During the Global Financial Crisis (GFC) many superannuants were cashing in their industry, retail and corporate superannuation funds and establishing a self managed superannuation fund (SMSF).  The main objective of people establishing SMSFs following the GFC was to:

1.  Reduce the possibility or probability of future negative returns;
2.  Invest in term deposits to maximise their income yield as companies were cutting their dividends; and
3.  Have more direct control over the investment strategy of their superannuation.

Our experience is that clients are now focussing on the opportunities in the market, as opposed to recognising the threats.  New employees, executives and business owners are exploring the opportunity of purchasing business or residential properties in their personal superannuation fund.  Changes to the borrowings provisions in the Superannuation Industry (Supervision) Act (SIS Act) have also accentuated this.

The attraction with borrowing and property at present is that residential investment properties typically have gross rental yields of greater than 5.4%.  Further, the Reserve Bank has recently lowered interest rates by 50 basis points, or 0.50%.  Investors are able to service a loan at an interest rate of 6.8%* per annum.  For example, if the tenant is paying 5.4% gross rent, the investor needs to make good the difference of 1.4%, assuming that the property is 100% geared.

If, for example, you have $100,000 in your superannuation fund or you would like to purchase an investment property for, say, $500,000, your self-managed superannuation fund would need to borrow $400,000.  If the interest rate of the loan is 6.8% the total interest cost would be $27,200 per annum.  The total gross rent received would be $27,000.  The difference, excluding the property cost, would therefore be $200 per annum.

This difference does not need to be funded by your personal savings, however you can use your 9% statutory super to finance this shortfall, plus any associated property costs such as water and council rates.

Here at The Quinn Group our experienced team of Financial Planners, Accountants and Lawyers can provide you with the total solution and assist you with all your SMSF needs. For advice about whether borrowing in your SMSF is right for you to get the best chance at the lifestyle you want, contact the Financial Planners here at Quinns by submitting an online enquiry or calling us on 1300 QUINNS (784 667) to book an appointment.

An employee share scheme (ESS) provides employees or their associates with the opportunity to acquire “securities” (in the form of shares or rights) in their employer’s company by virtue of their employment relationship. These securities are either offered as part of an employee’s remuneration package, or under a broad based employee share plan offered to the employees of the company at a particular point in time. These schemes motivate employees by aligning the interests of the employees with future company performance, as ownership of security interests in the employer company will enable employees to directly receive financial benefits proportional to the company’s future profit and growth.

Security interests often come with conditions and restrictions attached preventing their immediate transfer or disposal, but they are generally offered:

1.  at no cost to the employee (particularly if they are part of a remuneration package), or
2.  at a heavily discounted price from the interests’ market value.

Given the restrictions in place, most employees would therefore view these interests as middle to long term investment opportunities to be cashed in at a later date when the company’s value hopefully increases further.

This e-alert is the first of a two part series on the potential tax implications you should be aware of if you are considering participating in an Employee Share Scheme. The tax laws governing employee share schemes were amended at the end of the 2009 financial year but it should be noted that securities acquired prior to 1 July 2009 will continue to be subject to the old tax rules.

This article discusses the tax implications in relation to shares or rights acquired before 1 July 2009, while part 2 of the series will consider the tax implications for shares or rights acquired after this date.

The Tax Sting

While most taxpayers may be aware that capital gains tax implications may arise on disposal of these shares, the sting is that the ‘discount’ received on the security interests (that is, the difference between the market value of the shares and any consideration paid to acquire the interests) also needs to be included as part of the employee’s assessable income. This is where the tax implications become complex and nuanced depending on the shares or rights the employee holds and whether they meet certain conditions to be classed as “qualifying” shares or rights.

Provided all conditions are met and the shares or rights are qualifying shares or rights, the employee can choose to apply one of two tax methods or “concessions”, in relation to the tax treatment of the discount amount:

1.  Upfront assessment (section 139E election) – where the discount amount is assessed upfront in the income year the security interests are acquired; or
2.  Deferral  of the discount – where the discount amount is deferred to be assessed when the cessation time is triggered in a later income year, up to a maximum of 10 years

Employees may be able to claim a $1,000 exemption from tax which is only available if the upfront assessment method is elected. However, the ATO considers the deferral option to be the default concession applied, so an employee wishing to elect an upfront assessment would need to do so in the income year the interests were aquired, or the option to choose is lost. Therefore, immediate professional advice should always be sought in relation to participating in an employee share scheme as early decisions may need to be made to implement the most tax effective strategy to minimise future tax implications of owning these interests.

