Area News Updates

June Newsletter

Tuesday, June 02, 2009

 Investment Allowance

 The investment allowance, originally announced back in February 2009, has undergone a number of amendments since that time. Below is a summary of the current rules:

  Small business  (turnover <$2m) Assets over $1,000

 Large Business Assets over $10,000

 Contract entered into by:

 Contract entered into by:

 Asset Installed by: 13 December 2008 to 31 December 2009

 30 June 2009 31 December 2009 30 June 2009

 50% in 2009

 30% in 2009

  30 June 2010

 50% in 2010

 30% in 2010

 10% in 2010

 31 December 2010

 50% in 2011

 10% in 2011

 10% in 2011

For large business, in order to obtain the 30% investment allowance in either 2009 year or the 2010 year, contracts to purchase assets should be entered into between 13 December 2008 and 30 June 2009. However, you must have started to use the asset or have it installed ready for use by 30 June 2010.

  On what asset purchases can I get the investment allowance for?

 Tangible, depreciating assets for tax purposes such as:

 *          Cars (except those using the ‘cents per kilometre’ method)

 *          Machinery

 *          Equipment

 What assets purchases can’t I get the investment allowance for?

 *          Intangible assets such as computer software and intellectual

property rights

 *          Cars using the ‘cents per kilometer’ method

 *          Land

 *          Trading stock

 *          Capital works- buildings, construction expenditure

 Worked Example

 Ben operates a courier service and his aggregated turnover was less than

$2 million and it is likely to be less than $2 million again in 2009. He orders and takes delivery of a new delivery van on 1 June 2009 at a cost of $33,000 (including GST). Ben’s investment in the van has an investment commitment time of 1 June 2009 which is between  13 December

2008 and 31 December 2009. Ben’s first use time in relation to the van is also 1 June 2009 which is before the deadline of 31 December 2010.

  Ben has satisfied all of the eligibility criteria that apply to him and can claim the investment allowance at the 50% rate. He can claim a bonus deduction of $15,000 ($30,000 x 50%) in his 2009 tax return.

  Other Considerations/Consequences

 Where the business is being carried on by a company or unit trust, there are consequences of claiming the investment allowance. For a company, this additional tax deduction will reduce the total tax payable, however, it will not reduce the retained earnings of the company.

Therefore, when those retained earnings are ultimately paid out as a dividend to shareholders, that amount will be an unfranked dividend, therefore, will have no franking credits attached. Similarly, with a unit trust, future distributions may give rise to a capital gains tax event to the unit holder.

  2009 Taxation Planning

 As we approach 30 June 2009, it is appropriate that you plan and implement any actions so that the tax planning measures will be included in this 2009 year. Some of the key tax planning measures to consider are below:

 Superannuation Contributions

 For the 2009 year, the concessional superannuation contributions cap is $100,000 for persons aged 50 and older and $50,000 for persons aged under 50. You should ensure that the superannuation fund receives the superannuation contribution by 30 June 2009 to ensure the contribution is tax deductible in the 2009 year. Superannuation contributions made after 30 June 2009 will be tax deductible in the 2010 year.

Please note, from 1 July 2009, these contribution caps will be halved, to $50,000 and $25,000 respectively.

Bad Debts

You should review the accounts receivable/trade debtors to ensure that all amounts are fully recoverable. If any amounts are not recoverable, these amounts should be written off as a bad debt. You should ensure that all steps have been undertaken to recover the debt, the debt has previously been included as income (ie sales) and that the debt actually gets written of in your system.

  The write off of bad debts will not only reduce your tax liability, but it will also reduce your GST liability.

 Trading Stock

You should undertake a review of your trading stock to determine if any items are obsolete or no longer of recoverable value. These stock items should be written off or assigned a zero cost in your stock system prior to 30 June 2009.

 Employer Superannuation Obligations

It’s important that employers remember that, regardless of the current economic situation, they must keep paying superannuation for their eligible employees. Generally, as an employer, you must pay superannuation for your employees if they:

*           are between 18 and 69 years of age (inclusive)

*           are paid $450 or more (before tax) in a calendar month, and

 *         work on a full-time, part-time or casual basis.

Employers must also make superannuation payments for contractors who are paid wholly or principally for their labour even where these contractors quote an Australian business number (ABN). Labour includes physical labour, mental effort, or artistic effort.

 Some employers are incorrectly making late or insufficient superannuation payments for their employees. You need to contribute 9% of each eligible employee’s ordinary time earnings to a complying superannuation fund by the quarterly cut-off dates – 28 April, 28 July,

28 October and 28 January.

  Superannuation guarantee contributions are calculated using your employee’s ‘ordinary time earnings’. Ordinary time earnings are generally what an employee earns for their ordinary hours of work. It includes over-award payments, shift loading or commissions.

 Superannuation contributions need to be made to the employee’s superannuation fund by 30 June 2009 if you want to claim the contribution as a tax deduction in the 2009 year.
 

- Simmons Partnership - Wayne Simmons