Economic update: Housing and property leading the economy again

In the wake of the Federal Budget consumer confidence has dipped in the quarter to June and our resilient Australian dollar is continuing to make our domestic outlook more difficult than it needs to be. This combined with the tragedy this week in Eastern Europe and escalating challenges in the Middle East makes geopolitical risk to the world higher than it has been of late.

The domestic cash rate remains unchanged at 2.50% and there is no sign of a rise to come in the near term. The Reserve Bank came out in early July and warned that Australians shouldn’t always expect house prices to rise and minutes in mid July indicated they will be holding rates steady until there are significant signs of improvement outside of the mining sector. On the positive, our economy has had moderate growth and there are continued signs that the transition away from mining is slowly occurring with growth in our tourism, oil and gas and property sectors.

Housing construction and new home sales have expanded significantly over the past year, although in the second quarter the pace of increase has moderated a little.

In international markets the US economy has continued to show very positive signs. The US Business output boomed over the month of June – manufacturing output and new orders rose at the fastest pace since April 2010 and job creation hit a four-month high.

A ‘mini-stimulus’ package from the Chinese Government has helped improve economic activity in the region. The Chinese economy has grown at an annual rate of 7.5% in the second quarter, up slightly from 7.4% in the first three months of the year.

The European share market was the only region posting losses in June, with slowed industrial growth.

The Australian bond market continued to perform steadily over the quarter with the UBS Australia Composite All Maturities Index increasing by 3.08%. Within the asset class Government bonds were the stronger performer gaining 3.55%, while corporate bonds increased by 2.57%.

While bonds performed well, Australian equities lost ground in the month of June, recording a loss of -1.45% as measured by the S&P/ASX 300. Over the entire quarter equities only recorded only a slight gain of 0.88%. [Read more…]

Watch our Federal Budget Briefing live

Prosperity Advisers’ National Tax Practice Leader, Stephen Cribb and Director of Financial Planning, Gavin Fernando talk about the real impacts of Federal Budget. 

With so many of our clients so busy running businesses, and in locations all over the country we have this year put together a recording of our Federal Budget Briefings in a video recorded on Google Hangouts.  If you were unable to attend these briefings, click on the image below to watch it live on our blog site.

PART ONE

PART TWO

Federal Budget 2014 – “Lifters not leaners”

An old proverb says “people unite over problems but divide over solutions”.  The weight of expectation lies heavily on Joe Hockey’s first Federal Budget to solve many many long standing fiscal problems without creating a war in the voter base over the solutions.  The budget sell is an appeal to a vision of a national ideal that Australians are “lifters not leaners”.  It is a sales pitch with modest increases in taxation and significant cost reduction measures including significant welfare reductions.  In return, the budget deficit will reduce from a projected $49.9 billion in 2014 to $29.8 billion in 2015.

Almost all the tax increase measures had been leaked prior to the budget.  Of 235 pages of budget measures, only 14 pages are devoted to revenue measures.  The headline revenue measure is the 3 year “Temporary Budget Repair Levy” of 2% which applies to income in excess of $180,000.  This increases the personal income tax rate to 49% from 1 July 2014.  To match the personal tax increase, the FBT rate increases to 49% from 1 April 2015.  Interestingly this means that there is a 2% benefit to packaging taxable fringe benefits for people on more than $180,000 between 1 July 2014 and 31 March 2015.  Will we see a salary packaging frenzy in the short term?  The same opportunity arises from 31 March 2017 to the end of the 3 year levy on 30 June 2017.  Indexation of the fuel excise is set to recommence ½ yearly by indexation to movements in customs duty rates on other fuels.  This will hit people at the bowser.

The balance of the budget is devoted to expense measures directed at cost management and reductions and which affects various forms of welfare.  In particular, the reduction in the income limit on primary earners for Family Tax Benefit B from $150,000 to $100,000 will sting the middle class from 1 July 2015 and apply only to children under 6 with a 3 year phasing out for older children.  From 1 July 2015 the Medicare rebate for a standard consultation will reduce by $5 with a doctor entitled to collect a patient contribution which would appear to create a $2 per visit windfall to doctors who choose to collect $7. Patients on concession cards and with children under 16 return to the current rebate after 10 visits each year.

Gens X, Y and late blooming boomers (born after 1 July 1958) will be hit by the increase in the qualifying age for the aged pension to age 70 by 1 July 2035. Pension income and assets threshold increases will be paused for 3 years from 1 July 2017.  The increase in the SGC rate to 12% will be slowed rising to 9.5% from 1 July 2014, remaining static to 30 June 2018 before rising over 5 years to 2023 to 12% and excess super contributions will become refundable.

Students will be affected from 1 July 2016 by a requirement to repay HELP debt at a lower starting income level set at 90% of the threshold that would currently apply, being in the order of $50,638.  However, the rate of repayment will reduce from 4% to 2% of income above the threshold.  The “cost of finance” on unpaid HELP debt will also be increased to a rate matched to the 10 year bond yield capped at 6%. Deregulation of fees for higher education will also shake up the cost of higher education.

What about small to medium enterprises? Not much.  $10,000 per employee to employ a worker over 50 who has been on benefits for 6 months.  A modest reduction in the refundable R&D tax offset of 1.5% applies from 1 July 2014 in anticipation of the drop in the company tax rate to 28.5% from 1July 2015.

All of these measures are of course subject to approval in a post 1 July hostile Senate which would appear to require cooperation with the Palmer United Party.  Early theatrics suggest that this could, at least, be entertaining.

Individuals & families

As a result of the need to improve the budgets bottom line, this years budget has focused heavily on individuals and families.

We note in particular that the changes to the family tax benefit part B will have a significant impact on many family budgets.

Deficit levy of 2% (Temporary Budget Repair Levy)

From 1 July 2014 to 30 June 2017, a temporary three-year deficit levy of 2% will be imposed on individuals with taxable income over $180,000.

A number of other tax rates that are currently based on calculations that include the top personal tax rate will also be increased accordingly (except the Fringe Benefits Tax rate) for the relevant 3 income years.  However to prevent high-income earners from utilising fringe benefits to avoid the levy, the FBT rate will be increased from 47% to 49% from 1 April 2015 until 31 March 2017 (see also companies section on FBT).

Example.  For a taxpayer with a taxable income of $200,000 per year, this results in an additional tax impost of $400 per year or $1,200 in total over three years.

 


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Economic update : the state of the economy and the markets leading up to the Federal Budget

The budget is coming.  With just two weeks to go it looks like, the Government will deliver a budget with a strong long term outlook and an amount of short-term pain including the introduction of a debt levy. Not surprising really given the state of the domestic economy and the sheer number of baby boomers that will leave the workforce in coming years.  