As deferral of tax is the default method, the tax sting to employees is even greater when the cessation time arrives, often outside of their control, foresight or tax planning strategy and suddenly it is time for the tax on the discount to be assessed.

Identifying the cessation time is a technical and complex exercise as this depends on whether the interest held is a right or a share, and whether the shares have restrictions and conditions attached. Broadly, some examples of when the cessation time is triggered include:

•  when shares without restrictions are acquired;
•  when shares with restrictions or conditions are disposed;
•  when rights are exercised to acquire shares and the last of the restrictions or conditions cease to have effect
•  on cessation of employment in respect of the acquisition of the shares or rights
•  ten years from the date of acquisition of the shares or rights

In some instances, these events occur as a result of an arbitrary period of time elapsing (as in the case of restrictions ceasing to have effect) which may occur without the employee’s knowledge or any pro-active action taken by the employee in respect of their security interests. The sting is only fully uncovered when the ATO conducts an audit, or issues a notice reassessing an employee’s taxable income from a prior income year along with an assessment of shortfall tax and penalties and interest now owing.

For employees holding security interests acquired before 1 July 2009 who have not elected upfront assessment, and a cessation time has not occurred in respect of the interests held, separate transitional measures apply to ascertain the tax liability.

Given the complexity of the tax implications of participating in an employee share scheme, it would be prudent to contact a tax or accounting professional immediately to implement a tax planning strategy to manage and legally minimise your tax liability.

Stay tuned for part 2 of this series which will outline tax implications to consider for securities acquired after 1 July 2009. Here at The Quinn Group, our dedicated team of experienced Lawyers and Accountants are able to assist you with all your Tax related queries. Complete and submit our online enquiry form or call us on 1300 QUINNS (1300 784 667) +61 2 9223 9166 to arrange an appointment.

Benefits to Businesses

Helping business to invest

•  Allowing companies to carry back tax losses so they get a refund against tax paid in the previous year, providing a tax benefit of up to $300,000 per year
•  From 1 July 2012, delivering tax breaks for small business, like the increase to the instant asset write‑off threshold to $6,500

Building a more productive workforce

•  $1.75 billion National Partnership Agreement on Skills Reform as agreed with COAG in April this year
•  Investing an additional $225.1 million in Jobs, Education and Training Child Care Fee Assistance
•  An additional $101 million of new skills measures to improve quality and better support mature age workers

Building productivity by investing in nation building infrastructure

•  Investing $3.6 billion to duplicate the Pacific Highway by 2016, conditional on agreement with the NSW Government
•  $350 million per year for the Roads to Recovery program
•  $232 million towards the Torrens and Goodwood rail project in Adelaide

Capital Gains Tax

•  Changes will be made to the application of the scrip-for-scrip roll-over and small business concessions to trusts, super funds and life insurance companies.
•  The revenue asset and trading stock roll-overs that apply to the exchange of interests in a company or unit trust for shares in another company will be broadened.
•  The CGT scrip-for-scrip roll-over integrity provisions will be strengthened.
•  CGT: temporary loss relief will be made available to facilitate super reforms.
•  Minor extensions to the CGT exemptions for certain compensation payments and insurance policies will be made.
•  Minor amendments to natural disasters CGT relief will be made.
•  CGT: refinements to income tax law for deceased estates will be made

International

•  The personal income tax rates and thresholds that apply to non-residents’ Australian income will be adjusted.
•  The CGT discount for non-residents will be abolished for gains accrued after 7:30pm (AEST) on 8 May 2012.
•  The managed investment trust final withholding tax rate will be increased from 7.5% to 15% from 1 July 2012.

