Tax Changes – An Opportunity For Wealth Creation? – August 07

The latest changes (which apply for the 2008 and 2009 year) provide an opportunity to review the manner in which you are being remunerated and take advantage of tax effective structures. Changes to personal tax rates and the introduction of several major reforms to the area of Superannuation as part of its Federal Budget provide some opportunities for business owners.

Understanding these changes and how you may take advantage of them is important – take a moment to read about the following:

• Changes in the Marginal Rates of Tax for Individuals 
• Superannuation Deduction Limits 
• Self Employed and Superannuation 
• Superannuation Co-Contributions 
• Spouse Superannuation Contributions 
• Superannuation Contributions Splitting

CHANGE IN MARGINAL TAX RATES FOR INDIVIDUALS

Changes in the marginal rates of tax provide an opportunity to review the way personal remuneration from your business is being received. Depending on your structure and income levels reviewing the way you draw funds is an opportune time to do so now.

The new rates significantly increase the thresholds over the next 2 years where the higher rates of tax kick in.

2008 Financial Year

Theshold	Rate	Tax Payable (excludes Medicare Levy)
$0 - $6,000	0%	Nil
$6,001 - $30,000	15%	Nil + 15% of excess over $6,000
$30,001 - $75,000	30%	$3,600 + 30% of excess over $30,000
$75,001 - $150,000	40%	$17,100 + 40% of excess over $75,000
$150,001 +	45%	$47,100 + 45% of excess over $150,000

The Low Income Earner Rebate applicable for the 2008 year is $750. This rebate applies in full to taxpayers earning up to $30,000 and phases out between $30,000 and $48,750. For the 2008 year, an Individual can earn up to $11,000 in taxable income without having to pay any tax.

2009 Financial Year and Onwards

Theshold	Rate	Tax Payable (excludes Medicare Levy)
$0 - $6,000	0%	Nil
$6,001 - $30,000	15%	Nil + 15% of excess over $6,000
$30,001 - $80,000	30%	$3,600 + 30% of excess over $30,000
$80,001 - $180,000	40%	$18,600 + 40% of excess over $80,000
$180,001 +	45%	$58,600 + 45% of excess over $180,000

The Low Income Earner Rebate applicable for the 2009 year and onwards is $750. This rebate applies in full to taxpayers earning up to $30,000 and phases out between $30,000 and $48,750. For the 2009 year and onwards, an Individual can earn up to $11,000 in taxable income without having to pay any tax.

SUPERANNUATION

Changes to Superannuation have been significant. For those aged 50 and over, the opportunity to restructure and consider the benefits of areas such as salary sacrificing, contribution splitting and maximising aged based contributions should not be ignored. Reducing tax is an effective strategy when it comes to Wealth Creation. Revisit your circumstances now – have a plan and implement.

Superannuation Deduction Limits

From 1 July 2007, the above-mentioned age based limits on the deductibility of superannuation contributions will be removed and replaced with a single contribution limit (per employee) of $50,000 per annum ($100,000 for those over age 50 to 2012).

Self Employed or Substantially Self Employed Superannuation Contributions

From 1 July 2007, a full deduction will be allowable for self-employed contributions subject to the single annual contribution deduction limit of $50,000 (per employee).

Superannuation Co-Contributions

The co-contribution is a dollar for dollar scheme where the Government will match personal contributions up to $1,500. The maximum co-contribution of $1,500 is available for those earning $28,000 or less. For every dollar of assessable income and reportable fringe benefits over $28,000 the maximum co-contribution is reduced by 5 cents, phasing out completely at the upper income threshold of $58,000.

The co-contribution will only be available to those members who are receiving employer super support (usually in the form of Super Guarantee) and are not entitled to a deduction for personal contributions.

From 1 July 2007, self-employed taxpayers will also be eligible to benefit from the Co-Contribution scheme.

Spouse Superannuation Contributions

A tax rebate to a maximum of $540 for contributions up to $3,000 to superannuation on behalf of a spouse may be obtained in certain circumstances. The receiving spouse must be under age 65, or between 65 and 69 inclusive if gainfully employed for at least 40 hours in a 30 day consecutive period. The contributing spouse can be of any age. The definition of “spouse” includes legal spouse, a de-facto spouse, but not same sex couples or a person living permanently apart from the contributor.

In order to attain the benefit of a tax rebate, the receiving spouse must have assessable income less than $13,800 for a partial rebate and less than $10,800 for the maximum rebate.

Superannuation Contributions Splitting

Certain contributions made to your superannuation fund may be eligible to be split to your spouse’s superannuation account. You can split contributions to an account held by your spouse, either within the same fund or retirement savings account (RSA), or to a different fund, RSA, approved deposit fund or life assurance company.

Limits may apply on the amount of contributions that may be split with your spouse depending on the type of contribution you would like to split.

Superannuation contributions splitting is a voluntary measure that your fund can decide whether they will offer. You will need to contact your superannuation fund and ask if they are going to offer superannuation contributions splitting should you be considering splitting your contributions with your spouse.