The Square Orange

Federal Budget - 2009

Personal Taxation

Foreign employment income

The Government has announced changes to the tax treatment of foreign employment income.

Under the proposed measures, foreign employment income will generally be taxable, but taxpayers will be entitled to a tax offset for foreign tax paid on the foreign employment income.

The proposed measures will take effect from 1 July 2009

Employee share schemes

The Government has announced that all discounts on shares and options provided under an employee share scheme, whether qualifying or non-qualifying, will be assessed in the income year in which they are acquired. That is, employees will no longer be able to elect to defer taxation on their discount to a later time.

The Government will also limit access to the $1,000 upfront tax exemption to employees with an adjusted taxable income of less than $60,000.

These measures will apply to shares and options acquired after 7.30 pm AEST on 12 May 2009.

Private health insurance rebate

The Government announced that high income earners will receive a reduction in their private health insurance rebate and face an increase in Medicare levy surcharge
should they opt out of their health cover.

From 1 July 2010, the Government will introduce three new ‘Private Health Insurance Tiers’ for high income earners:

·    Tier 1: for singles earning more than $75,001 (couples/families $150,001), the rebate will be 20% for those up to 65 years (25% for those over 65, and 30% for those over 70 years). The Medicare levy surcharge for avoiding private health insurance will remain at 1%.

·    Tier 2: for singles earning more than $90,001 (couples/families $180,001), the rebate will be 10%, for those up to 65 years (15% for those over 65, and 20% for those over 70 years). The surcharge for avoiding private health insurance will be increased to 1.25%.

·    Tier 3: for singles earning more than $120,001 (couples/families $240,001), no rebate will be provided. The surcharge for avoiding private health insurance will be increased to 1.5%.

 

 

Low and middle-income earners are not affected by the proposed changes.

Seniors Health Card

The Government said that it will not include gross income from superannuation income streams from a taxed source when determining an individual’s eligibility for the Commonwealth Seniors Health Card, a measure which was due to come into effect on 1 July 2009.

However, the Government will proceed to include income that is salary sacrificed to superannuation in the income assessment, which will take effect from 1 July 2009.

Medicare levy low-income thresholds

The Government has released the Medicare levy low-income thresholds for the 2008/09 income year. The threshold will increase for singles to $17,794 and to $30,025 for individuals who are members of a family.

The additional amount of threshold for each dependent child or student will also be increased to $2,757.

The Medicare levy low-income threshold for pensioners below Age Pension age will also be increased from 1 July 2008 to $25,299.

Seniors Supplement for self-funded retirees

The Government will provide a Seniors Supplement from 20 September 2009.

The Supplement will be available to self-funded retirees who are eligible for the Commonwealth Seniors Health Card or the Department of Veterans’ Affairs Gold Card with current Seniors Concession Allowance. It incorporates existing payments of Seniors Concession Allowance and the higher rate of Telephone Allowance.

The Seniors Supplement will be $790.40 a year for singles and $1,190.80 a year for couples combined. Payments will be made quarterly.

Business Taxation

Small Business and General Business Tax Break

The Government has announced the one-off bonus tax deduction available to small businesses under the Small Business and General Business Tax Break will increase to 50%, where a small business acquires an eligible asset between 13 December 2008 and 31 December 2009, and the asset is installed or ready for use by 31 December 2010.

Repeal of unlimited amendment periods

The Government announced that it will repeal certain provisions in the income tax laws that currently provide the Commissioner with an unlimited period in which to amend an item in a taxpayer’s income tax return.

The Government stated that the amendments will take effect from the date of Royal Assent of the relevant enabling legislation.

Assets and deemed dividend rules

The Government will extend the deemed dividend rules to payments by way of a licence or right to use real property and chattels, such as cars, boats and real estate.

This measure will reduce the opportunities for private companies to allow their shareholders or associates to use company assets for free, or at less than their arm’s length value, without paying tax.

It is proposed this measure will apply from the 2009/10 income year.

Use of non-commercial losses restricted

The Government will tighten the application of the rules on the use of non-commercial losses to prevent high-income individuals from offsetting excess deductions from non-commercial business activities against salary and other income.