Over the last three months, our economy has behaved with relative stability.

The last quarter, and in particular, the last month has seen the Australian dollar rise adding more pressure to rebalance the domestic economy. On the flip side, housing prices have continued to rise over the quarter combined with an increasing level of building approvals showing confidence is certainly in place.

Interest rates have remained unchanged throughout the quarter at 2.50% and RBA Governor, Glenn Stevens has commented that further rate cuts are unlikely in the short term. The board appear more comfortable with the global outlook and are predicting a reasonable pick-up this year. In Australia, the housing market has rallied in recent months and household spending has continued to increase, encouraged by our historically low interest rates.

In international markets, the US and Euro Regions have shown improvements in recent months. The US Federal Reserve made the announcement in March to reduce asset purchases by a further $10 billion a month to $55 billion. Following on from this announcement, US 3-year and 10-year Government Bond Yields rose by 0.07% and 0.32% respectively.

Overall International Bonds outperformed global equities in March, with the Barclays Global Aggregate (Hedged) $A Index increasing by 0.31%. Treasury stocks and corporate bonds gained by 0.35% and 0.36% respectively for the month.

Australian equities posted modest gains in March, with the ASX 300 rising 0.21% for the month. Commodity prices declined by 2.0% for the month in terms of Australian dollar terms, largely coming from the fall of iron ore, coking coal and steaming coal. On a market capitalisation basis, large company stocks performed better than smaller companies. The S&P / ASX 50 Leaders Index increased by 0.33% in March, while the S&P/ASX Small Ordinaries Index posted a loss of 1.16%.

On a sector basis, Financials (ex-Property) was the best performing and gained 2.92% in March. All the big four banks also recorded another round of strong gains in March. Materials and Healthcare were the weakest sectors declining by -2.89% and -2.07% respectively.

While residential dwelling investments continue to expand, commercial properties (office buildings and large shopping centre investments) declined over the month. The Australian Listed Property Market posted a loss of -1.58%.

In international equities, the Fed’s further decision to taper and indication that quantitative easing could end earlier (possibly within the next 6 months) has resulted in a more optimistic growth outlook. The MSCI North America (Local Currency) Index posted a small return of 0.68% in March.

The best performing region was India with 4.75% over the month due to political optimism. Japan was one of the worst performers losing -7.51% in the first quarter of 2014 due to the sudden 3% sales tax threatening to endanger their recovery.

China lost -1.74% and Europe reversed its previous months strong position and lost -0.65% in March.

Global resources performed poorly in the month with the FTSE Gold Mines Index and HSBC Global Mining Index declining by -11.14% and -5.42% respectively.

Over the coming three months we expect, if there are no sudden changes to the global environment….

1. A Federal Budget that takes some positive steps to reduce the deficit, cutting welfare payments to those not working and incentivising mothers into the workforce; and

2. A stable interest rate environment that is supportive of business and consumer confidence.

The Federal Budget 2013-2014: Comedy or Tragedy?


As potentially the final act plays out in Treasurer Wayne Swan’s Federal Budget performances, it is perhaps fitting to ask the question – was this long drama a comedy or a tragedy? 

Tonight’s budget was a safety first affair, largely being a renouncement of previous big announcements designed to reassure the patrons before they prepare to leave the theatre.  There is nothing in this budget to give a strong indication that the box office will not close on 14 September when the Federal Election is held.

The Budget confirms the announced significant deteriorations in the fiscal outlook.  Deteriorating commodity prices, diminished company tax revenues, disturbingly low carbon tax and mining tax revenues.  The inability of the Treasurer to reliably estimate short term forward revenue over past months definitely presents as a comedy.

But in my view, this is a tragic budget.  This Government, in its possible final act, has decided to attack large corporates and foreign investors in ways that achieve modest revenue gains, but which clearly present the message to the world that Australia is indifferent and ungrateful to inbound foreign capital  investors, or to corporate innovation and research and development by large corporates.

R&D concessions are scrapped for businesses with turnover of more than $20 billion.  Thin capitalisation thresholds are potentially reduced from a debt equity ratio of 3:1 to 1.5:1.  Outbound corporate investors will lose a tax deduction for interest on borrowings against some foreign investments that produce tax exempt dividends (still ultimately fully taxed to shareholders).  We will apply a non-final 10% of face value withholding tax when foreigners sell commercial real estate, mining assets (or residential real estate with a value of more than $2.5 million). Ultimately, we will require all entities with a turnover of more than $20 million to pay tax instalments monthly, creating a permanent cash drain even on smaller businesses.

The announced superannuation reforms are simply ill considered, riddled with potential injustices and inconsistencies which demonstrate a lack of proper due diligence and a tendency to announce measures without fully assessing potential impacts. Expect a red tape boom as compliance costs soar across all these measures that, by their nature, must be complex.

Small to medium business gets just about nothing (again!).  Exceptions are the quarterly refund of R&D tax credits to small enterprises – a welcome cash flow reprieve – and the removal of the thin capitalisation rules where debt deductions are less than $2 million.

The big picture measures have already been announced – the Gonski Education Reforms, the modest “Industry and Innovation” package, DisabilityCare Australia (funded by an increase in the Medicare levy from 1.5% to 2% from 1 July 2014).  Reannouncements of big infrastructure projects mainly already in the budget (again).  There is nothing to capture the imagination of businesses (large, small or international) and set up the environment for the next economic boom.  This budget represents an opportunity missed and simply sets up this Government and its people to tread water until voters express themselves at our looming election.  But most tragic of all, many of these budget measures may never see the light of day in Parliament. 

 

INDIVIDUALS & FAMILIES

Increase in the Medicare levy

From 1 July 2014, the Medicare levy will increase from 1.5% to 2%. This increase in the levy will fund DisabilityCare Australia.

2012/13 Medicare levy low income thresholds

The Medicare levy low income threshold for the 2012/13 income tax year will increase to $20,542 for individuals and $32,279 for pensioners eligible for the Seniors and Pensioners Tax Offset.

The Medicare levy low income threshold for families for the 2012/13 income tax year will increase to $33,693, and the additional family threshold for each dependant child or student will increase to $3,094.

Net Medical expenses tax offset to be phased out

For those taxpayers who claim the NME tax offset in the 2012/13 income year they will continue to be eligible for the offset in the 2013/14 income tax year if they have out of pocket medical expenses above the relevant thresholds.

The relevant threshold for people with adjusted taxable incomes above $84,000 ($168,000 for couples) is $5,000 in out of pocket expenses and the rate of reimbursement is 10%. For those taxpayers who claim the NME tax offset in the 2013/14 income year they will continue to be eligible for the tax offset in the 2014/15 income year.

