TAX FACTS – Australian accounting information
The following general information may be of use. This information does not represent advice. You should contact your professional advisor for specific advice concerning your personal circumstances.
Activity Statements
Businesses use an Activity Statement to report and pay a number of tax obligations, including GST, pay as you go (PAYG) instalments, PAYG withholding and fringe benefits tax. Activity statements are also used by individuals who need to pay quarterly PAYG instalments.
The Tax Office (ATO) will issue you with your activity statement about two weeks before the end of your reporting period. You need to complete and lodge your activity statement by the due date and pay any amounts due.
You should keep a copy of your completed activity statement and the records you used to prepare it for five years.
Business Tax Break
The Australian Government announced the tax break as an ‘investment allowance’ in December 2008 aimed at helping businesses meet the challenges of the economic downturn.
The tax break covers eligible new tangible depreciating assets and improvements or additions to existing assets costing $1000 or more. The tax break is in addition to deductions available under the simpler or normal depreciation for the decline in value (depreciation) your business is entitled to claim for an eligible asset. This deduction is available for a limited time.
Capital Gains Tax
Capital Gains Tax (CGT) is the tax you pay on a capital gain. It is not a separate tax, just part of your income tax. Selling assets such as real estate, shares or managed fund investments is the most common way you make a capital gain or capital loss.
All assets you have acquired since 20 September 1985, including options, rights and business goodwill are subject to the CGT rules unless specifically excluded.
If you are an individual, some of your main assets are generally excluded or exempted from CGT. These assets, include your main residence, a car, motorcycle or similar vehicle and assets for personal use acquired for $10,000 or less.
These and other exemptions, rollovers and concessions may allow you to ignore, defer or reduce your capital gain or capital loss.
CGT does not apply to depreciating assets you use solely for taxable purposes. Gains (or losses) made on these assets are treated as assessable income (or claimed as deductions). Such assets may include business equipment or fittings in a rental property.
Education Tax Refund
For the period 1 July 2008 to 30 June 2009, the maximum your client can claim is 50% of eligible expenses up to:
• $750 for each eligible student in primary school - that is, a refund of up to $375
• $1,500 for each eligible student in secondary school - that is, a refund of up to $750.
The refund is a fully refundable tax offset that will be paid as part of your tax return. If you are not required to lodge a tax return, you will need to lodge an Education Tax Refund Claim Form (NAT 72621) which can be download the claim from the Tax Office website.
First Home Saver Accounts
A first home saver account (FHSA) is a savings account designed to offer you a simple, tax-effective way of saving for your first home through a combination of government contributions and low taxes.
The advantages of a first home saver account are that government contributions add to your savings, and the earnings are tax-free to you. So, you don’t report them on your tax return.
To open a first home saver account, you must:
• be aged over 18 and under 65
• have a tax file number you can quote in your application
• have not previously owned a home in Australia or Norfolk Island that has been your main residence, and
• have not previously had a first home saver account.
The government will make a contribution equal to 17% of your personal contributions for the financial year, up to a maximum of $850 for the 2008–09 year. You will receive the government contribution once a year, after you’ve lodged your tax return and the account provider has given the Tax Office details of your personal contributions.
The first home saver account does not replace the First Home Owner Grant (FHOG). If you meet all the conditions, you may be eligible for both. However, you have to apply for the FHSA separately to the FHOG.
Fringe Benefits Tax
Fringe benefits tax (FBT) is a tax paid on certain benefits employers provide to their employees or their employees’ associates. FBT is separate from income tax and is based on the taxable value of the various fringe benefits provided. The FBT year runs from 1 April to 31 March.
If your business provides fringe benefits to employees you need to:
• calculate how much FBT you have to pay
• keep the necessary FBT records
• register for FBT
• report fringe benefits on your employees’ payment summaries
• lodge an FBT return and pay FBT to the Tax Office
• understand which benefits are exempt from FBT
Fuel Tax Credit Scheme
To make claims, you must be registered for GST and for fuel tax credits.
Even if you were not eligible before, you may now be able to claim fuel tax credits for fuel you acquire, manufacture or import to use in your business activities.
Once you are registered, you can claim fuel tax credits for fuel you use in:
• vehicles with a gross vehicle mass (GVM) greater than 4.5 tonne travelling on a public road
• specified activities eligible since 1 July 2006 in agriculture, forestry, fishing, mining, marine and rail transport, nursing and medical services, electricity generation, and non-fuel uses.
