The Budget and Small Business

Joe runs a business in the agricultural sector as a sole trader. He is considering expanding his business and is wondering how the recent budget announcements will impact him.

Under announced measures, any small business with turnover below $2 million will be able to claim an immediate deduction for each asset with a cost of less than $20,000 which is acquired from 12 May 2015 until 30 June 2017. Therefore, Joe decides to buy a tractor for $18,000 and a slasher for $15,000 giving an immediate deduction of $33,000.

Joe is also looking at putting in new lane ways and a new dam. From 1 July 2016 all primary producers will be eligible for an immediate deduction for capital expenditure on fencing and water facilities. Further, fodder storage assets will be depreciable over three years. As a result, Joe decides to delay construction until the 2016/17 income tax year which may bring a more favourable tax outcome.

As Joe is an unincorporated small business he will also be eligible for a 5% discount on his business income tax payable up to a maximum of $1,000 per income year from the 2015/16 tax year onwards.

Please note the above budget initiatives have not been passed through Parliament at time of writting this article and are therefore subject to change.

If you have questions please contact Andrew Marshall or Janine Orpwood at Langley McKimmie Chartered Accountants on (03) 5427 8100 for an initial consultation.

We service clients in Woodend, Gisborne and Macedon Ranges areas within Victoria Australia.

Maximising your Superannuation contributions

Megan owns a large property on Mt Macedon and is considering downsizing to a smaller property. By downsizing she will have excess cash and is considering contributing to her Superannuation Fund. Megan is employed on a part time basis and earns $65,000 per annum.

If Megan is 64
She can contribute the following:

• Up to $35,000 as a concessional contribution i.e. before tax as a salary sacrifice (this cap includes any Super Guarantee contributions)
• Up to $180,000 non-concessional contribution i.e. after tax. As she is under 65 Megan can access the three year bring forward rule. The bring forward rule allows you to contribute three years of non-concessional contributions in one year i.e. $540,000. However if she contributes the $540,000 she is unable to make non-concessional contributions for the next two years.

If Megan is 65
She can contribute the following provided she meets the work test:

• Up to $35,000 as a concessional contribution (as above)
• Up to $180,000 non-concessional contribution.

In order to meet the work test she must work 40 hours in a 30 day period during that year.

Note: For those aged 49 or younger on 1 July 2014 the concessional contribution limit is $30,000 per annum.

If you have questions please contact Andrew Marshall or Janine Orpwood at Langley McKimmie Chartered Accountants on (03) 5427 8100 for an initial consultation.

We service clients in Woodend, Gisborne and Macedon Ranges areas within Victoria Australia.

Work from home?

Tim works from home as a Graphic Designer and would like to know what tax deductions he may be able to claim. He has calculated that his home office represents 20% of the total area of the dwelling.

As Tim has a dedicated office at home and has no other place of business he can claim the relevant proportion of occupancy expenses as well as running expenses. Occupancy expenses include rent or mortgage interest and council rates. Running expenses can include power, telephone and depreciation on office equipment. Deducting occupancy expenses may have eventual Capital Gains Tax (CGT) implications.

Using Tim’s estimated costs over a five year period the tax impacts would be:

Home Office	Total ($)	Amount Claimable ($)
Occupancy costs	25,000 pa	5,000 pa
Running cost	4,000 pa	800 pa
Depreciation on Equipment	2,000 pa	2,000 pa
Deduction over five years		39,000

Should Tim sell his house after five years with a discounted capital gain of $100,000, he would need to report $20,000 as the taxable component of the gain. The net taxable effect of these transactions over the five year period would be $19,000 in deductions.

If the home office is not the sole place of business, running costs and depreciation would still be claimable representing a total deduction over five years of $14,000. This would not have any CGT implications on Tim’s home.

If you have questions please contact Andrew Marshall or Janine Orpwood at Langley McKimmie Chartered Accountants on (03) 5427 8100 for an initial consultation.

We service clients in Woodend, Gisborne and Macedon Ranges areas within Victoria Australia.

Are you an Investor or Share Trader?

As recent share market conditions have improved many people are looking to invest available funds in shares.

Consider Mary:

Mary works part-time in a financial planner’s office and has a keen interest in the share market. Mary has $150,000 to invest and is considering the different tax implications if she is classified as a share trader or a share investor.