Income tax cuts deferred 

Income tax cuts that had already been legislated (by way of increasing the tax free threshold) and that were due to commence on 1 July 2015 will be deferred indefinitely.

Replacing the Baby Bonus with new family payment arrangements 

Family Tax Benefit Part A (FTB Part A) payments will be increased by $2,000, to be paid in the year following the birth of a first child, and $1,000 for a second and subsequent child. The additional FTB Part A will be paid as an initial payment of $500, with the remainder to be paid in seven fortnightly instalments.

As a result of these reforms the Baby Bonus will be abolished.

HECS-HELP discount and voluntary HELP repayment bonus discounts will end

From 1 January 2014, the following discounts relating to the Higher Education Loan Program will be removed:

  • The 10% discount available to students electing to pay their student contribution upfront, and
  • The 5% bonus on voluntary payments made to the Tax Office of $500 or more. 

Work related self education expenses

From 1 July 2014, a taxpayer will only be able to claim a maximum deduction of $2,000 for work related self education expenses.

Eligible work related self education expenses include costs incurred on a course of study or other educational activity such as a conference or workshop, and include tuition fees, registration fees, textbooks, professional and trade journals, travel and accommodation expenses and computer expenses, where these expenses are incurred in the production of the taxpayer’s current assessable income.

Introduction of CGT Withholding Tax Regime for Non-resident Taxpayers

From 1 July 2016, where a foreign resident disposes of taxable Australian property, the purchaser will be required to withhold and remit to the Tax Office 10% of the proceeds from the sale. This measure will apply to commercial property and residential property with a value over $2.5million.

 

CORPORATES AND BUSINESS

The dramatic fall in the health of the budget has meant that for the business community the budget delivers only bad news. This bad news comes in the form of bringing forward the timing of tax payments irrespective of the cash flow and administrative problems this may cause, or the tightening of other provisions such as the thin capitalisation provisions for international businesses.

In a business environment that is probably best described a fragile, let’s hope the budget doesn’t further hamper an already difficult environment.

Monthly PAYG Tax Instalments

Changes to the PAYG tax instalment system to be introduced by government will result in all large entities paying monthly tax instalments to the government. These changes will be an administrative nightmare and result in cashflow management issues for the entities affected.

The entities caught and timing of the changes have been summarised in the table below:

Entity Affected Date Monthly Instalments Begin
Companies with turnover greater than $1b. 1 January 2014
Companies with turnover greater than $100m. 1 January 2015
Companies with turnover greater than $20m and all other entities with greater than $1b turnover. 1 January 2016
All other entities with turnover greater than $20m. 1 January 2017

As shown in the table above these changes are far reaching in the number of taxpayers that will be impacted.

Foreign Non-Portfolio Equity Interests

Presently, the receipt of dividends from a non-portfolio investment of greater than 10% in a foreign company are treated as exempt from tax. These rules are going to be tweaked by the government to ensure they operate as intended.

This will include ensuring that the exemption flows through a trust or partnership correctly.

Interest Expenses Relating to Foreign Exempt Income

The government has announced that it will be amending the legislation to prevent an interest deduction being claimed with respect to the derivation of certain foreign exempt income.

Changes to Mining Concessions 

The generous tax concession available to the mining industry are being tightened to exclude acquired mining rights and information from those assets that can be claimed as an immediate deduction as part of the cost of assets first used for exploration. Affected assets will need to be depreciated over the shorter of their effective life or 15 years.

Only original costs of issue from government and genuine new exploration expenditure will qualify for outright deduction.

This does not apply to rights and information acquired from a government authority. These changes will apply from budget night.

Thin Capitalisation

As was expected by many advisers, the government has made the decision to tighten the thin capitalisation rules that apply to foreign companies that have operations in Australia and Australian companies that have operations overseas.

The government has increased the de minimis threshold from $250,000 to $2 million. This means that taxpayers with total interest expense below $2 million are not subject to the thin capitalisation rules. The rules broadly apply to disallow interest deductions where a taxpayer has more than $3 of debt to every $1 of equity. Interest deductions are reduced on proportionate basis.

The budget has proposed that this ratio be reduced to $1.50 of debt for every $1 of equity. This is a significant blow to both Australian companies that are looking to expand offshore and to international companies looking to invest in Australia.

For foreign multinational companies this is a significant change that makes Australia a less appealing place to carry on business. When the boards of these large foreign companies sit down to determine where to invest their capital, this is one extra reason to choose a country other than Australia.

The government has noted that these changes will apply to financial years beginning on or after 1 July 2014. These changes are significant and therefore it will be crucial to closely monitor the details of how these changes will be implemented and the drafting of the legislation surrounding these changes.

Other Changes Impacting Corporate Taxpayers

Other changes to note include the following:

  • Removal of dividend washing opportunities exploited by some taxpayers. This enables some sophisticated investors to claim franking credits twice by selling shares ex-dividend and re-purchasing other shares that carry a right to dividends.
  • R&D benefits have been scrapped for corporate groups that have greater than $20b turnover.
  • The changes previously announced by the government in the 2009/2010 budget with respect to the CFC and FIF provisions have been put on hold until the OECD has finished a review of international profit shifting. This announcement means that businesses with international operations face a longer period of uncertainty.
  • The Venture Capital regime will be amended to encourage ‘angel’ investors. This will be achieved through lowering the minimum invested capital requirement from $10m to $5m.
  • Various amendments are to be made to the tax consolidation provisions, to prevent taxpayers from obtaining unintended benefits, such as double deductions through shifting assets between groups and deducting liabilities twice.

 

CHARITIES AND NOT FOR PROFIT ENTITIES

Definition of Charity

A statutory definition will be applied to the term charity from 1 January 2014, rather than the reliance that is currently placed on common law principles. The statutory definition will however preserve these principles.

Not For Profit Tax Concession Changes

Planned changes to the tax concession that apply to commercial activities that are carried on by not for profit entities are to be delayed. These changes will commence from either 1 July 2014 or 1 July 2015 depending on when the activities commenced.

These changes will broadly mean that income tax concessions will not always be available for unrelated commercial activities carried on by not for profit groups. The availability of income tax concessions will only be available where the unrelated commercial activity profits are not directed back to the organisations altruistic purpose.

FBT, GST and DGR benefits will also not be available in relation to the unrelated commercial activities.

These changes could be far reaching for the not for profit sector and should therefore be considered in detail for clients that operate in this sector. This issue is further hampered by uncertainty surrounding what these provisions will actually entail when legislated.