Superannuation

•  The start date of the 2010/11 Budget measure increasing concessional contribution caps for individuals over 50 with low superannuation balances will be deferred by two years, from 1 July 2012 to 1 July 2014.
•  From 1 July 2012, individuals with income greater than $300,000 will have the tax concession on their contributions reduced from 30% to 15% (excluding the Medicare levy).
•  From 1 July 2012, the employment termination payment (ETP) tax offset will be limited so that only that part of an affected ETP, such as a golden handshake, that takes a person’s total annual taxable income (including the ETP) to no more than $180,000 will receive the ETP tax offset.

Goods & Services Tax

•  Funding for additional GST compliance activities will be extended for a further two years until 2015/16.
•  Minor changes affecting cross border transactions will include a clarification of the definition of permanent establishment for GST purposes.
•  The operation of the GST law in relation to the mortgage lending sector will be clarified to reduce compliance costs.
•  From 1 July 2011, access to reduced input tax credits (RITC) will be restored for credit unions who rebrand as “banks”.
•  Health supplies by a health care provider paid for by a statutory compensation scheme operator will be GST-free if the underlying supply from the health care provider to the individual is also GST-free.
•  From 1 July 2012, a regulation-making power will allow certain payments between government-related entities to be prescribed as not being subject to GST.

Other measures
•  Additional funding
-  $76.8m for the Tax Office and other Project Wickenby agencies.
-  provided for the Tax Office to manage tax debt.
•  From 1 July 2012, the wine producer rebate will be amended to ensure that wine producers will not be able to claim multiple rebates for the same quantity of wine, beyond the total amount of wine equalisation tax payable.

As a result of this Federal Budget, there are many changes that are set to take place over the next few financial years. For more information about how anything in the 2012 Budget may affect you or your business, or for any other tax or accounting related queries please contact the team of accountants and tax agents at The Quinn Group. Submit an online enquiry for more information, or call us on 1300 QUINNS (1300 784 667) or +61 2 9223 9166 to book an appointment.

Benefits to Individuals

•  $1.8 billion to increase Family Tax Benefit Part A for all eligible families, commencing 1 July 2013
•  $1.1 billion for a new Supplementary Allowance for the unemployed, students and parents with young children, on income support, with the first payment commencing March 2013
•  In addition, an extra $2.1 billion over five years on a new Schoolkids Bonus, paid directly to eligible recipients
•  From 1 July 2012, more than tripling the tax‑free threshold from $6,000 to $18,200, freeing up to 1 million Australians from the need to lodge a tax return
•  Exemptions for the temporary flood and cyclone reconstruction levy will be extended to individuals who were eligible for an Australian Government Disaster Recovery Payment in 2010/11 as well as certain individuals affected by a natural disaster in 2011/12.

Investing in key health services

•  $515.3 million to improve dental services and strengthen the future dental workforce
•  Delivering 76 major new regional health infrastructure projects across Australia, worth $475 million
•  The Medicare levy low income thresholds will be increased to $19,404 for individuals and $32,743 for families for the 2011/12 income year.
•  $1 billion over four years for the first stage of an National Disability Insurance Scheme. 10,000 participants will start being assessed from July 2013, increasing to 20,000 participants from mid‑2014

Building an aged care system for the future

•  A $3.7 billion package to ensure a better, fairer, more sustainable and nationally consistent aged care system
•  Increasing the number of Home Care packages by nearly 40,000, to nearly 100,000, over the next five years

Capital Gains Tax

•  Changes will be made to the application of the scrip-for-scrip roll-over and small business concessions to trusts, super funds and life insurance companies.
•  The revenue asset and trading stock roll-overs that apply to the exchange of interests in a company or unit trust for shares in another company will be broadened.
•  The CGT scrip-for-scrip roll-over integrity provisions will be strengthened.
•  CGT: temporary loss relief will be made available to facilitate super reforms.
•  Minor extensions to the CGT exemptions for certain compensation payments and insurance policies will be made.
•  Minor amendments to natural disasters CGT relief will be made.
•  CGT: refinements to income tax law for deceased estates will be made

International

•  The personal income tax rates and thresholds that apply to non-residents’ Australian income will be adjusted.
•  The CGT discount for non-residents will be abolished for gains accrued after 7:30pm (AEST) on 8 May 2012.
•  The managed investment trust final withholding tax rate will be increased from 7.5% to 15% from 1 July 2012.

