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MEANING OF "ORDINARY TIME EARNINGS" Super Guarantee Ruling SGR 2009/2 The Tax Commissioner has issued a ruling explaining the meanings of “ordinary time earnings” and “salary or wages” for superannuation guarantee purposes. The definition of “ordinary time earnings” (OTE) is relevant to employers for the purpose of calculating the minimum level of superannuation support required for individual employees under the Superannuation Guarantee (Administration) Act 1992 (SGAA). The definition of “salary or wages” is relevant in calculating the superannuation guarantee shortfall of individual employees where their employer has not provided the required minimum level of superannuation support. Ordinary time earnings (OTE) An employee’s “ordinary hours of work” for the purposes of the definition of OTE in s 6(1) of the SGAA are the hours of work specified as his or her ordinary hours of work under the relevant award or agreement, or under the combination of such documents, that governs the employee’s employment conditions. The document need not use the exact expression “ordinary hours of work”, but there needs to be a genuine distinction between ordinary hours and other hours. The other hours are expected to be remunerated at a higher rate, or otherwise identifiable as a separate component of the total pay in respect of non-ordinary hours. The “ordinary hours of work” are the normal, regular, usual or customary hours worked by the employee if they have not been specified in the relevant award or agreements. This is not necessarily the minimum or maximum number of hours worked or required to be worked. If it is not possible or practicable to determine the normal, regular, usual or customary hours, the actual hours worked should be taken to be the ordinary hours of work. The definition of OTE specifically includes overpaid payments, shift-loading and commission. It specifically excludes a lump sum paid to the employee on the termination of his or her employment, being a payment in lieu of unused sick leave, or an unused annual leave payment or unused long service leave payment within the meaning of the Income Tax Assessment Act 1997. All earnings are in respect of the employee’s ordinary hours of work unless they are remuneration for working overtime hours, or are otherwise referable only to overtime or to non-ordinary hours of work. There is no such thing as earnings that are merely in respect of employment generally and are not OTE because they are not in respect of any particular hours of work. The OTE for superannuation guarantee purposes may depart from what is specified to be the purported amount of OTE in the documentation. Specific kinds of OTE include allowances and loadings, bonuses, piece-rates, paid leave and holiday pay, top-up payments, payments in lieu of notice, workers’ compensation payments and directors’ fees. Payments that are not OTE include overtime payments, on-call allowances, and certain payments that are not salary or wages. Salary or wagesThe SGAA defines “salary or wages” inclusively in s 11. Unless specifically excluded, payments are included in the definition of “salary or wages” if they satisfy the ordinary or common law meaning of that term. Payments are also included in salary or wages if they fall within the extended definition in s 11(1). Apart from payments specifically included in the definition in s 11, “salary or wages” includes bonuses, leave payments, workers compensation payments. However, expense allowances, redundancy payments and payments for unfair dismissal are not “salary or wages”.
TAX PLANNING - STRATEGIES FOR MINIMISING TAX PAYABLE The end of another financial year is just around the corner. With 30th June only six weeks away, it is an appropriate time to make an assessment of the business’s financial position and perhaps implement some tax minimisation strategies.
Tax Planning involves the arrangement of a taxpayer’s affairs so as to comply with tax laws at the lowest possible cost, which involves objectively assessing and actively managing risk. Some common tax planning strategies include: 1. Deferring Income: a. Consideration should be paid to whether the entity is a Small Business Entity (SBE). SBE’s have an aggregated turnover of less than $2 Million. A SBE can access simplified income reporting in relation to deferring debtors and creditors. b. Taxpayers who provide professional services may consider, in consultation with their clients, rendering accounts after 30 June to defer their income. c. Consideration can also be given to deferring livestock or commodity sales. Marketing decisions regarding cash versus pooling can also be considered at this time with commodity that is yet to be sold. 2. Maximising Deductions: General Business a. Debtors should be reviewed prior to 30th June to identify and write off any bad debts. b. Review the asset register to identify any low cost or low value assets that may be pooled to access accelerated rates of depreciation. c. Write off any depreciating assets which are no longer being held for use because a deduction may be available. d. Employee’s superannuation contributions should be paid before 30th June to obtain a deduction in this year. e. Review trading stock for obsolete stock for which a deduction is available. f. A one off bonus deduction for eligible tangible depreciating assets purchased between 13th December 2008 and 31st December 2009 of 50% may be available (this measure has not received enactment). g. Small Business Entity Concessions – Increased Depreciation Rates Deductions for up to 12 months of prepayments No stocktake necessary for businesses that have trading stock valued at less than $5,000.
