‘Backpacker Tax’ Back-Pedal

Sad businessman pushing hand truck with taxes. Tax time and taxpayer finance concept

Jacqui Lambie’s push for a reduction in the ‘backpacker tax’ to 10.5% has won senate approval yesterday. The 10.5% rate is in line with New Zealand. The pressure is back on the coalition in the lower house to agree to lower its proposed 19% rate to 10.5%, or the impending 32.5% rate will apply from January 2017.

The requirement for employers to register with the ATO as employers of working holiday makers (WHMs) to withhold at the new rate appears likely to remain. This is despite some concern raised in the senate report issued on 9 November about the regulatory burden, particularly on smaller employers. The ATO are describing it as a simple, once-off registration, so it is hoped that the ATO will make the process relatively straight-forward.

The 19% rate to be applicable to incomes up to $37,000 was included in a bill that was passed in the lower house last month. This aligns with the tax rate for residents for incomes between $18,200 and $37,000.  It applies to Subclass 417 (Working Holiday) and Subclass 462 (Work and Holiday) visas that allow people aged between 18 and 30 years of age from 38 partner countries to work in Australia for up to 12 months (Subclass 417 visa holders can apply for a second year visa).

The debate has dominated question time with both sides of parliament arguing that the other is threatening to make Australia internationally uncompetitive. Malcolm Turnbull stating that the backpackers affected may be considered non-residents, so the 19% represents a benefit to them which labour was effectively blocking by demanding 10.5%. Scott Morrison further arguing that under the 10.5% rate backpackers could be better off than Australian residents in certain circumstances. Barnaby Joyce pointing to the loss of revenue under a 10.5% rate.

Labour are arguing that the 10.5% supports Australian tourism and agriculture, backpackers spend their income in Australia and if the government does not agree it will force the 32.5% rate to apply.

It is humbly proposed that perhaps a 10.5% rate applying only up to 18,200 may be a compromise both sides could swallow, however we could very well end up with a 12 – 15% rate based in part on comments by Pauline Hanson.

 

Major US Tax changes imminent following Trump victory

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Prosperity through our extensive international alliances provides local knowledge with a global reach. In a time of rapid regulatory and commercial change these personal relationships will ensure we stay abreast of developments that may be of interest to our clients and friends.

With the recent victory of Donald Trump and the Republican sweep of the U.S. House and Senate, it is likely we will see significant tax legislation as early as 2017. President-elect Trump has proposed some of the largest tax cuts since Ronald Reagan. If Trump sticks to his campaign promises, here are the major changes his administration wants to make on individual taxes:

  • Reduce seven federal tax brackets to three. Rates for joint filers would be 12% (less than $75,000); 25% ($75,000 to $225,000), and 33% (over $225,000). Brackets for single filers would be half of these amounts. Currently, the top tax rate is 39.6%.
  • Increase the standard deduction from $6,300 to $15,000 for single filers and from $12,600 to $30,000 for joint filers while ending personal exemptions.
  • Head-of-household filing status would be eliminated.
  • Itemized deductions would be capped at $200,000 for joint filers and $100,000 for single filers.
  • Repeal the Affordable Care Act (ACA) and the related 3.8% tax on investment income for higher income taxpayers.
  • Repeal the alternative minimum tax and the estate tax.

For business taxpayers:

  • Reduce the corporate tax rate from 35% to 15%.
  • Extend the 15% corporate rate to pass-throughs (e.g., S corporations, partnerships and LLCs)—but only “small businesses” would enjoy the lower rate. “Large businesses” would be required to be taxed as C corporations to get the lower tax rate. However, no guidance has been provided on what the threshold is for a “large business.”
  • Repeal the corporate alternative minimum tax.
  • Firms engaged in manufacturing in the U.S. could elect to expense capital investments and deduct interest expense only to the extent of interest income.
  • Deemed repatriation of corporate profits held offshore at a one-time tax rate of 10%.

The House has proposed a platform that is similar to the Trump plan. Even though there is significant overlap in the two plans, we have a long way to go in predicting the specifics of the 2017 changes. However, we expect that significant changes are on the way.

Prosperity Advisers Recognised Globally for Technology Innovation

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This month in Shanghai, China Prosperity Advisers Group was privileged to receive a global award for Internal Technology Innovation of the Year. This highly competitive award recognises the achievements of Prosperity Advisers Group in technology and how the firm has embraced new ways of doing things to support its team internally and in connecting with clients. The award judging panel was chaired by US based professional services technology scion, Gary Boomer.

The prestigious award is part of an annual excellence program led by the Leading Edge Alliance (LEA) – an association of 200+ independent accounting and financial advisory firms from around the world across 620 offices in 106 countries.

Accepting the award on behalf of the Prosperity team, CEO Allan McKeown said “This award is testament to the dedication of Prosperity’s team, and seeing the work of Australian advisory firms recognised on the world stage is tremendous! Today our staff and clients expect accounting and financial advisers to have the latest technology and to quickly embrace emerging systems and cloud based solutions. The technology we developed which is the basis of this important award is the cornerstone of our practice because it is our client relationship and intelligence ‘hub’. Clients are the lifeblood of our firm and how we work with them through our people and technology to deliver smart solutions is what sets us apart.”

Also in Shanghai to celebrate the award win and to participate in international tax sessions with other LEA firms was Prosperity Director, Siobhan Sellick who says, “Technology is integral to the success of the accounting and advisory firm of the future. Prosperity Advisers is at the forefront of the push to embrace smart technology and software that will help us to serve our clients better, so they too can better compete and win in their respective fields. We are very proud to be recognised on a global scale for these achievements.”