As a share trader profits are treated as ordinary income and taxed at marginal tax rates. Losses may be applied to other income to reduce overall taxable income. An example would be if Mary trades using trading techniques, undertaking market research for each potential purchase and does so on a regular basis, she may be taxed as a share trader.

As a share investor, gains and losses are treated as capital, provided shares are held for 12 months or more a 50% capital gains tax discount will apply. Capital losses can only be applied against capital gains income, with any excess able to be carried forward. An example would be if Mary buy parcels of shares predominantly for capital growth and/or dividend income.

There is no one hard and fast rule as to which classification Mary will be. It is assessed on a case by
case basis.

If you have questions please contact Andrew Marshall or Janine Orpwood at Langley McKimmie Chartered Accountants on (03) 5427 8100 for an initial consultation.

We service clients in the Woodend and Macedon Ranges region within Victoria Australia.

Not for Profit - Should you be getting an Audit?

Not-for-profit Associations are viewed in three tiers for the purposes of determining audit requirements:

• Tier 1 - Revenue less than $250,000. No audit or review required, unless specifically requested by the members or regulator;
• Tier 2 - Revenue from $250,000 to $1 million. A review by an independent accountant is required as a minimum;
• Tier 3 - Revenue more than $1 million. An audit is required.

Even if an audit is not legally required, you may want to because:

• Associations need to have an appropriately drafted set of Financial Statements for presentation at the Annual General Meeting and an audit may assist with this;
• Review/audit provides peace of mind to honorary committee members and may assist in attracting new committee members;
• The ability to apply for grant income from government or other agencies may have audit as a
  requirement;
• If revenue levels are close to a threshold you should consider the requirement of the upper level as it may impact you in the near future.

If you have questions please feel free to contact Bryan McKimmie or Sandra Rowley at Langley McKimmie Chartered Accountants on 03 5427 8100 for an initial consultation.

We service clients in the Woodend and Macedon Ranges region within Victoria Australia.

Considering Divorce? Consider this…

As confirmed by recent taxation pronouncements, money or other assets transferred out of a company as part of a divorce settlement are treated as a dividend and will have tax consequences to the recipient.

Case Study

Jack and Jill are divorcing and run a company worth $2 million. This is their only matrimonial asset. Jack is the sole director and shareholder. The Family Court Order requires Jill to be paid $1 million from the company.

The company raises $1 million in cash through borrowing and pays it to Jill. Jack retains control of
the company as part of the settlement.

Jill is deemed to have received a dividend of $1 million and tax is payable at marginal rates. Franking credits may be attached at the discretion of the director.

Had the settlement been by way of transferring property to Jill this would still represent a dividend to Jill. There would also be Capital Gains Tax (CGT) consequences.

This is one of the many financial issues to consider during a divorce. Be sure you get appropriate advice when considering any settlement.

If you have questions please contact Andrew Marshall or Janine Orpwood at Langley McKimmie Chartered Accountants on (03) 5427 8100 for an initial consultation.

We service clients in the Woodend and Macedon Ranges region within Victoria Australia.

Are you looking to retire before the age of 60?

Retirement benefits from superannuation should be accessed in the most tax effective manner.

Consider Lyn’s case:

Lyn, aged 57, is retiring. Lyn requires $80,000 (pre-tax) per annum to maintain her lifestyle. Her current superannuation balance of $1,000,000 comprises 50% taxable component
and 50% tax free component.

Transitional Pension

Lyn may commence a transitional pension up until the age of 60 and withdraw the required $80,000 per annum. The taxable component of $40,000 would be taxed at her marginal tax rates with a 15% tax offset.

Lump Sum Withdrawal

Alternatively, Lyn may elect to withdraw $80,000 per year up until age of 60 as a lump sum. Lyn has a taxable lump sum low rate lifetime limit of $185,000. As 50% of Lyn’s balance is tax free, her taxable lifetime limit would reduce by $40,000 p.a.

The tax effective option for Lyn would be lump sum withdrawal as it is entirely tax free.*

If you have questions please contact Andrew Marshall or Janine Orpwood at Langley McKimmie Chartered Accountants on (03) 5427 8100 for an initial consultation.

We service clients in the Woodend and Macedon Ranges region within Victoria Australia.

*This is a taxation perspective only, financial advice should be sought prior to accessing
superannuation.