If you have any debit balance shareholder loan accounts from prior years which were placed under complying Division 7A loan agreements the minimum loan repayments need to be made by 30 June 2011. It may be necessary for the company to declare dividends before 30 June 2011 in order to make these loan repayments.

You might not need to do a stock take - using the simplified trading stock rules

Small Business Entities (operational businesses with an aggregated turnover below $2 million) have access to a range of tax concessions.  One of these concessions is the simplified trading stock rules.

Under these rules, you can choose not to conduct a stock take for tax purposes if there is a difference of less than $5,000 between the opening value of your trading stock and a reasonable estimate of the closing value of trading stock at the end of the income year. You will need to record how you determined the value of trading stock on hand.

If you would like to take advantage of the simplified trading stock rules, call us today to make sure you are eligible to use the simplified rules and to talk through how to use them properly.

Beware of arrangements involving contractors

Personal services income
If you are in a business where you are the only income producer and your income is earned from your personal efforts (such as contractors), you need to be aware of the rules surrounding alienation of personal services income.

If the company earns personal services income, the ATO will treat any income as income earned by you rather than income earned by the business unless certain tests can be satisfied.  This means that your personal tax rates will apply to the business income and you will be denied access to a range of tax deductions normally available to businesses.

Even if the rules haven’t affected you in the past, this is an annual test and you might be caught if your circumstances have changed.

If you are concerned about your position, talk to us today for clarification.

Superannuation guarantee and other tax obligations
The use of contract labour has increased significantly over recent years but businesses need to be aware of the risks associated with assuming that workers are contractors rather than employees for tax purposes.  Where a business engages contractors and misinterprets their liability for superannuation guarantee, payroll tax, or workers compensation, they can be faced with a significant liability together with exposure to penalties and interest. 

As a general rule of thumb, businesses that hire independent contractors are not responsible for PAYG withholding, superannuation guarantee, payroll tax and workers compensation obligations. However, recent cases handed down by the courts require a renewed focus on the creation and review of existing contract arrangements to ensure that the business is not exposed to material liabilities.

Just because an agreement describes the worker as a contractor does not necessarily mean they will be treated as a contractor for tax purposes.

Flood levy

While the personal income tax rates do not change for the year starting 1 July 2011, the flood levy will apply to certain taxpayers for the 2011/2012 income year.

A 0.5% flood levy will apply to individuals with taxable income of between $50,001 and $100,000 in the 2011/2012 income year.  A 1% levy applies to taxable income above $100,000.  Exemptions are expected to apply to:

• Australian Government Disaster Recovery Payment (AGDRP) recipients in 2010/2011;
  
  
• Those affected by a disaster declared by the National Disaster Recovery and Relief Arrangements and would have qualified for an AGDRP; and
  
  
• NZ non-protected special category visa holders who received an ex-gratia payment for a disaster that occurred in 2010/2011.

The personal income tax rates for the 2012 income year, including the flood levy, are as follows (the Medicare levy is excluded):

The low income tax offset will remain at $1,500 for the year starting 1 July 2011. This means the effective tax-free threshold is $16,000 for individuals earnings $30,000 or less.

If you use a payroll software package to calculate the amount to withhold from salary and wages, please ensure your tax rates are updated to reflect the flood levy where applicable.

New rules for company cars

The message – If you have not previously kept a log book now might be the time to start.

The Government announced in the 2011/2012 Federal Budget that the various rates that apply when determining the taxable value of car fringe benefits using the “statutory formula” method will be replaced with a single rate of 20%. This flat rate will apply regardless of the distance travelled by the car during the FBT year.

The change directly targets salary sacrificed and employer provided vehicles and will need to be taken into account when considering salary packaging options for employees.

Previously, the FBT rules rewarded employees for travelling large distances in cars that had been provided to them under a salary sacrifice arrangement, regardless of whether the travel was for work purposes.

The operating cost method (which requires employees to maintain a log book) remains unchanged and will become much more attractive for employees who undertake a significant amount of work related travel.

The changes are intended to apply to contracts entered into from 7.30pm AEST on 10 May 2011 and will be phased in over four years as follows:

Employers can choose to skip the transitional arrangements for a car and directly use the flat statutory rate of 20%. However, if the employee would be worse off as a result of the employer making this choice then the election will not be effective without the consent of the employee.

Compared to the current statutory rates, a single rate of 20% will:

• Increase the tax concession provided for vehicles driven less than 15,000 kilometres a year;
• Maintain the current tax concession provided for vehicles driven between 15,000 and 25,000 kilometres a year; and
• Decrease the tax concession provided for vehicles driven more than 25,000 kilometres a year.

Please note that this change is still yet to become law and may be subject to change.  

Accelerated deduction for motor vehicles

In the Budget the Government also announced plans to provide Small Business Entities (operational businesses with an aggregated turnover below $2 million) to claim up to $5,000 as an immediate tax deduction for new motor vehicles from 1 July 2012. The remainder of the motor vehicle value will be added to the general small business depreciation pool (depreciated at 15% in the first year and then 30%).

This measure is in addition to the previously announced immediate write off for new business assets worth less than $5,000 from 2012/2013.

While the start date for these concessions is more than a year away, it is worth keeping them in mind when considering new asset acquisitions, especially as 1 July 2012 gets closer.