• all other activities, machinery, plant or equipment eligible since 1 July 2008 that were not previously eligible (such as a wide range of construction, manufacturing, wholesale/retail, property management and landscaping
activities).
Some activities and fuels are still not eligible, including:
• fuels you use in light vehicles with a GVM of 4.5 tonne or less travelling on a public road (e.g. a car or small van).
• aviation fuels
• alternative fuels, such as liquefied petroleum gas, liquefied natural gas, ethanol and biodiesel.
Goods and Services Tax
The Goods and Services Tax (GST) is a broad based tax on most goods and services sold within Australia.
Entities with an annual turnover of $75,000 or more ($150,000 or more for non profit organisations) must register for GST.
GST registered businesses include GST in the price of their Sales and claim GST credits in the price of their business purchases. As GST is paid and credits claimed at every step of the supply chain, the economic cost of the tax is not borne by business. The economic cost of the GST is borne by the end consumer who cannot claim GST credits
Imputation Credits
The imputation system provides the means by which Australian corporate tax entities are able to pass on, to their members, credit for income tax they have paid. They do this is by franking a distribution. Without the imputation system, income tax would be levied when income is earned by the corporate entity and then again in the hands of the members when it is distributed to them.
All entities (excluding partnerships and trusts) that are members of a corporate tax entity, and are in receipt of a franked distribution will:
• include the distribution together with the franking credits allocated to the distribution in their assessable
income, and
• obtain a tax offset equal to the amount of franking credits included in their assessable income. This tax offset can be used to reduce the entities’ own income tax liabilities.
Members of a corporate tax entity include shareholders in a company, partners in a corporate limited partnership or beneficiaries of a corporate unit trust or public trading trust.
A franked distribution to certain partnerships and trusts is treated as flowing indirectly to members of the partnership or trust. Each member’s share of the franking credit on the distribution is included in their assessable income. Each member is then given a tax offset equal to that share of the franking credit, provided the member is not itself a partnership or trust through which the distribution flows indirectly.
Certain eligible members may be entitled to a refund if the tax offset allowed exceeds the members’ basic income tax liability.
Income Tax - Residents
The following rates apply to individuals who are residents of Australia for tax purposes. These rates do not include the 1.5% Medicare Levy.
Individual Income Tax Rates 2008-2009
$1–$6,000 – Nil
$6,001-$34,000 – 15c for each $1 over $6,000
$34,001-$80,000 – $4,200 plus 30c for each $1 over $34,000
$80,001-$180,000 – $18,000 plus 40c for each $1 over $80,000
$180,001 and over – $58,000 plus 45c for each $1 over $180,000
Individual Income Tax Rates 2009-2010
The following rates apply from 1 July 2009.
$1-$6,000 – Nil
$6,001-$35,000 – 15c for each $1 over $6,000
$35,001-$80,000 – $4,350 plus 30c for each $1 over $35,000
$80,001-$180,000 – $17,850 plus 38c for each $1 over $80,000
$180,001 and over – $55,850 plus 45c for each $1 over $180,000
Medicare Levy
The Medicare levy is a tax paid by Australian residents to help fund the federal government’s health care system. The standard Medicare levy is 1.5% of your taxable income. However, this may vary according to your circumstances.
Medicare Levy Surcharge
The Medicare Levy Surcharge (MLS) is a tax paid by Australian residents on incomes above the MLS thresholds, who do not have private patient hospital cover. The MLS is calculated at the rate of 1% of your taxable income and is in addition to the 1.5% Medicare levy.
You will have to pay MLS for any period during 2008–09 that you or any of your dependants did not have private patient hospital cover and you were:-
• a single person with no dependants and had a taxable income for MLS purposes greater than $70,000, or
• a member of a family and the combined taxable income for MLS purposes of you and your spouse was $140,000 (plus $1,500 for each dependent child after the first).
For the 2009-2010 income year the Medicare Levy Surcharge thresholds have changed to the following levels:
• A single person with no dependants: $73,000.
• Family surcharge threshold: $146,000 (plus $1,500 for each dependent child after the first).
Simplified Tax System
The Simplified Tax System (STS) rules are designed to reduce the tax paid and the compliance costs faced by small businesses.
For income years starting on or after 1 July 2005, the STS has two main elements:
Simplified depreciation rules where most depreciating assets costing less than $1,000 each are written off immediately. Most other depreciating assets are pooled and deducted at a rate of either 30% or 5% depending on their effective life.
