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August 2013 News Letter

Massive change to treatment of FBT on car fringe benefits

Editor: The government has decided to bring forward the commencement of the carbon emmissions trading scheme to 1 July 2014, and as part of this they have announced other changes, including to the FBT treatment of car fringe benefits.

Of course, whether or not these changes actually become law (despite the announced start dates) depends on the government passing the legislation which depends on them getting re-elected.

The government intends to ensure the FBT "exemption' for cars is targeted to actual business use, rather than including personal use, by removing the statutory formula method for both salary sacrificed and employer provided cars for new contracts entered into after 16 July 2013, with effect from 1 April 2014.

All car fringe benefits for new leases (i.e. those entered into after 16 July 2013) will be using the operating cost (i.e. log book) method from 1 April 2014, which is based on actual business use of the car.

Existing contracts materially varied after 16 July 2013 will also fall under the new arrangements, but existing contracts that are not varied will continue to have access to the existing statutory rate throughout the contract.

This reform will not affect:

  • employees and sole traders who claim deductions for wor related travel expenses when they use their own car for work reasons;
  • the existing exempt car benefit concessions that apply to certain uses of taxis, panel vans, utes and other non-car road vehicles; and
  • employers who provide a work car to employees for occasional private use (for example, weekend travel) and use the operating cost method.

Medicare Levy increase becomes law

The Disability Care Australia legislation that provides for a half a percentage point increase in the Medicare levy has passed Parliament and become law.

The legislation will increase the Medicare levy from 1.5% to 2% of taxable income from 1 July 2014.

Editor: This will have a flow-on effect to other tax rates that implicitly incorporate the Medicare levy, such as FBT, the family trust distribution tax rate and the excess non-concessional contributions tax rate, all of which increase to 47% from 1 July 2014.

Simpler depreciation rules for business

The ATO has reminded small business with turnover of less than $2 million (i.e. small business entities or SBE's) that the depreciation rules for business assets are now simpler from the 2012/2013 income year onwards.

Assets costing less than $6,500

The small business instant writ-off threshold has increased from $1,000 to $6,500 allowing small business to immediately write-off most new depreciating assests costing less than $6,500.

Assets costing $6,500 or more

Depreciating assets that cost $6,500 or more (regardless of their effective life) are now added to the general small business pool and deducted at a single rate of 30%.

Newly acquired assets are deducted at 15% (half the pool rate) for the first income year.

Motor Vehicles

Small businesses that purchase a vehicle can now also claim an additional deduction of up to %5,000 in the income year it is purchased, effectively bringing forward the depreciation deduction to earlier in the vehicle's life.

Where the vehicle is used exclusively for business and has not been written off immediately under the instant asset write-off, the cost of the motor vehicle is added to the general small business pool and the deduction in the first year is made up of $5,000 plus 15% of the vehicles remaining value.

Example: An SBE purchased a motor vehicle on 29th June 2013 for $20,000 which is used exclusively in their business. Under the new rules, the deduction in the first income year will be $7,250 being $5,000 plus 15% of the $15,000 remaining value.

Under the old rules the deduction would have been $3,000 in the first year. (i.e. 15% of $20,000).

CGT: Keep the right records

The ATO has reminded taxpayers that they should keep all records of purchases or acquisitions of assets that may be subject to CGT, and records relating to their sale or disposal, including details of the nature of the act, transaction, event or circumstances, how it resulted in a capital gain or loss, the date it occurred, and the parties involved.

The records used to work out the amount of the capital gain or capital loss should also be kept, which may include:

  • receipts of a purchase or transfer;
  • details of interest on money borrowed relating to the asset;
  • records of agent, accountant, legal and advertising costs;
  • receipts for insurance costs;
  • receipts for rates, land tax and stamp duty;
  • any market valuations;
  • receipts for the cost of maintenance, repairs or modifications;
  • accounts showing brokerage on shares; and
  • records from the previous owner - for example, for inherited assets.

Super funds keep pension exemption after death

The government has made amendements to "provide tax certainty for deceased estates in situations where a person has died while in receipt of a superannuation income stream".

Broadly, a superannuation fund is entitled to a tax exemption for income that supports the payment of superannuation income stream benefits (i.e. superannuation pensions).

Under the amendements, where a complying superannuation fund member was receiving a superannuation income stream immediately before their death, the superannuation fund will continue to be entitled to the earnings tax exemption i the period from the members death until their benefits are cashed:

  • By paying them a lump sum; and/or
  • By commencing a new superannuation income stream;

subject to the benefits being cashed as soon as practicable.

The level of the exemption would be no greater than it was before the member's death (allowing for investment earnings after the member's death).

Car Depreciation limit for 2013/2014

The ATO has advised that the car depreciation limit for the 2013/2014 financial year is $57,466 (unchanged from the 2012/2013 year).

Reasonable Overtime Meal Allowance Amounts -2013/2014

The reasonable amount for overtime meal allowance expenses, where an allowance is paid under an award, order, determination. industrial agreement or a Commonwealth, State or Territory law, is $27.70 per meal for 2013/2014.

An overtime meal allowance (being an allowance paid for food and drink in connection with overtime worked) which does not exceed the reasonable amount does not need to be shown on the payment summary, and the employee may not need to show it on their tax return if it has been fully spent on deductible expenses.

Please note: many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information's applicability to their particular circumstances.

 

 

 

 

 

 

 

 

 

 

 

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