Cutting tax on share transfers

While the transfer of shares from an individual to their super fund will trigger a CGT event and therefore capital gains tax, there are ways individuals can minimise this.

Individuals can transfer shares to a self-managed superannuation fund (SMSF) by completing an off-market transfer, also known as an in-specie transfer. An off-market transfer is the transfer of securities between two parties without using the services of a stockbroker. It means that the shares in question do not have to be sold.

Because the sale involves changing the beneficial ownership structure of the shares from an individual’s personal name to the name of the super fund, it may trigger a capital gains event.

A capital gains event means that an individual may have to pay capital gains tax if they made a profit on the shares being sold. One way to minimise the tax payable is to group transfers of shares with losses with any shares that have gains, which can offset the probability of paying tax.

Alternatively, individuals can also maximise their concessional contributions in the year in which the share transfer occurs via salary sacrifice, which can lower their taxable income and thus lower their capital gains liability.

To manage their tax liability more efficiently, individuals should consider transferring different tranches or combinations of tranches over several financial years. Seeking professional advice can help when calculating capital gains tax or combinations mentioned above.

New limits on FBT entertainment benefits

In the 2015-16 Budget, the Australian Government introduced a separate single grossed up cap of $5,000 for salary sacrificed meal entertainment and entertainment facility leasing expenses (meal entertainment benefits) for employees.

That cap will apply from April 1, 2016, to coincide with the start of the FBT year. The new limits are designed to improve fairness in the Australian tax system and will apply to the use of FBT salary packaged meal and entertainment facility leasing expenses.

Meal entertainment benefits that exceed the $5,000 grossed-up cap will count towards an employee’s existing FBT exemption or rebate cap.

All salary packaged meal and other entertainment benefits will be reported on an employee’s payment summary if their reporting threshold is exceeded.

Employers should consider how the changes may affect any of their clients or employees who may receive or provide salary packaged meal or other entertainment benefits.

Tax on gifts and donations

Individuals can claim tax deductions when giving gifts or donations to organisations that have the status of deductible gift recipients (DGR).

To be eligible to claim a tax deduction for a gift, the ATO stipulates that it must meet the following four conditions:

• the gift must “truly be a gift”; that is, a voluntary transfer of money or property where the giver receives no material benefit or advantage.

• the gift must be made to a deductible gift recipient (DGR)

• the gift must be money or property

• the gift must comply with any relevant conditions. For some DGRs, the income tax law adds extra conditions affecting the types of deductible gifts they can receive.

What you can claim
The amount an individual can claim for a gift or donation depends on the type of gift given. For gifts of money, individuals can claim the total amount of the gift, as long as it is $2 or more. Different rules exist for gifts of property, and the amount of the tax deduction depends on the value and type of property.

Tax deductions for the majority of gifts can be claimed in the tax return for the income year when the gift is made. However, individuals can also spread the tax deduction over five income years under certain circumstances.

What you can’t claim
Individuals cannot claim a tax deduction for gifts or donation items that provide some personal benefit, such as:

• raffle tickets

• the cost of attending fundraising dinners (unless certain conditions are met – see your tax professional)

• membership fees

• payments to school building funds

• payments where there is an understanding with the giver and recipient that the payments will be used to provide a substantial benefit for the giver

ATO targeting private school parents

In the latest crackdown on tax evasion, the ATO is targeting parents suspected of paying their children’s private school fees from secret offshore bank accounts.

Following concerns that overseas accounts are being used to hide away secret funds, the tax office will be contacting more than 100 parents with private school fees of up to $100,000 per year paid from offshore accounts this week.

While there is nothing wrong with Australians having an offshore account, those individuals are still required to pay tax on the account’s interest or earnings. Suspected parents will be asked to provide documents and attend interviews to answer questions about their arrangements.

Government introduces significant tax changes in innovation statement

Significant tax breaks and incentives for Australian investors were unveiled on Monday when the Turnbull government released their National Innovation and Science Agenda.

The tax changes are designed to help support start-ups to develop their ideas in Australia.

Investors will now be able to access a 20 per cent tax offset instead of deductions or a (CGT) exemption in start-up companies that are less than three years old, are unlisted, and received less than $20,000 in income in the previous year.

The reason for changing to the offset model over a deduction is because it will benefit people more evenly across the differing income groups. The cost of the offset is estimated to be $106 million over four years, with most funding beginning after 2017.

This means that if someone was to invest $20,000 and claim the offset, they would be able to reduce their income tax by $4,000. If the investor then sold their shares three years later, their initial $20,000 will also be exempt from CGT. For start-ups, this will bring forward the point at which they can receive a tax break.

Tips to speed up tax refunds

Many problems can occur when processing activity statements and tax returns which can lead to a delay in the ATO issuing refunds.