Simplified trading stock rules where the value of closing stock has not increased or decreased by more than $5000, you can choose whether or not to do a stock take at the end of the tax year.
STS taxpayers can also claim a full deduction for certain prepaid expenses. If you choose to enter the STS you must use all elements, where they apply. The STS applies to whole income years only and not to parts of a year.
Small Business Entity Concessions
Since 1 July 2007, small businesses with an annual turnover of less than $2 million have been called Small Business Entities and have been eligible, subject to conditions, for a range of tax concessions.
Eligible businesses can choose to use the following concessions:
Small Business Tax Break
You can claim a tax deduction of 50% of the cost of eligible new assets costing $1,000 or more. The tax break is in addition to deductions available under the simpler depreciation rules or the normal depreciation rules (uniform capital allowances).
Capital Gains Tax (CGT) 15 year asset exemption
If you are aged 55 or older, retiring, and your business has owned an asset for at least 15 years, you won’t pay CGT when you sell the asset.
CGT 50 per cent Active Asset Reduction
If you’ve owned an asset to conduct your business (an ‘active asset’) you will pay tax on 50% of the capital gain only, when you sell the asset.
CGT Retirement Exemption
There is a CGT exemption on the sale of a business asset, up to a lifetime limit of $500,000. If you are under 55, money from the sale of the asset must be paid into a complying superannuation fund or approved deposit fund, or a retirement savings account.
CGT Roll-over Relief
If you sell a small business asset and buy a replacement, you can roll over your CGT liability, to the value of the replacement asset. This means you won’t pay any CGT owing until you sell the replacement asset.
Simpler Depreciation rules
Generally, you can pool your assets to make depreciation calculations easier and also claim an immediate deduction for most assets costing less than $1,000.
Simpler Trading Stock rules
You can choose whether or not to do an end-of-year stock take if the value of your trading stock has not increased or decreased by more than $5,000 over the year.
Immediate deduction for certain Prepaid Expenses
You can claim an immediate deduction for prepaid business expenses where the payment covers a period of 12 months, or less, that ends in the next income year.
Entrepreneurs’ Tax Offset (ETO)
The entrepreneurs’ tax offset may reduce your tax payable by up to 25% where your business has a turnover of less than $75,000.
State Government Taxes
As the requirements vary between states and territories for all duties, organisations should seek state-specific information from the appropriate state/territory revenue office.
Stamp Duty
Stamp duty is a tax on written documents and certain transactions including motor vehicle registrations and transfers, insurance policies, leases, mortgages, hire purchase agreements and transfers of property.
The stamp duty rate varies depending on the nature of the transaction and its value.
Payroll Tax
Payroll tax is a tax on the wages paid by employers. It is different to the PAYG withholding tax on wages, which is paid to the Australian Tax Office
Employers are liable for payroll tax when their total Australian wages exceed a certain level called the ‘exemption threshold’. The Exemption thresholds vary between states.
Certain organisations may be exempt from payroll tax provided specific conditions are satisfied. These organisations may include religious institutions, public benevolent institutions, public or non-profit hospitals,
non-profit non-government schools and charitable organisations.
Land Tax
Land tax is a tax levied on landowners except in the Australian Capital Territory where it is levied on lessees under a Crown lease.
Landowners are generally liable for land tax when the unimproved value of taxable land exceeds certain thresholds (except in the ACT). In some states there are deductions and rebates available, depending on the use of the land. Principal places of residence are usually exempt from land tax, although this is subject to certain qualifying criteria which vary between jurisdictions.
Superannuation Guarantee
Employers have an obligation to pay super contributions on behalf of all their eligible employees. This compulsory contribution is called the superannuation guarantee.
The minimum super amount you have to pay is 9% of each eligible employee’s ordinary times earnings.
An employer pays superannuation for employees if they are aged between 18 and 70 years and are paid $450 (before tax) or more in a calendar month and work full-time, part-time or on a casual basis.
Employers also have to pay super for any employee who is under 18 years of age, is paid $450 or more (before tax) in a calendar month and works full-time, part-time or on a casual basis for more than 30 hours in a week.
Wine Equalisation Tax
WET is a value-based tax on wine consumed in Australia. WET applies at 29% of the value of the wine at the last wholesale sale (before adding GST).
A wine producer, wholesaler or importer reports and pays WET through the business activity statement (BAS), in the same way as other business taxes.