Capital Assets a. Investors should consider prepaying interest on margin loans to obtain a deduction. b. Consider deferring the disposal of an asset to the 2009/10 income year to take advantage of the changes to the individual tax rates. c. Consider deferring the disposal of shortly held assets to access the CGT discount where available. d. Consider crystallizing any unrealised capital losses in the income year if a significant capital gain is anticipated. e. Consider whether any roll over relief is available to defer any capital gains. f. Consider the availability of the small business CGT concessions which can disregard, reduce or defer a capital gain arising from disposal of an asset which has been used by an entity in the course of carrying on a business.
Trusts a. A minor (person under 18 years) can receive up to $2,667 in non taxable distribution for the 2008/09 income year. Superannuation a. Low income earners (including self employed persons) should continue making a personal super contribution to qualify for the government co contribution payment. b. Consider splitting contributions between spouses to effectively transfer concessional contributions to the older spouse who will reach age 60 first. c. A tax offset may be available to taxpayers who made eligible contributions to a superannuation fund on behalf of the low-income or non working spouse. d. Taxpayers who have reached the preservation age should consider the benefits of a transition to retirement pension. e. The government has introduced a measure allowing pensioners the option to draw half of the year’s minimum required pension amount. Primary Producers a. Farm Management Deposits – Must be a deposit for 12 months in the individual’s name of at least $1000 and no more than $400,000 that can be claimed as a tax deduction. You cannot claim a deduction if your off farm income exceeds $65,000. The withdrawal is assessable income in the year it is withdrawn. b. Income Averaging – Your primary production averaging income can help to lower your tax payable if your current year taxable income is higher than your average. If you think that you may require some assistance with implementing any of the above strategies, please do not hesitate to give your C & W Advisor a call today.
Professional Advice and Planning Grants The Exceptional Circumstances Professional Advice and Planning Grant provides eligible farm enterprises up to $5,500 (GST inclusive) to access professional business and financial advice to develop written business plans incorporating drought and risk management strategies. If you are eligible, this grant can:
This means that the grant can be used for business management services, farm technical advice (such as production/agronomic advice), natural resource management and risk management services. You may be eligible if you are a farmer and:
If your farm business has not undergone a viability assessment within the past 12 months, you must use part of your funding to do so. The viability assessment must be completed before other planning occurs, and your farm enterprise must be found viable before you use any further funding. Exceptional Circumstances Interest Rate Subsidy recipients accessing the Professional Advise and Planning Grant will not be required to undertake a viability assessment. Applications must be submitted by the 12 June 2009. Vouchers are then issued by Centrelink and must be used to pay for fees and services before 30 June 2009. Please contact your C & W Advisor for more details on how this grant could be used to improve your business.
BUDGET UPDATE Federal Government Budget
The Rudd governments second budget was handed last week and as seems to always be the case much of the nasty bits were “leaked” well before Mr Swan delivered his speech. Detailed below are some of the matters we believe will have an effect in our area.
Increase in Investment Allowance for Small Business Small business entities will be able to claim an increased investment allowance of 50% (instead of the previously announced 30%) of the cost of eligible assets acquired between 13 December 2008 and 31 December 2009, and installed by 31 December 2010. All other businesses will continue to access the investment allowance at 30% for eligible assets contracted for between 13 December 2008 and 30 June 2009, and 10% for eligible assets committed to investing in between 1 July 2009 and 31 December 2009, and installed by 31 December 2010. Small business entities need to invest a minimum of $1,000 on an individual asset in order to qualify for the 50% investment allowance. Pay As You Go (PAYG) Instalments — Cash Flow Relief for Small Business The Government will provide cash flow relief for small business by reducing Pay As You Go (PAYG) instalments for the 2009/10 income year for all taxpayers who pay quarterly PAYG instalments based on their previous year's tax adjusted by GDP growth. For the 2009/10 income year, the Government will reduce the GDP adjustment factor for calculating quarterly instalments under the GDP adjustment method from around 9% to 2%. This aligns the GDP adjustment rate with the expected consumer price index (CPI) for 2009/10 as forecasted. Senior Australians' Tax Offset As a consequence of the changes in the low income tax offset, the tax free income threshold for eligible senior Australians will also change. Currently, eligible senior Australians have no tax liability until their incomes reach $28,867 for singles and $24,680 for each member of a couple. With the changes to the senior Australians' tax offset, eligible senior Australians will have no tax liability until their incomes reach:
Private Health Insurance Rebate and Surcharge Changes The Budget contained the much anticipated measures to scale back the private health insurance rebate for individuals with higher earning capacities. From 1 July 2010, the Government will introduce three new "Private Health Insurance Tiers". These are as follows:
Personal Income Tax – Medicare Levy Low Income Threshold From 1 July 2008, the Government will increase the Medicare levy low income thresholds to $17,794 for individuals (up from $17,309 for the 2007/08 income year) and $30,025 for individuals in families (up from $29,207 for the 2007/08 income year).