From 1 July 2009, taxpayers with an adjusted taxable income of over $250,000 will only be able to deduct expenses from non-commercial business activities against the income from those activities. Any excess deductions will be quarantined to the business activity.

Taxpayers will still be able to apply to the Commissioner for relief from the rules if there are exceptional circumstances, or because the nature of the activities means that a taxpayer is temporarily carrying on an uncommercial business but the activities they are undertaking are nonetheless independently assessed as commercially viable.

Superannuation Measures

Changes to concessional contributions cap

The Government will cut the superannuation concessional contributions cap to $25,000 per annum (down from $50,000 per annum) from 1 July 2009.

The transitional concessional contributions cap, which applies until the 2011/12 income year, for individuals aged 50 to 74, will be reduced to $50,000 per annum (down from $100,000 per annum).

From 1 July 2012, the concessional contributions cap for those aged 50 and over will revert to the lower $25,000 cap (or applicable indexed amount at that time).

The Government has not amended the non-concessional contributions cap.

Superannuation co-contribution

The Government has announced that it will temporarily reduce the superannuation government co-contribution matching rate that is payable on eligible personal superannuation contributions, with effect from 1 July 2009.

The temporary matching rates as proposed are:

·    for the 2009/10, 2010/11 and 2011/12 income years, $1 for each dollar of contribution, up to a maximum of $1,000 per annum;

·    for the 2012/13 and 2013/14 income years, the rate is $1.25 for each dollar of contribution, up to a maximum of $1,250 per annum; and

·    for 2014/15 and later income years, the rate is $1.50 for each dollar of contribution, up to a maximum of $1,500 per annum.

Reduction in pension drawdown

The Government will extend its decision to reduce by 50% the minimum annual payment amounts for account-based pensions for the 2009/10 income year. That is, self-funded retirees will only have to draw down half of the minimum amounts from their account-based pensions for 2009/10.

Other Measures

Increase in ASIC fees

In the 2009/10 Federal Budget, the Government stated that it will index fees and charges collected by the Australian Securities and Investments Commission (ASIC) to the Consumer Price Index from the 2010/11 income year

A new way of serving our clients

At OTS Management we are constantly looking at new ways to provide services. The culture we encourage is one where we are not embarrassed at making mistakes, where we take them as learning experiences, and where we are not embarrassed at making an apology as long as we have a new and better way to service our clients.

In completing the 2007/2008 year we realsied that we were faced with something that many industries will face for the foreseeable future - a shortage of human resources at the right times and at the right levels of experience. We realised we had to compensate for this and for some time now our hiring policies have been based on three questions we ask ourselves at staff interviews:-

• Can they do the job?
• Will they do the job?
• Will they do it here?

The third question is the hardest to answer at interview and yet it is the most important because while you can train someone you cannot make them "fit in" and fitting in, we think, is the key to providing the best service for our clients, because then, all our staff will believe in the culture of giving our clients what we would want given to us.

While we are very satisfied with our staff this year in both ability and service culture, nevertheless our human resources are finite resources with a finite number of working hours. We have calculated our "capacity" and have planned to use it effectively next year.

The next issue we found in our review of the year was that the efficiency of our work suffered when we started a job and then had to put it down due to missing information. This would lead to a lengthy series of delays as we stopped, requested more information, restarted, then got stuck and requested more information, In between if the information took time to get to us it caused more delays. As we restarted jobs we would also have to take time to "get up to speed" again, remembering the points in our work processes we had completedhalf-completed, and not quite got there. This meant delays in getting the work back to clients as well as increased costs.

Finally we also found an issue where clients brought in their books only when the deadlines were approaching. This meant, very simply, bottlenecks. While we deal with our clients on a one-to-one basis, it appears (and we want it to be true) that for that time, they are our only concern. However this is patently not true if 30 clients bring their books in at the same time each expecting then at the end of the week - when we only have man-hours to do 10 sets of books in a week!

Imagine a factory-line that can manufacture 100 cars a month at full capacity. If the car salesyards have done a great job and obtained 200 orders that month, some people will have to wait!

Putting all three aspects together we have come up with a new way of serving our clients.