 

SUPERANNUATION

Increase in concessional contributions cap

A temporary cap of $35,000 (up from $25,000) will apply from 1 July 2013 for individuals aged 60 and over. The increased cap will apply for individuals aged 50 and over from 1 July 2014.

The government will index the general cap of $25,000 that applies to everyone else from the 2015 financial year onwards. The increase in the cap to $35,000 will apply as follows:

Start Date Age Requirement
From 1 July 2013 60 and over
From 1 July 2014 50 and over
From 1 July 2018 No age requirement 

Example

Tony’s birthday is 12 May 1954. He is 59 years old on 30 June 2013. For the 2013-14 financial year, Tony’s concessional contributions cap is $35,000, and his non-concessional contributions cap is $150,000 (where the general concessional contributions cap is $25,000).

Removal of $500,000 superannuation balance test 

As a result of the above-proposed increase in the concessional contributions cap, the previously announced concessional contribution limit of $50,000 for individuals with superannuation balances below $500,000 will be removed.

Taxation of earnings on superannuation assets supporting income streams 

From 1 July 2014, future earnings (such as dividends and interest) on assets supporting income streams will be tax free up to $100,000 a year (to be indexed in $10,000 increments), and the balance of earnings will be taxed at 15%.

Under the current law, all superannuation earnings on assets supporting superannuation pensions and annuities are tax-free.

The change to the taxation of superannuation funds in pension phase will undoubtedly punish good investment performance. For example, the Government announcement points out that “assuming a conservative estimated rate of return of 5%, earnings of $100,000 would be derived from individuals with around $2 million in superannuation”. However, if a superannuation fund earns 10%, then it will be subject to tax for assets that are at the $1 million level.

Special transitional rules for capital gains

  • Special arrangements will apply for capital gains on assets purchased before 1 July 2014:
    • For assets that were purchased before 5 April 2013, the reform will only apply to capital gains that accrue after 1 July 2024;
    • For assets that are purchased from 5 April 2013 to 30 June 2014, individuals will have the choice of applying the reform to the entire capital gain, or only that part that accrues after 1 July 2014; and
    • For assets that are purchased from 1 July 2014, the reform will apply to the entire capital gain.

The government is yet to release draft legislation with respect to this measure but the flow-on impact, if legislated, is likely to impact other areas. For example, if after 1 July 2014 you buy a capital asset in your superannuation fund, sit on it for 10 years, and then realise a $1 million gain to fund your pension as a one-off.

Without further clarification from the government, it might be that averaging will apply to the capital gain, that is, $100,000 gain each year that the asset was held, thereby limiting tax exposure. Alternatively, $900,000 of the capital gain could potentially be taxed at a higher tax rate.

Tax relief for excess contributions

Many innocent people have been subject to a punitive rate of tax if they accidentally exceed their concessional contributions threshold. Individuals are taxed at 46.5% even if their personal tax rate is lower, where they have exceeded the cap. Moreover, if the excessive contribution was accidental, it has not been possible to withdraw the excess contribution and correct the error.

Pleasingly from 1 July 2013, it will be possible to withdraw the excessive contributions, be taxed at your ordinary rate with an interest charge on the benefit of a tax timing difference that arises because of the different tax payment dates of the superannuation fund.

Changes to government co-contributions

The government has introduced legislation to halve the co-contribution to $500 for eligible taxpayers.

The superannuation co-contribution matches eligible (after-tax) personal superannuation contributions made to a superannuation fund up to the maximum amount of $500. However, the government has recognised that this benefit is not as popular with the targeted group – lower income earners.

Increase in Superannuation Guarantee

The Superannuation Guarantee rate is gradually increasing from the current 9% to 12% by 1 July 2019 in 0.25% increments each financial year. From 1 July 2013, employer will be required to contribute 9.25% to superannuation.

The government has also increased the maximum age limit to 75 for when employers are required to make superannuation guarantee contributions for employees. Previously, employers were not required to make superannuation contributions on behalf of employees over the age of 70.

 

INNOVATION AND RESEARCH

While not specifically a budget measure, one of the key developments in 2013 was the announcement of the 1 billion dollar “Industry and Innovation Statement” in February 2013. Financials of this package were re-announced in the budget.  There are some beneficial elements which apply from 1 July 2013 in this package.

Research and Development

Following the announced changes, there are now three tiers of research and development support:

  • A 45% refundable tax offset for those businesses with an aggregated assessable income turnover of less than $20 million.
  • A non-refundable 40% tax offset which is available for businesses with turnover between $20 million and $20 billion.
  • Access to the ordinary dollar for dollar tax deduction rules, capital allowance rules and blackhole expenditure rules for large businesses that have a turnover of more than $20 billion.

Essentially, the message is that research and development incentives are not for the top end of town.

For businesses that are not yet cash flow positive and that have a turnover of less than $20 million, an important improvement in the refundable tax offset system is the ability to opt in for a quarterly refund from 1 July 2013. The refund for each quarter will be physically paid 28 days after quarter end. In theory, this means that the first payment of a quarterly refund would be 28 October (i.e. after the next Federal election).

Taxpayers can either choose to adopt a “safe harbour” instalment credit based on last years R&D claim. Alternatively, a reasonable assessment can be made. There are two key requirements in order to get the quarterly credit. The first is that the taxpayer must have a reasonable expectation of qualifying for the credit in this years income tax return. The second is that the taxpayer must have complied with all its obligations for the last five years and it must be reasonable to expect it will continue to comply. The ATO has a discretion to waive certain types of non-compliance.

Australian Industry Participation Authority

A non-revenue measure which has been announced by the government is that businesses that plan to initiate projects with a cost of greater than $500 million will be required to create an Australian Industry Participation Plan in the early stages of project planning to outline opportunities for local industry to participate in the project. The Australian Industry Participation Authority will then coordinate with industry to improve supply of local production, creating local jobs.

Projects which have a value of more than $2 billion will be required to “embed” Australian Industry Participation Officers.

Innovation Precincts

The government also announced plans to create up to 10 “innovation precincts”. The first two precincts have been announced in the manufacturing and food industries with hubs based around Melbourne. Participation in the precinct also opens access to a $50 million Industry Collaboration Fund which is aimed at getting different businesses aligned around common technology and process solutions required to drive that particular industry segment forward.

Venture Australia

An additional $350 million has been made available for new “Infrastructure Investment Funds”. In summary, approved managed fund operators will have the opportunity to place strategic investments in applicant businesses from this fund subject to the investment rules specified by government.

