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January 2009 - Newsletter

New Faces at RMS Accountants

We would like to introduce some of the new staff that have joined us over the past 6 months.
Many of you may have spoken with Julie Brigden who has joined our administration staff. Julie has worked in an accounting practice for several years and helps us with tax returns and producing financial reports.
Julie Wattus has come to us with a background in farming and accounts with a large truck supply company. She is studying accounting at TAFE and is very involved in the processing of data and tax returns.
Malcolm Batten and Ritnesh Kumar have joined RMS as accountants and bring a wealth of training and experience to our firm.
Michael Root is now the office manager and oversees the administration functions at RMS. He has many years experience in office administration and is from a farming background too.
Federal Govt Announces 10% Investment Allowance
On the 12th December 2008, the Government announced an initiative to boost economic activity, in the form of an investment allowance. The investment allowance is an additional 10 percent tax deduction for new tangible depreciating assets. This will be a temporary measure.
The allowance will be in the form of an additional tax deduction equal to 10 percent of the cost of an eligible asset, that is, a ten percent tax deduction on top of tax deductions allowed under the current capital allowances (depreciation) provisions.
The investment allowance will be available for assets held under contract entered into and assets commenced to be constructed between 12:01am AEDT 13 December 2008 and 30 June 2009.
The asset needs to be installed and ready for use for a taxable purpose by 30th June 2010 in order for the investment allowance to be claimed.
It can be claimed through the income tax return in which the capital allowance is claimed for the asset.
The investment allowance will apply to tangible assets used in carrying on a business for which a deduction is available under the core capital allowances provisions, i.e. Subdivision 40-B of the Income Tax Assessment Act 1997.
The expenditure must be on new assets or new expenditure on existing assets. Assets previously used or held for use will be excluded.
Cars are not excluded.
The investment allowance will be available on new assets which cost more than $10,000.
First home saver accounts (FHSAs)
Editor: The ATO has provided a Fact Sheet on its website regarding first home saver accounts which financial institutions are now providing. 
Please contact us if you would like us to provide more detailed information.
Why open an FHSA?
Basically, the government will contribute a certain percentage/amount into the FHSA provided the taxpayer is eligible for the concession.
Taxpayers can receive a tax-free amount of up to $850 in 2008/09 (calculated at the rate of 17% of contributions (up to $5,000) made to the FHSA.)
Taxpayers must make contributions (from after-tax income) of at least $1,000 for each of four financial years (not necessarily consecutive) before they can withdraw their money. Other people can contribute to the account.
Earnings on FHSAs are only taxed at 15%, and the account provider (bank) is liable to pay it.
If a taxpayer decides not to go ahead with buying or building their first home, they must contribute the funds deposited to the FHSA into their superannuation fund.
What about the First Home Owners Grant?
Taxpayers are still entitled to apply for a First Home Owners Grant if they decide to open an FHSA.
Super funds coming unstuck with loans to members
The Tax Office has reported that, when it comes to the investment restrictions that apply to SMSFs, the most common contravention continues to be loans to members of funds and their relatives.
In addition, many SMSF trustees are claiming their loan arrangements are arm’s length loans to non-related parties. However, the ATO has found that, in over 20% of its audit cases, the loan arrangements had not been conducted at arm’s length.
Case Study – accessing funds to prop up a business
Editor: The following example provided by the ATO highlights an instance of non-compliance and what they did about it.
The approved auditor of a fund reported a contravention because the fund had made a loan to a related party for the year ended 30 June 2005.
The related party was a company of which the trustees of the fund were also the directors. The company had run into liquidity problems so the trustee lent the money to the trading company. The loan was for $126,000, which equated to 99% of the fund’s total assets.
Attempts were made throughout the case to get the trustees to rectify the contravention, and, earlier this year, the trustees proposed an enforceable undertaking to rectify by June 2010. However, this was not accepted by the ATO as the timeframe was unreasonable, and they proceeded to make the fund non-complying.
Genuine redundancy payments
The Tax Office has issued a ruling that shows that even taxpayers who operate their own business (through a company or trust) can be paid out "genuine redundancy payments" which are concessionally taxed.
Example: Husband and wife company
Edsel Design Pty Ltd provides car design services to Aussie Autos. Bill and Mary Edsel are directors of Edsel Design, which employs 20 people in its operations. Bill is the Administration and Marketing Manager and Mary is the Design Manager.
After several years of losses, Aussie Autos decides to cease operations. 
As Aussie Autos is Edsel Design's sole client and other opportunities are not realistically available, Bill and Mary also decide to cease the operations of Edsel Design.
Redundancy payments are made to all employees, including Bill and Mary, equal to eight weeks pay over and above unused leave entitlements. None of the employees is entitled to redundancy payments under their employment arrangements.
The ATO accepts that the payments may be treated as genuine redundancy payments as it is clear that Bill and Mary's employment terminated because of redundancy. In their capacity as directors, they had no real choice but to terminate their own employment along with the other employees.
 

This information is provided as a guide only and is not intended to constitute advice whether legal or professional. You should obtain appropriate advice concerning your particular circumstances.

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