Superannuation

•  The start date of the 2010/11 Budget measure increasing concessional contribution caps for individuals over 50 with low superannuation balances will be deferred by two years, from 1 July 2012 to 1 July 2014.
•  From 1 July 2012, individuals with income greater than $300,000 will have the tax concession on their contributions increased from 15% to 30% (excluding the Medicare levy).
•  From 1 July 2012, the employment termination payment (ETP) tax offset will be limited so that only that part of an affected ETP, such as a golden handshake, that takes a person’s total annual taxable income (including the ETP) to no more than $180,000 will receive the ETP tax offset.

As a result of this Federal Budget, there are many changes that are set to take place over the next few financial years. For more information about how anything in the 2012 Budget may affect you, or for any other tax or accounting related queries please contact the team of accountants and tax agents at The Quinn Group. Submit an online enquiry for more information, or call us on 1300 QUINNS (1300 784 667) or +61 2 9223 9166 to book an appointment.

In NSW, you are able to challenge a Will if you believe that it has not adequately provided for your maintenance, education and advancement in life.

In matters where the deceased passed away after 1 March 2009 you must be a person listed below in order to be eligible to contest a Will under the family provision chapter of the Succession Act:

•  The wife or husband of the deceased person at the time of their death (this includes de-facto partners and life partners).
•  A child of the deceased, or a child of a domestic relationship with the deceased.
•  A former wife or husband of the deceased.
•  A person who was at any particular time wholly or partly dependent on the deceased and was at that particular time or any other time a member of the deceased household.
•  A grandchild who was at any particular time wholly or partly dependent on the deceased.
•  A person with whom the deceased person was living in a close personal relationship at the time of the deceased person’s death.

This was to ensure that adequate provision is made for certain defined eligible persons, whether or not there was a will and whether or not the eligible person was mentioned.

Under what circumstances can a Will be challenged?

Undue Influence & Duress - A Will is only valid if it was made freely and voluntary. As a result, if someone attempted to influence the terms of the Will or if physical, psychological or threatening duress was placed upon the deceased the Will can be contested.

Incapacity - A Will can also be challenged if the deceased lacked the necessary legal capacity to make the Will. This means that the deceased did not understand the nature and effect of a Will they were making, or were unable to make rational decisions regarding the distribution of their property. This situation most frequently occurs in relation to the elderly, people in frail health, or those suffering from an illness which affects their mind.

Contract to Make a Will - In certain situations, people (usually married or de facto couples) may choose to enter into a binding contract to make their Wills in a certain way. This presents problems if one of them makes a Will later on, which is inconsistent with the contract; often without telling the other contracting party about their new Will, or if the other person has passed away. Where the contract regarding the making of the Wills has been properly drafted and is legally enforceable, persons affected by a breach of the contract may be entitled to make a claim for damages or other relief from the court.

If you believe you are eligible to contest a Will and would like more information please submit an online enquiry to our experienced team of Lawyers here at The Quinn Group. You can also call us on 1300 QUINNS (784 667) or on +61 2 9223 9166 to book an appointment.

The PPS Register is a single point of contact register for consumers, businesses and the finance industry.

How will the PPS Register be used?

The PPS Register will be used in many situations including:

•  finance companies that provide loans on the basis that they receive a security interest in an item of personal property to register their interest in the property on the PPS Register
•  business operators who sell personal property on credit, consignment, or on a retention of title arrangement to register their interest in the property on the PPS Register, and
•  consumers who are about to purchase personal property, such as valuable second goods, to search the register  before buying to make sure that the property is free of a security interest.

What information can be recorded on the PPS Register?

Security interests can be registered on the PPS Register if they:

•  are created by an agreement made in any state or territory of Australia, or
•  relate to a corporation incorporated under Australian law.

How does the PPS Register affect businesses?

The new PPS Register is part of a reform that affects the way businesses deal with secured lending in Australia.

Importantly, business owners need to be aware of changes affecting arrangements such as the supply of goods on:

•  lease
•  consignment, or
•  retention of title arrangements.

Business owners may be affected by the changes to personal property securities laws as:

•  borrowers
•  providers of credit
•  buyers of property that may be subject to a security interest, or
•  investors who are contemplating buying into a new business.