Enterprise Connect and Enterprise Solutions

The enterprise connect program has been expanded to include additional industry categories of professional services, information and communication technologies, and transport and logistics. This gives qualifying businesses the opportunity to work with a business coach to develop an appropriate business plan and is to apply for grant funding from the government to implement recommendations that are specified in that business plan. This can release $20,000 or in some cases more for businesses to address improvements to systems and processes.

Additionally, the government intends to proceed with a program to assist growing businesses to develop their capabilities to meet the standards for supply required by government.

Finally, qualifying businesses will gain access to “Gold” Executive Training (Growth Opportunities Leadership Development). This is a new executive training program aimed at building the next generation of leaders in future industry employers.

110 Financial Year End Planning Ideas

With only a week and a half to go, time is running out to get your year end actions in order.  Given the drought of opportunity in this year’s Federal Budget, many are rightly wondering “what should I be thinking about” and “have I missed the boat on something I don’t know about”?  We can report that year end planning is alive and well and that there are still things that you can do both before 30 June 2012 and in July, that will add significant value to your affairs.   So if you are stuck wondering whether you have missed the EOFY boat of opportunity, wonder no more.  Here are 110 ideas to spice up your year end.

The ideas have been grouped into the following categories so you can review the ones relevant to you:

  1. Individual
  2. Superannuation
  3. Investments and Capital Gains Tax
  4. Trusts
  5. General businesses (if you carry on a business as a sole trader or through a company, trust, or partnership)
  6. Small business entities
  7. Other issues

 

Individuals

1.  Review your private health insurance arrangements

  • Confirm whether you are a member of a corporate health insurance program to obtain discounts on premiums.

2.  Prepay private health insurance

  • Prepay your private health insurance expenses for up to 30 months in advance before 1 July 2012 to continue the full 30% rebate, From 1 July 2012, the rebate is to be means tested for singles earning more than $84,000 and families on $168,000.

3.  Reduce taxable salary by packaging FBT exempt items

  • Consider salary packaging a laptop, tablet (e.g. iPad) or phone (e.g.) iPhone if you are using them predominately for work-related purposes

4.  Time retirement  and golden handshake payments prior to 1 July 2012

  • Obtain a 30% tax rebate by paying retirement golden handshakes up to $175,000 before 1 July 2012.  From this date, where earnings exceed $180,000, the rebate will no longer be available (up to $52,500 additional tax cost).  You must retire from a position, not necessarily all employment.

5.  Gifts and donations

  • Make your donations before 30 June 2012.

 6.  Prepay the interest of your investment loan

  • Consider a 12 month prepayment on investment loans, generating a tax refund/ reduction in tax payable of up to $47.50 for every $100 of interest prepaid.

 7.  Borrow to prepay interest on your investment loan

  • You do not need to have cash in the bank to prepay an investment loan.  Consider borrowing to fund the prepayment or drawing back on home mortgage facilities.

8.  Other Prepayments

  • Prepay your professional fees, work related course (e.g. MBA fees), or annual professional body registration fees.
  • Consider prepaying your tax agent/ accounting fees.

 9.  Inspecting your investment property

  • Make sure that your calendar records your inspection/s of your rental property and ensure you keep documentation of your travel expenses.

 10.  Obtain quantity surveyor’s report

  • For new or existing investment properties ensure you have a quantity surveyors report to justify depreciation on plant, fixtures and buildings.

 11.  Transfer investment assets to investment structures

  • To avoid the new superannuation contributions surcharge, consider placing investments in other structures to reduce your qualifying personal income below the new $300,000 threshold.

12.  Uniforms and work clothes

  • Consider upgrading your work wardrobe if your work clothes qualify for deduction.  In addition to classic uniforms, some suits and modern office wear also qualify where the garments carry certain attributes.

13.  Home office expenses

  • Complete a 4 week diary to justify your claim for home office expenses.

14.  Car expenses

  • Document a new log book (12 weeks) for your work related car travel, particularly if business use has substantially increased.

15.  Work/ income producing travel

  • Ensure appropriate travel diaries have been documented for costs to be deducted.

16.  Work expenses

  • Where work expenses are greater than $300, obtain written evidence of expenses.

 17.  Bring forward medical expenses for June

  • Review your family’s out-of-pocket medical expenses.  If they are close to $2,060 which is the threshold you are eligible to claim a tax offset of 20% of the excess over $2,060.  As the threshold resets each year, consider bringing forward medical expenses to maximise the effect of the rebate

18.  Additional Leave Purchase

  • Consider salary sacrificing for purchase of additional annual leave.  A sacrifice that reduces your 2012 income will reduce your current year taxable income.

19.  Work for hospitals and not-for-profit organisations

  • Consider topping up the salary packaging your personal expenses (for hospitals up to $9,094.80 per year = $349.80 per fortnight) without the payment of any tax.
  • For public benevolent institutions up to $16,050.

20.  Living away from home allowance (LAFHA)

  • Evaluate repackaging/ improving documentation. LAFHA will no longer be subject to the Fringe Benefit Tax laws but rather be shown as an assessable allowance on your annual PAYG summary increasing your taxable income and then claiming an offsetting deduction.

21.  Consider upgrading your packaged car

  • If your company car has a high trade-in value but low residual value, consider trading in your old car.  The excess can be applied to reduce the rollover finance.  This reduces the base value of your car for fringe benefits tax purposes, lowering the packaged cost of the car.

22.  Package a fuel efficient diesel car

  • Fuel efficient diesel cars do not attract luxury car tax, the rollover may reduce your refinance by $,000’s together with the base value of your car.

23.  Distribute income

  • Consider distribution of income and adjustable taxable income under $250K threshold to keep your deduction for possible non commercial losses.

24.  Defer term deposit maturity

  • Defer recognition of income by deferring maturity of term deposits to post 30 June.

25.  Associate lease

  • Consider associate lease which could act as income split by reducing high income earners package and move income to low income spouse.

 26.  Transfer investment ownership

  • Put income earning investments in low income spouses name e.g. term deposits, shares.

 27.  Log book currency

  • If you claim motor vehicle expenses using a log book, make sure that you have a current log book.

28.  Refinance

  • Consider refinance opportunities from credit loans that may allow the business to borrow and repay credit loans from owners in turn paying out non-deductible personal loans.

29.  Estate planning

  • Ensure estate planning is considered for any significant event that has occurred during the year (e.g. marriage, new children/ grandchildren, restructure of business or investment assets).

30.  Consider changes to debt arrangements

  • 30 June is a good time to consider your bank debt and options to convert non-deductible (e.g. home mortgage ) debt to deductible debt.

31.  Take out tax audit insurance

  • Take an audit insurance policy which provides your peace of mind against the substantial cost that may be incurred should the ATO or other government agency conduct a random review, investigation or audit.