Superannuation Changes Concessional Contribution Threshold Reduction From 1 July 2009, the concessional contributions cap will be reduced from $50,000pa to $25,000pa. This cap will be indexed. The transitional cap for people over 50 years old will reduce from $100,000 to $50,000, with a further reduction to $25,000 at 1 July 2012 (or equivalent indexed amount at that time). Non-concessional Contribution Threshold This remains at $150,000 (scheduled to increase to $165,000 at 1 July 2009). It will be indexed in line with the concessional contributions cap and will remain at six times that cap. Minimum Pension Withdrawal Reduction The account based minimum pension withdrawal requirements will continue to be halved for 2009/10. This is an extension of the initiative announced earlier this calendar year. This measure assists self-funded retirees by not forcing a sale of assets at reduced market values and allowing the capital base to be invested for the future. Co-Contribution Temporary Reduction The co-contribution will be temporarily reduced. Non-concessional contributions of up to $1,000 are currently matched by the Government with a co-contribution of $1,500 for people earning less than $30,342. The co-contribution will be phased out up to an income level of $60,342. The co-contribution will reduce to $1,000 in 2009/10, 2010/11 and 2011/12 and increase to $1,250 in 2012/13 and 2013/14. It is scheduled to return to the full $1,500 in 2014/15 and future years. Preservation age and pension age to increase to 67 The Government has announced that, in line with the Australia's Future Tax System Report, the age at which Australians can access their superannuation and the age at which they qualify for the Age Pension will be gradually increased to 67 years. The transition to the higher Age Pension age will commence in July 2017, with the qualifying age increasing by six months every two years, to reach 67 on 1 July 2023. This timeline dovetails with the current process for increasing the female Age Pension age, which was increased from 63.5 on Budget night (12 May) to 65 years of age by July 2013. The current Age Pension age for men is 65. Extension of First Home Owners Boost The Government will extend the first home owners Boost for six months. For eligible first home buyers entering into contracts between 1 July 2009 and 30 September 2009 (inclusive) the First Home Owners Boost will continue to provide $7,000 for the purchase of established homes and $14,000 for the purchase of new homes. In combination with the existing $7,000 First Home Owners Scheme grant, this means that first home owners will receive a total of $14,000 for established homes and $21,000 for new homes. For eligible first home buyers entering into contracts between 1 October 2009 and 31 December 2009 (inclusive) the First Home Owners Boost will provide $3,500 for the purchase of established homes and $7,000 for the purchase of new homes. When combined with the existing First Home Owners Scheme grant, this means that first home owners will receive a total of $10,500 for established homes and $14,000 for new homes. Paid parental leave but not until 1 Jan 2011 The government funded scheme will provide eligible parents with up to 18 weeks of leave at the Federal Minimum Wage. No super contributions from employers at this stage. Indexation of Family Tax Benefit A Date of effect: 1 July 2009 Family Tax Benefit Part A (FTB-A) payment rates will be indexed by the Consumer Price Index consistent with other family payments such as Family Tax Benefit Part B and the Baby Bonus. This will replace the current arrangement whereby maximum rates of FTB-A for children under the age of 16 are benchmarked to a proportion of the combined couple rate of pension payments, or adjusted by the CPI, whichever is higher. Indexation of family tax benefits ‘on hold’ The higher income thresholds for family payments will be maintained at their current level until July 2012. The following higher income thresholds will remain fixed until July 2012: the Family Tax Benefit Part B primary earner income threshold, which will remain at $150,000; the income threshold for receiving the dependency tax offsets, which will remain at $150,000; the Baby Bonus eligibility threshold, which will remain at $75,000 of family income in the six months following the birth or adoption of a child (equivalent to $150,000 a year); and the higher income-free area of Family Tax Benefit Part A, which will remain at $94,316 of family income (plus $3,796 for each child after the first). These thresholds would ordinarily be indexed by the CPI.
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