Firstly, having identified our monthly capacity, we shall be making requests of clients to bring in their expected work at certain times of the year, thus matching the "orders" to our capacity. In this way we can work on your affairs efficiently and exclusively during the nominated period. If on the other hand, an individual client may not be able to meet our timed capacity, or if they need the work for a different deadline, we shall try our hardest to reschedule to meet their needs. In order to cater for "emergencies" anmd urgent and unexpected jobs, we are scheduling our staff capacity to 75% and allowing 25% of the time to cater for these unpredictable tasks.

Naturally we need the teamwork and co-operation of our clients. If they bring in their work later than scheduled without letting us know there may well be delays in completing it.

Secondly when we write to clients to ask for their expected work at the stated times, we shall also be providing them with checklists for each of their entities. This will help remind them of what we need to do our jobs efficiently and effectively, avoiding the delays of the stop=start approach.

We believe this will be an improvement to our response times and will only improve with the years.

To us, it is always important to meet the needs of the client and if we have not been able to do so in the past we must look ahead to do so in the future.

OTS Management now uses Banklink

One of our core-values is being open to change. By this we do not mean simply change for the sake of change, but this core-value means that we are pro-actively seeking new ways to do things that would help efficiency and client-service, and in particular provide added-value for our clients.

As part of this constant search for efficiency and value we have researched the services of Banklink, and have now signed up with them so as to be able to provide our clients with a better accounting service if they in turn wish to use the Banklink service now available through us.

The Banklink service is particularly useful for clients who do not have computerised accounts like MYOB, or even if they do feel that they are operating them inefficiently or simply would rather not have to do it!

Once you ask us to sign you up for the Banklink service, your bank is authporised to send us an electronic copy of your relevant bank statements (you still do your banking the way you do it now and receive your normal copies of your bank statement). This is an electronic copy that "talks" to our accounting software so that we can code your transactions directly from the statements.

Naturally we will still need your help - we do not know for example what a cheque payment maty be for. To get this information, at agreed times whether monthly, quarterly or other agreed time, we send you a Banklink Coding Report for you to enter, in plain English, who you paid and what for. The beauty of the system is that if you make regular payments, say to "Joe's Supplies" and you tell us that those payments are always for "Repairs", then Banklink will remember that and automatically code that next time you tell us a cheque was for Joe's Supplies.

Security is paramount - the electronic statements are sent to our secure server accessible only by our staff. At no time do we ever have authority to conduct transactions at your bank.

As for the cost - how's this, it's free!

Yes, it will cost you no extra to sign up with Banklink because we believe we will absorb the cost of the service in your accounting fees through efficiency. However we may negotiate a monthly fee system with you. This is an advantage to you as well - for no increased cost, we can provide you with periodic service in accounting, and at the end of the year you have smoothed out your accounting fee over the year, so no large fees once a year.

If you would like to know if the service is suitable for you, please give us a call on 08 9242 2085 or email us at ots@otsmanagement.com.au

The New Style of The Square Orange

Over the years, our client newsletter "The Square Orange" has received complimentary and flattering feedback. Our clients have forwarded it to their colleagues and friends, sharing information and ideas.

As a result of this marvelous reception, we have had a major re-think and decided to make it available to the public as the OTS Management News-Weblog. We hope you will find it just as informative, and in its new public site, even more readily available to you and your friends.

You can forward the URL (that's address of the website to the not-so computer literate) through some automatic links in your internet explorer by sending the page or the link by e-mail, or you can simply tell them to go to http://ots.typepad.com/tso/ and being on the web it is accessible at any time from any where.

We will be posting entries every month so please add it to your favourites in your internet explorer or bookmark it.

You can even subscribe to its feed by clicking on the link at the right. This will send you a quick email every time an article is posted so that you can keep up to date. From time to time, such as at budget time, we may have more posts than the regular monthly time so the use of the feed is highly recommended.

Over the next few months we will also be adding links to other OTS Management weblogs being The Juice (tips, traps and ideas that was a firm favourite of the old version of The Square Orange but which will now have a blogsite on its own), The Pith (a collection of business and management articles that will contain more depth than the news articles in The Square Orange), and The Zest Factor which will be a free small business course for building and growing your SME. In time we will also post podcasts so that you can download articles to your computer or MP3 player.

It's going to be a busy and exciting time, so get the feed!