32.  Use a credit card to pay tax liabilities

  • Yes, believe it or not, the ATO takes Master Card/Visa/Amex to pay your tax instalments and get those frequent flyer points.  Note some Amex customers obtain only ½ a point, so check first.

33.  Appointment of tax agent

  • Make sure you appoint your tax agent before 31 October 2012 if you haven’t done so to adopt late lodgement date for your tax affairs.

34.  Review income protection insurance arrangements

  • Examine current levels of income protection insurance and consider whether increases are appropriate having regard to pay increases/ additional business profits.

35.  Review first home buying strategy

  • The 2012/13 NSW budget provides up to an additional $19,245 in grants and concessions to first home buyers.
  • However, funding is available only for new real estate.  This may affect the decision to buy an older property.

 

 

Superannuation

36.  Salary sacrifice additional concessional (tax deductible) employee contributions

  • Consider additional contributions (including superannuation guarantee contributions) to use up unapplied annual thresholds to save the difference between your marginal tax rate and the superannuation contributions tax rate (e.g. 46.5%-15% = 31.5% tax saving).
    • General employees: $25,000.
    • Over 50: $50,000 (Note this is the last year for over 50’s to contribute $50,000 following budget changes).
  • Review contributions paid in 2012 contribution year and you should be aware of the contribution caps (unpaid cap amounts are not carried over to future financial years and excess contributions tax will apply on overpaid cap amounts).

37.  Consider eligibility to make personal tax deductible contributions

  • Where employment is less than 10% of total income you may qualify to make tax deductible personal (non-employment) contributions.

38.  Consider making additional personal non-concessional (non-deductible/ assessable) contributions

  • Consider contributing spare after tax cash to superannuation to thresholds (no tax deduction and no tax in the fund). Accrue future earnings at low tax rate of between 15% and 0%
    • $150,000 per annum; or
    • bring forward contributions for 3 years to a maximum one-off contribution of $450,000.
    • Watch further age based limits which apply.

39.  Confirm you have not made “excess” superannuation contributions

  • Contributions (concessional and non-concessional) that exceed the relevant thresholds can be subject to tax at top marginal rate or greater.

40.  Consider borrowing to make superannuation contributions

  • For business, borrowings to fund employee superannuation contributions will be tax deductible.

41.  Review minimum annual pension (income stream) payments

  • Take out minimum pensions for 2012 income year before 30 June 2012.

42.  Government co-contribution

  • Make an after-tax contribution into super to qualify for the government co-contribution. If your income for the financial year is below $31,920, you’ll receive a $1 for $1 benefit up to $1,000 and the co-contribution will be phased out until income reaches $61,920 when it will disappear.

43.  Split super contribution with your spouse

  • If your spouse earns less than $13,800, make an after-tax contribution up to $3,000 and qualify for a maximum tax offset of $540.

44.  SMSFs: Keep within in-house asset rules

  • If your self-managed superannuation fund’s in-house asset holding is more than the 5% limit on in-house assets, reduce it by 30 June 2012.

45.  Commence your superannuation pension prior to 1 July 2012

  • Consider commencing your pension in June 2012, no minimum pension payment is required until the next financial year.

46.  Obtain market valuations of SMSF assets

  • Evaluate whether it is appropriate to commission a market valuation of key assets such as real estate (the ATO requires these valuations to be conducted at least every 3 years).

47.  Review  insurance arrangements

  • Review death and disability insurance arrangements for adequacy.
  • If these policies are held outside superannuation, consider the benefits of moving.

48.  Update investment strategy of your self-managed superannuation fund

  • A superannuation fund is under a legal obligation to have an investment strategy.  Failure to have an adequate investment strategy can result in a breach of the law and affect the tax status of the fund.

49.  Consider superannuation reserving to protect volatility to members

  • A reserving strategy involves applying superannuation profits to a general “reserve” as opposed to a member’s accrued benefits.  The reserve can serve, amongst other things, as a buffer to shield members against potential profit volatility.

 

 

Investments and Capital Gain Tax

50.  Defer capital gains

  • For assets that are likely to generate a capital gain, consider deferring the disposal until after 30 June. Be mindful that the time of the disposal is the time of the making of the contract, not settlement.

 51.  Hold assets for >12 months before selling

  • To obtain the CGT discount, you must hold the asset for more 12 months (measured from date of buy contract to sell contract).

52.  Crystallise capital losses

  • Reassess your capital assets and investment portfolio, if there are assets in an unrealised loss position; consider crystallising losses to offset capital gains or to carry forward to offset future gains.

 53.  No “wash sell”

  • Do not sell an investment in June (e.g. 100 shares in Qantas) and repurchase the identical asset in July for the purposes of reducing tax.  Genuine portfolio adjustments are OK.

 54.  Disposal of small business

  • If you sold your business during the year, consider accessing the small business CGT concessions and contributing some of the proceeds to your superannuation fund. The contribution will not count towards your $150,000/ $450,000 non-concessional contribution limit (refer below).

 55.  Transfer commercial property

  • Consider transferring commercial property into super and access to small business CGT concessions and stamp duty concessions in NSW.  There may be potentially no CGT on sale and a cash release from the superannuation fund.

 

Trusts

56.  Confirm that your trust deed complies with recent legislative and case law developments

  • The income tax law and a series of recent cases have clarified the options available to trustees to distribute income.  Make sure your trust deed accommodates these developments.

 57.  Conduct a trustee income distribution resolution meeting before 1 July

  • Ensure your calendar reflects the meeting the trustee/s held to distribute income to beneficiaries.
  •  Ensure an appropriate distribution resolution is passed.  Failure to do this properly could result in the trustee being taxed at 46.5%.

 58.  Consider distributing franked dividends to resident beneficiaries

  • Australian residents will be able to claim the franking credits attached.  If their marginal tax rate is less than 30%, the credits are refundable.

 59.  Consider distributing interest income to non-resident beneficiaries

  • Interest income distributed to non-resident beneficiaries attracts only a 10% withholding tax.

 60.  Consider distributing foreign income to non-resident beneficiaries

  • Distribute foreign income to non-resident which potentially results in no Australian Tax Liability.

 61.  Distribute $416 to the minors under the age of 18

  • You can distribute $416 tax free money to your child who is under 18 years of age for 2012 financial year.

62.  Distribute $16,000 to the children aged over 18

  • You can distribute up to $16,000 tax free money to your child who is over the age of 18 to utilise the tax free threshold and low income tax offset for 2012 financial year if they are full-time student and earning no other taxable income.

 

 

General businesses (if you carry on a business as a sole trader or through a company, trust, or partnership)

63.  Consider timing of revenue recognition

  • If you business revenue is assessable when invoiced, consider timing of invoice runs for post 1 July 2012.