Property that can be included on the PPS Register includes almost anything except land and fixtures (such as buildings). Initially, it is expected a large proportion of registrations will be company charges and interests over motor vehicles. Boats, machinery, crops, shares, art, intellectual property and contract rights can all also be offered as security for a loan and therefore included on the PPS Register.

If you are a business owner, the PPS Register can help you:

•  manage credit risk
•  check whether property you plan to buy has a security interest in it, and
•  register assets used to secure a loan you have made, or where goods are supplied on credit terms.

Issues for business owners to consider

•  Do you need to search the PPS Register?
•  Do you have security interests that are registrable under the PPS reform rules and, if so, whether to make a registration?
•  When to register your security interests to make sure you do it on time.

The PPSA is a significant change to the law concerning dealing in personal property. Here at The Quinn Group our experienced team of Lawyers and Accountants are able to assist you with changes to the PPSA. Submit an online enquiry or call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166 to book an appointment.

For CGT purposes, shares in a company or units in a unit trust (including a managed fund) are treated in the same way as any other CGT asset. You may have to pay tax on any capital gain you make on shares or units when a CGT event happens, such as when you sell them (unless you acquired them before CGT came in on 20 September 1985).

Profits on the sale of shares held in carrying on a business of share trading are included as ordinary income rather than as capital gains.

If you make a capital loss, you cannot claim it against income but you can use it to reduce a capital gain in the same income year. If your capital losses exceed your capital gains or you make a capital loss in an income year you don’t have a capital gain, you can generally carry the loss forward and deduct it against capital gains in future years.

If you’re an Australian resident, CGT applies to your assets anywhere in the world.

Acquiring and owning CGT assets

When you acquire a CGT asset, you need to start keeping records immediately because you might have to pay tax on it in the future. Your records will help ensure you don’t pay more tax than necessary. If you own the asset jointly with someone else, you’ll need to establish each owner’s share.

Selling an asset and other ‘CGT events’

When you sell an asset or give it to someone else it’s called a ‘CGT event’. This is the point at which you make a capital gain or capital loss. There are a number of other CGT events, for example, if a managed fund or other trust distributes a capital gain to you, it’s a CGT event.

CGT exemptions, rollovers and concessions

A number of assets are exempt from CGT, including your home and car, and depreciating assets used solely for taxable purposes.

Individuals and small businesses can generally discount a capital gain by 50% if they hold the asset for more than one year. In certain circumstances a capital gain on a CGT event can be deferred, or ‘rolled over’, until another CGT event happens. There are a number of other CGT concessions specifically for small business.

Here at The Quinn Group, our dedicated team of Accountants, Lawyers and Financial Planners can assist you with queries relating to how Capital Gains Tax can affect buying or selling a shares and unit trusts, as well as other legal and accounting matters. Complete and submit the online enquiry form or call us on 1300 QUINNS (1300 784 667) +61 2 9223 9166 to arrange an appointment.

Audit Insurance - Who is it for?

•  Individuals
•  Trusts
•  Self Managed Super Funds
•  Self Employed
•  Business & Trading Entities
•  Organisations

What does Audit Insurance cover?

•  Covers the cost of all eligible enquiries, reviews, investigations and audits of your returns, retrospectively
•  Includes claims for queries on Payroll Tax, Workers Compensation, Self Managed Superannuation Funds, Income Tax, BAS/GST, FBT, Superannuation Guarantee and Record Keeping
•  Includes specialist’s fees if you need a tax expert or lawyer for an opinion or defence
•  Covers your clients commonly owned legal entities and Directors under one single premium – SMSFs are normally offered separately
•  Is tax deductIble for your clients
•  Normally pays your claim within 14 days

Who takes out the policy?

The policy is taken out by your accountancy practice but is paid for by you.

Why should someone have Audit insurance?

Audit insurance is offered in a proactive, yet optional manner to your clients, it indicates that you are on the lookout for your client’s financial wellbeing.

Most clients are concerned about the potential costs to them should they be subjected to an audit, review or investigation by the ATO or other Government Authority. Audit insurance is a service that satisfies that concern and provides peace of mind.

If you have received notice of an audit by the ATO, need assistance with meeting compliance or have any queries with regards to the audit insurance or for any other business tax advice , please submit an online enquiry or call our experienced team of Tax Accountants, Tax Agents and Tax Lawyers at The Quinn Group on 1300 QUINNS (784 667) to book an appointment.