However, these problems are often caused by small issues and can be easily avoided. Here is a list of tips to help minimise some of the issues that can prevent a speedy tax refund:

• Keep personal details, such as postal address, bank details and authorised contacts updated

• Lodge all outstanding activity statements as the ATO are unable to process the refund until they know the extent of the credit

• Keep good records and hold onto receipts

• Keep the statement clean. Do not write notes outside the space provided, do not use symbols and show whole dollar amounts only

• Do not double up by lodging both online and in person

• Refer to a specialist if the process is complex

Claiming tax deductions for your website

Designing, creating and maintaining a website for your business can be complicated. Many of today’s small businesses employ the services of a web developer and designer to take care of getting a website up and running since they don’t have time or expertise to be able to do it themselves.

Often, this can be an expensive venture. But luckily, small businesses can claim deductions for website development costs.

Businesses that incur the cost of developing a website before they begin running their business can claim 20 per cent of the cost each year over five years upon starting up.

Businesses that are already up and running with an aggregated turnover of less than $2 million can use the simplified depreciation rules;

• If the cost of the website development is less than the instant asset write-off threshold of $20,000, owners can claim a deduction for the full expense amount in the income year they acquire the expense.

• If the website costs the same or more than the instant asset write-off threshold, owners can allocate it to a general small business pool.

Business owners cannot use the simplified depreciation rules if they choose to allocate expenditure on the software to a software development pool.

Business owners are also able to claim an outright deduction for specific running and maintenance costs, such as server hosting fees, domain name and registration fees in the same income year the expenses are incurred.

Employment termination payments

An employment termination payment (ETP) is a lump sum payment an employer makes to employees when their employment is terminated.

Depending on the age of the employee, and the length of their employment, the amount of an ETP may be taxed at a different rate. An ETP may encompass a tax-free portion, a concessionally taxed portion and a taxed portion.

To be eligible for concessions and to qualify for a lower rate of tax, employers must make an ETP to an employee within 12 months of their termination. Otherwise, the entire amount will be included in the employee’s assessable income and taxed at marginal rates.

An ETP may include:

• compensation for loss of job

• payment instead of notice

• a gratuity or “golden handshake”

• payments for redundancy or under an early retirement scheme

• compensation for wrongful dismissal

• unused sick leave

• unused rostered days off

An ETP does not include:

• payments for unused annual leave, long service leave or leave loading

• salary, wages, allowances, bonuses and incentives the employer owes the employee for work done or leave already taken

• payment for a restraint of trade

• compensation for personal injury

• employee share scheme payments

• foreign termination payments

• an advance or loan

How negative gearing works

Negative gearing is a popular tax strategy that gives investment property owners the ability to offset the cost of owning a property against their assessable income.

Negative gearing involves generating short to medium term tax losses, which arise from tax-deductible costs that are higher than investment income, and leveraging this to increase exposure to potential gains and losses.

It is a popular strategy due to its ability to reduce an investor’s taxable income through their tax losses, resulting in a lower annual income tax bill.

For example, if the rent of a property was $350 per week, and the property was fully tenanted for a full financial year, the rental income would be $18,200. If the deductible expenses for that year were $30,000, the net rental loss would be $11,800. The $11,800 loss can then be applied to reduce the property owner’s taxable income.

Under Australian income tax law, property owners can claim a tax deduction for any cost they incur if it is sufficiently connected to their investment property. Non-cash expenses, such as depreciation, can also be deducted. General tax deductions relating to rental income include:

• Borrowing costs

• Council rates and water fees

• Depreciation on assets

• Property inspections

• Repairs and maintenance

While negative gearing carries many benefits to property owners, the strategy isn’t without pitfalls. Negatively geared property results in a loss, so before committing to the strategy, it is worth considering aspects like what will happen if you cannot fill your rental property at any one time, or if there is a dramatic turn down in property values and your investment fails to increase in value.

Rolling over your CGT

A capital gain or capital loss is the difference between the cost of an asset and the profit or loss made when it is disposed of.  In certain circumstances, a capital gain from a CGT event can be deferred, or ‘rolled over’, until another CGT event happens which involves an asset in the following events:

Marriage or relationship breakdown
If an asset, or a share of an asset, is transferred from one spouse to another upon their marriage or relationship breaking down, any CGT is usually deferred until another CGT event takes place i.e. one spouse sells the asset to someone else.

Loss, destruction or compulsory acquisition
Individuals can defer a capital gain when their CGT asset is lost, destroyed or compulsorily acquired.

Mining lease
Those who dispose of their land to an entity who holds a compulsory mining lease over it that would significantly affect the use of the land can defer a capital gain.

Scrip for scrip
Individuals can defer a capital gain if they dispose of their shares in a company or interest in a trust as a result of a takeover.

Demergers
Individuals can defer a capital gain or capital loss if a CGT event happens to their shares in a company or their interest in a trust as a result of a demerger.