 64.  Write-off bad debts

  • Review and physically write off bad debt before 30 June 2012, either by writing-off in the books of accounts or passing a resolution of the decision to write off the debt.

 65.  Scrap obsolete trading stock

  • Scrap obsolete trading stock prior to 30 June 2012.

 66. Conduct year end stocktake

  • The closing value of trading stock is included in the income of your business.  It is therefore important to ensure an accurate count of trading stock is conducted to ensure that stock no longer in inventory is not accidentally included in year-end income.

67.  Consider valuation of closing trading stock

  • Trading stock may be valued at the lower of cost, market selling or replacement value.  Examine which value produces the lowest closing trading stock value and maintain evidence of the basis for your valuation.

68.  Prepay small business expenses

  • Prepay business expenses under $1,000.
  • Prepay the salary or wages.

69.  Annual leave loading

  • Ensure leave loading is paid prior to year end.  Unpaid accrued leave loading is not tax deductible until paid.

70.  Bonuses & directors fees

  • Ensure employment contract contains a legal obligation to pay at 30 June 2012; or
  • Pass a properly authorised resolution to show the legal commitment to pay.  Cash payment is not required prior to year end to qualify.

71.  Scrap obsolete or unwanted assets prior to year end

  • The remaining undepreciated value becomes deductible.

72.  Review effective lives

  • Taxpayers may self-assess effective lives of plant to depreciate assets faster than the Commissioner’s safe harbour rates if justified.  This can accelerate depreciation deductions.

73.  Pool low value assets

  • Assets worth less than $1,000 can be allocated to a low value pool and access a flat 18.75% deprecation deduction even if the asset is acquired as late as 30 June 2012.

74.  Pay owner superannuation contributions to obtain deduction

  • Ensure the superannuation contributions ($25,000/ $50,000 refer above) are paid before 30 June 2012 to obtain a tax deduction.

75.  Prepay June quarter SGC minimum contributions

  • Make sure you pay June 2012 SGC payments before year end. While technically due on 28/7/2012 to meet the employer super guarantee obligations, bringing payment forward locks the deduction into the 2012 year.

76.  Review Franking for credits

  • For companies, consider paying a dividend either at 30 June or 1 July to release profits and franking credits to shareholders.

77.  R & D tax offsets

  • If you are an Australian company who have incurred at least $20,000 notional deductions on ‘core R&D activities’ or ‘supporting R&D activities’, you may be eligible to claim an R&D tax offset under the R&D tax incentive. Consider reviewing and assessing your eligibility under the new R&D tax incentive which is effective from 1 July 2011.
  • A 45% refundable tax offset, equivalent to a deduction of 150%, will be available to eligible small companies with an annual aggregate turnover of less than $20 million. A 40% non-refundable tax offset will be available to companies with an annual aggregate turnover of $20 million or more – equivalent to a deduction of 133%.
  • If your company is an R&D entity and you want to claim an R&D tax offset in your company’s income tax return, you must first register your R&D activities with AusIndustry (who act on behalf of Innovation Australia)
  • Then you can claim the R&D tax incentive in your income tax return. You must lodge the R&D tax incentive schedule with your company tax return.
  • You must also keep specific records that demonstrate the relationships between your expenditure and your R&D activities.
  • If you are going to pay someone to help you with your tax return or R&D tax incentive schedule, you should first make sure they are a registered tax agent as suggested by the Taxation office.

78.  Review employee package and benefits

 

  • Review employees’ LAFHA benefit particularly Living-away-from-home allowance to make sure you are complying with changes for a contract entered after 8 May 2012.

79.  New employee Payroll Tax Rebate

 

  • Register new employees with the Office of State Revenue. You may be eligible for $4,000 rebate per new employee.

80.  Purchase assets costing $300 or less

  • Consider purchasing any assets less than $300 and get an immediate deduction.

81.  Repairs and Maintenance

  • Consider bringing forward repairs & maintenance.

82.  Thin Capitalisation

  • Undertake draft thin capitalisation calculations to determine if necessary to inject equity into company before year end.

83.  Division 7A issues (Loans and payments from private companies to shareholders)

  • Review your accounts leger and ensure there are no payments made to shareholders or their associates in the profit and loss statement for which an arm’s length service was not provided (e.g. home extension charged to repairs and maintenance).

84.  Lease vs. buy

  • Consider leasing equipment/motor vehicles instead of buying, as the lease payments may be fully deductible while depreciation on land and buildings may be limited.

85.  GST on hire purchase

  • For those taxpayers on a cash basis, consider delaying the entering into of HP agreement until on or after 1/7/2012 to ensure they will be entitled to a full input tax credit.

86.  Builders and contractors: beware the Personal Property Security Register

  • Make sure to register your security interests over your tools, machinery, equipment and building material with Personal Property Security Register to ensure protection of ownership and rights.

 87.  Transfer pricing (International companies)

  • Review the management fees charged between the entities, and ensure appropriate management fees are charged to the right entities.

88.  New contractor tax reporting requirements for building and construction sector

  • Beware that the new “Taxable Payments Report” will require building and construction sector operation to report on certain payments made to contracts from 1 July 2012.

 89.  June 2012 PAYG instalment

  • Vary your June quarter PAYG instalment if you estimate the taxable income of your entity is substantially lower than last year.

 90.  Payroll Tax

  • The threshold for payroll tax liability is assessed each year, so consider paying more wages/bonus to reduce taxable business profits if the current total wages are below the payroll tax threshold.

 91.  Evaluate applying for additional government assistance funding

  • The NSW government has increased assistance to small business by 50%. 
  • Consider options to access this additional funding including matched funding of $20,000 for $20,000 of your own business funding for eligible activities.

 92.  Export market development grant

  • Assess the eligibility for Export market development grant which may reimburse you up to 50% of eligible export promotion expenses above $10,000 provided that the total expenses are over $20,000.

 93.  Consider large proprietary company requirements under Corporations Law

  • Ensure that you consider large proprietary company requirements which may require more sophisticated reporting and an audit for growing businesses.

 94.  Confirm any audit requirements for foreign owned companies

  • Confirm any audit requirement based on foreign ownership or being large and actions related to confirming if any exemptions can apply or if they can take action pre 30 June to get within small company definition.

95.  Tax Losses

  • Be aware what is available to you and how you may use it.

96.  Decision to consolidate

  • For wholly-owned corporate groups, evaluate and consider forming a tax consolidated group to simply the tax administration work.