The conference included working sessions on how professional firms across the world can share best practice initiatives for the benefit of our clients. Naturally, there was also a strong Chinese flavour that unmasked emerging opportunities from this economic powerhouse.

This award continues a string of accolades for the firm. Prosperity Advisers has recently taken out the NSW/ACT Accounting Partner of the Year Award from Xero, and was further recognised as finalist in two categories at the Australian Accounting Awards – Diversified Firm of the Year and for emerging leader Alex Hardy who was awarded Rising Star of the Year.

Opportunities for improved patient outcomes and fee growth

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Many of you would have heard that as a result of consultations with the Primary Health Care Advisory Group in August 2015, the Federal Government has legislated reform plans designed to increase quality of care. One of the key initiatives is the provision of comprehensive care plans to over 65,000 patients with chronic or complex conditions, who require ongoing care. The plan is to roll out to 200 practices nationwide who opt to become Health Care Homes.  Financial incentives will be available in the form of regular bundled payments. The total allocated funding until 2019 amounts to $114.3 million in additional funding and redirected MBS funding.

The Health Care Homes opportunity is a new approach to care in the community however as with any new reform program, it is important to plan carefully how and when to get involved so that your practice is well equipped to participate. There are some upfront differences that will arise with the new approach, not least the need for tailored care plans which need to be managed and scalable, and the integration with various practitioners will bring a raft of challenges.

Below are some of the areas to consider for practices looking to be involved:

  • The patient relationship will change.
    The Advocacy Group is of the opinion that increasing emphasis will be on regular contact instead of appointment based management as the focus will be less on today’s problem and more on the plan. Less face to face visits will be required as follow up and tracking can take place remotely using new technologies. Similarly, patient visits to allied health practitioners will become a regular visit as part of the care plan.
  • Collaboration with specialists and allied health practitioners will need to improve
    The main aim of the initiative is to provide comprehensively managed care to patients with seamless transition from practitioners to allied health practitioners. Building integrated networks with the required specialists and allied health providers to assure quality at a reasonable cost will be of the highest priority and is not an insignificant hurdle
  • Information technology will become ever more important
    Workflows will need to be tracked and actioned from multiple locations by multiple users. Information sharing between various practitioners will be of high importance and needs to be effortless in order to be successful. Automation of workflows is a key concept that will free up resources which can then be re-deployed where they add more value. Cloud based information sharing and data management will provide practices with an opportunity to minimise IT spend while at the same time enjoying application support and maintenance under a service model; the practice can focus on its core business without the need to maintain hardware and software. A seamless integration with billing and management analysis will ensure that changes in profitability can be identified early and profit can be maximised.
  • Communication needs to be open
    While traditional practice management will remain vital to running the practice efficiently, it is important to ensure that administration staff and nurses understand the deliverables and strategy behind the change in how the practice is run. Engaging them early and enabling them to contribute to the change will result in a smooth transition.
  • Staffing is critical to success
    As information technology and process flow management become increasingly important, having the right people with the right skills on your team is essential. Problem solvers and staff who embrace change to improve daily operations will be an asset to the practice and drive the change proactively, identifying risks and possibilities early. An understanding of new technologies, project management and also traditional practice management is required. It’s not the number of staff, but their quality and ability to leverage resources will be a key success factor.
  • Impact on associate doctors
    Feedback we have received from associate doctors is around the fear that over the long term the changes will benefit only practices and support staff and divert funding from associate doctors who will not be able to provide the desired client care due to a lack of resources. Careful consideration should be given to how rewards for associate doctors are aligned and the benefits of the new model will need to be tangible for them.
  • Fees per patient and profitability will be major key progress indicators.
    Funding comes with very little conditions and can be used as each practice deems fit to serve its patients the best way possible. This puts cost management and efficiency at the centre of the success of the new health care homes. Fees per patient will be a strong indicator regarding how much care each individual will require. Profit per patient will indicate the efficiency of the practice and ongoing improvement in operations over time.
  • Outcomes will be tracked over time and benchmarked.
    As only ten primary health networks have been nominated for the first stage it has already been announced that the results from these ten networks will shape the future of the program and the rollout into other areas. Regional averages of patient health improvement in areas such as diabetes, body mass index, strokes and other medical events will be used to compare the different approaches used by the different Health Care Homes. The better performers will be rewarded with additional funding while the lower performers might see funding withdrawn. This approach to KPI setting introduces a risk/reward mechanism to the management of individual health. It sets a new precedent for healthcare in Australia.
  • Not every Health Care Home will be successful.
    Due to the limited amount of conditions attached to funding, different approaches will be developed by different practices. As the public seeks to maximise the value of the spend on Health Care Homes, practices which score higher in benchmarking exercises can be expected to be granted additional funds for expansion while under performing practices will see funding reduced.

Overall, the aim is that successful practices will deliver improved services to patients. In order to do so, the practice will need to run efficiently which in turn will result in greater profitability for practice owners. As practices demonstrate this efficiency through better client outcomes, funding will increase which will again lead to further growth and profit potential.

At Prosperity Health we understand the challenges that Health Care Homes will be facing in the coming months. Our team is able to support practices with this new operating environment, provide teams with the right tools to analyse your success and help practices to plan and implement a strategy to achieve  beneficial outcomes for all involved To find out more, please contact Prosperity Health on 1300 795 515 or mail@prosperityhealth.com.au.