.
    * Incorrectly claiming deductions when properties are only available for rent for part of the year. If a holiday home or unit is used by you, your friends or your relatives free of charge for part of the year, you are not entitled to a deduction for costs incurred during those periods.
    * Claiming deductions for items incorrectly classified as depreciating assets. The ATO has have produced a comprehensive list of more than 230 residential property items identifying whether they are depreciating assets eligible for a decline in value deduction, or as assets eligible for a capital works deduction. This list is in the Rental properties booklet. Call us if you would like a copy if this booklet
    * If you financed the purchase of your rental property using a split loan facility, you cannot claim a deduction for the extra capitalised interest expense imposed under that facility.

    From the ATO