 97.  Model carbon tax impacts and examine methods to pass on costs

  • Review supplier arrangements and determine likely cost increases/ opportunities for renegotiation.
  • Review customer contracts and examine scope to increase prices and pass on costs.

98.  Create a 2012/13 revenue and cash flow forecast

  • Demonstrate that your business is prepared for the new year by creating a revenue and expense forecast for 2012/13 to determine likely trends and outcomes

 99.  Update and document your business plans for 2012/13

  • Capture your objectives for the new financial year and beyond in a documented plan that you can use to share with stakeholders and to baseline performance.

 100.  Schedule performance reviews for key employees

  • Schedule a formal meeting to provide performance feedback and set goals for the new year.

 101.  Update employment contracts and benefits for employees

  • Ensure your employment contracts have been updated to protect your business with modern confidentiality and restraint clauses.
  • Consider incorporating performance incentives that align performance to business objectives.
  • Review packaged benefits to determine whether the after tax value of the package can be increased without increasing total cost to the employer.

 102.  Employee share schemes

  • Consider the benefits of an employee share scheme including the ability to provide a $1,000 discount to employees tax free.

 103.  Assess the value of providing employee discount cards

  • A low cost way of adding perceived value to an employment contract is the provision of an employee discount card.  Evaluate whether this is worth implementing and announcing in conjunction with annual remuneration reviews.

 104.  Assess the value of providing an executive program for senior employees

  • In reviewing packages for senior executives employees, evaluate the benefit of offering an “executive program” to assist them in the management of their financial affairs.

 105.  Look at outsourcing payroll and other admin functions

  • June is a great time for businesses to consider relieving themselves of the burden of their payroll responsibilities, including general administration, leave management, SGC payments etc. you could also add a review of employee benefits, including corporate super, if it suits.

 106.  Review corporate superannuation plan

  • The year end is a key point where employees will be assessing the performance of their corporate superannuation policy.  Review policy performance.

 107.  Defer reorganising business assets until 1 July 2013

  • The NSW government has again deferred the removal of stamp duty for the transfer of business assets.  Re-evaluate current proposals and look at rephasing to post 30 June 2013

“Small business entities” (turnover of less than $2 million)

108.  Purchase assets costing $1,000 or less

  • Consider purchasing any assets less than $1,000 and get an immediate deduction if you are using the simplified depreciation rules.

 109.  Defer plant and motor vehicle purchases to post 30 June 2012

  • Form 1/7/2012, immediate write-off threshold increased from $1,000 to $6,500. So if you are thinking of purchasing a new asset valued within the range of $1,000 to $6,500, defer your purchase until after 1/7/2012.
  • Also small business entities can claim an immediate deduction of $5,000 for motor vehicle if purchased after 1/7/2012.

 110.  Prepayments

  • Prepaid expense (no value limit) are deductible,  if you are a small business entity and incur an eligible prepaid expense for something to be done over a service period of less than 12 months, such as an annual licence fee for your computer software.

How business can level the playing field after Budget blues

After the Federal Treasurer’s rhetoric on his Government being the government for small and medium business, the Federal Budget delivered on 8 May 2012 is remarkable in that if contains no new meaningful support to businesses that are not loss making.  If poor business conditions mean you are a loss maker this year (2012), please defer your loss until 2013 because the loss carry back rule to refund overpaid tax does not activate a refund until 2013. You must pay tax in 2012 to play.  Only a bureaucrat could come up with such a commercially inastute approach for suffering businesses.

Many business owners who have put in the kilowatt hours and made their way through difficult trading conditions to remain profitable have seen their positions deteriorate under recent budgets.  A working family in business may have seen their relative ability to contribute to their annual after tax wealth deteriorate by more than an annual $17,000 in post tax money. Losing that much cash hurts.  For someone selling out of their business or retiring in 2012/13 this position could snowball to more than $70,000 if you take into account a clever play to change tax rates to remove the benefit of a higher general tax free threshold from the “wealthy”, the exclusion of the middle to upper middle class in compensation for the effects of the carbon tax, lowering of tax deductible superannuation thresholds for those over 50 and the increase in superannuation contributions tax (see below).  One single measure causes most of the damage – the loss of a tax rebate on golden handshakes worth up to a whopping $52,500 if you do not retire before July 2012. Because so many of these measures hit people nearing retirement, some business owners will justifiably feel that the Government is changing the rules of the poker game just as they prepare to take some money off the table.

It is an article of faith in business that win-win deals produce better and more enduring results.  It is therefore deeply disturbing for the psyche of SME’s that an increasing focus on means testing full access to fundamental elements of our taxation system, such as the superannuation system or compensation for a scheme such as the Carbon Tax which has a universal effect, is producing winners and losers.  Losers often stop playing.

In 2012/13 when your tax deductible superannuation contribution is taxed at an extra 15% if your personal “adjusted taxable income” is greater than $300,000, you may feel a desire to throw in the towel and give away the superannuation system entirely.  Particularly if you and your spouse have been in business together but an act of history means one of you has all the family income counted mainly to one name only.  Take the case where one spouse owns all the shares in a trading company. It is time to pass out some profits to pay the bills. In such a case, let us take the example where there is a family cash income of say $200,000 funded as a dividend (effectively $100,000 for each spouse).   An add-back of your super and franking credits will easily take you over the $300,000 limit.  So could one-off leave pay-outs and gearing cash losses.  This creates what many would call the artificial result of placing you in the over $300,000 category. To have full access to super concessions denied to you feels unjust – why not just withdraw?

Don’t take the bait.  Leaving the superannuation system will ultimately do you far more harm than good.  Some of the people in Treasury would probably love to see you give away all those compounding tax concessions in a lifetime – they could be worth hundreds of thousands.  Instead, look at better ways to level the playing field and change the rules of the game to better protect yourself from any further unfavorable policy changes that this or any future Government might have on you.

Maximize what opportunities remain on the table and in particular at the State Government level with a modest improvement in the NSW state taxes landscape and strengthen your business against the general risks of difficult trading conditions.  Put a passive holding company over your trading company to create improved asset protection.  Examine shifting your wealth into structures that are separated from your personal names so that the income does not get counted towards your “$300,000” limit.  If you and your spouse are in business together and the allocation of equity is actually unfair and articificial based on contribution, look at restructuring this to create an enduring platform that can benefit both you and next generations of the family.  The Government has demonstrated its agenda to distribute wealth away from the middle to upper middle class.  You do not just have to sit there and take it.

If the Government is not going to help you grow your business, it’s time to take matters into your own hands.  There are many constructive and efficient actions that you can take to outmaneuver a “lose” position. Take control.

Stephen Cribb is a Partner, and the leader of the Growthstar program at Prosperity Advisers.