A person must be at least 18 years of age to create a Will, unless the Will is made in contemplation of a marriage, or by the granting of a court order. You must have the mental capacity to know what you are doing and have the capabilities to distribute your assets as you wish. Legally, any person can draft a Will, but great care must be taken when doing so. Mistakes such as having it signed and witnessed incorrectly or having inaccuracies may invalidate the Will and difficulties may be faced when applying for probate.

A Will is valid if it is in writing and if the testator intends to sign the Will to give effect to it. The will must be signed by the Will-maker and two or more witnesses. Your witnesses need to be all present at the time the Will is signed or the signature of the Will-maker acknowledges that two or more witnesses were present at the time of the signing.

The drafting of a will may be done through various ways, with the help of a lawyer, the Public Trustee or a private trustee company. There are also many Do It Yourself (DIY) Will kits available but it is strongly not advised because of the risks that are involved. Most DIY kits do not have the option of making flexible changes, for instance, adding in special taxation issues or listing two or more alternate executors.  Some kits have out of date information and there will be many opportunities for mistakes to be made and consequently, making the will invalid.

There are many other aspects of a Will, such as attestation clauses, residuary clauses, appointing guardians for children, appointing executors, making it overseas or in another language and changing or revoking a will. These issues would be addressed by professionals whilst drafting the Will.

It is strongly recommended to seek the advice of a professional as this will save your beneficiaries from unnecessary expense, time and effort as the result of an invalid will. Here at The Quinn Group, our legal team has many years experience in dealing with Wills and Estate matters. From drafting Wills and providing Estate Planning advice, to administering a deceased estate and assisting to contest a Will, we are able to provide professional and compassionate service across these and other related areas. If you would like advice regarding the preparation of your Will, call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166 to arrange an appointment, alternatively you can submit an online enquiry.

•  declaring all the assessable income you receive
•  if you are entitled to the deductions and tax offsets you have claimed on your tax return.

The ATO assumes that the taxpayer has honestly declared all their earnings in their Tax Return.

The enquiries or audits the ATO conducts vary in their complexity. At times the audits only involve a phone call or a letter asking the taxpayer to provide further information or verify their claims. In some cases a tax officer may visit the taxpayer. In some cases the taxpayer may be asked to bring all their records for examination.

The ATO sometimes decides to look more closely at tax returns making similar claims, or from within the same industry and can request the records and paperwork taxpayers use to complete their tax return.

Tax Audits that a business may be subjected to include:

•  CGT Audit

Capital Gains Tax (CGT) is a tax paid on any capital gain that is made in a given financial year. This can include the sale of property, shares or managed fund investments. It is not a separate tax, but rather forms part of your income tax liability.

•  Goods and Services Tax (GST) Audit

Goods and Services Tax (GST) is payable on the supply of most goods and services in Australia (as well as some other specific items). Due to its complex nature, the tax office often conducts GST Audits to ensure that taxpayers and business owners are adhering to their legal obligations and operating fairly within the system.

•  PAYG Audit

PAYG witholdings is a system for paying amounts towards your expected end of year income tax liability. The tax office often conducts PAYG Audits to ensure that taxpayers are compliant with their legal obligations and are conducting their business fairly within the tax system.

•  Company Tax (PAYG I) Audit

Company Tax is payable by businesses on the amount of income it has generated in a given financial year. The tax office conducts Company Tax Audits to ensure that business owners are compliant with their legal obligations and are conducting their business fairly within the tax system.

•  Payroll Tax Audits

A businesses liability for payroll tax is outlined in the Payroll Tax Act 2007 (NSW). As it is a state tax it is regulated and collected by the NSW Office of State Revenue (OSR) and not the Australian Tax Office (ATO).

•  Land Tax Audits

Land Tax is a State based tax payable on land owned in NSW. Generally this does not apply to a principle place of residence so is more for things such as investment properties and holiday houses.

Here at the Quinn Group, our dedicated team of Tax Accountants and Tax Agents can assist you with all your auditing needs. Call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166 to arrange an appointment, alternatively you can submit an online enquiry.