Publication

John Wilcox

We are delighted to announce the appointment of our Chairman, John Wilcox, as a Director on the Board of The Association of Independent Schools New South Wales Limited. John's considerable experience in school governance, particularly matters financial, will be a great asset to the Association's Board and will further strengthen and enhance Hill Rogers Spencer Steer's reputation in the education sector.

Temporary flood and cyclone reconstruction levy


Catherine Wicks

The Tax Laws Amendment (Temporary Flood Reconstruction Levy) Bill 2011 has passed both the House of Representatives and the Senate, and is currently awaiting Royal Assent.

For the income tax year to end 30 June 2012 (only), most individual taxpayers will be required to pay a flood levy which will be calculated according to their taxable income.

While the levy applies to individual taxpayers, employers will bear the administrative obligation of calculating the levy for individual employees as part of pay as you go (PAYG) instalment obligations. Employers need to update their PAYG systems to ensure that the flood levy is paid to the ATO as part of PAYG instalments referable to the income year to end 30 June 2012.

Application of the levy

Individuals whose taxable income exceeds $50,000 for the income year to end 30 June 2012 may be required to pay the flood levy (subject to exemptions some of which are discussed below). The flood levy will apply to individuals who are Australian tax residents and certain foreign
residents. Trustees taxed as if certain trust income were that of individuals will also be required to pay the flood levy.

Calculation of the levy

The flood levy will be applied progressively against an individual’s taxable income, where taxable income is calculated as a taxpayer’s assessable income less allowable deductions. Taxable income does not mean adjusted taxable income; it should not include amounts such as fringe benefits received by an individual or salary sacrificed contributions to superannuation.

Exemption from the levy

Not all taxpayers will be required to pay the flood levy. Where a taxpayer is exempt, they will need to ask their employer not to withhold for the flood levy.

People who are exempt from the levy can seek a variation to their instalment payments so that they do not have to pay the flood levy. We understand the ATO is currently investigating the possibility of automating PAYG instalment amounts so that it is not charged in their PAYG instalments.

Alternatively, at the end of the 2012 income tax year the ATO will reconcile the taxpayer’s tax liabilities by taking into account the exemption to the flood levy. Individuals with taxable income of $50,000 or less and taxpayers listed under a legislative instrument made by the Minister should be exempt from paying the flood levy. The Minister is expected to release a legislative instrument which should exempt the following individuals from paying the flood levy:

• Individuals who are eligible for and have received (by 30 June 2012) an Australian Government Disaster Recovery Payment (AGDRP), or special ex-gratia payment, for a disaster that occurred in the income year ending 30 June 2011.
• People who were affected by a disaster declared under the National Disaster Recovery and Relief Arrangements and were ineligible for AGDRP, but met one of the AGDRP criteria.

Estate Planning: Challenging a will

Fred Scali

Can my will be challenged?

You might believe that once a will has been prepared, the deceased’s wishes are always respected in accordance with their will

A will can be challenged after you die if:

• You did not have the testamentary capacity to make a will at the time it was signed;
• Parts of the will were changed after you signed it;
• You did not make the will freely, or your decisions were influenced by others;
• The will that is presented for probate has been revoked;
• Your spouse/de facto and/or children and/or dependants believe you have not left them a fair share of your assets.

Can I reduce the chances?

First, make sure your will is correctly made. If your will is not straightforward, or you are not confident about your ability to do-ityourself, ask a solicitor or a trustee company to advise and prepare
your will. It is also important to give your spouse/de facto and children/dependants, including children born outside your marriage, a fair share of your assets - especially if they depend on you for support. This support can include proper provision for a person's advancement, maintenance and education.

You could talk to a solicitor about what would be considered a fair share for your immediate family. If you are determined to leave substantially more of your assets to one person in particular, or you want to give that person assets while you are alive, you should get legal advice to avoid any possible challenges.

What could happen?

If your will is valid, but your children or spouse/de facto or dependants are unhappy with their share (or no share!) of the will, they can challenge the will in the Supreme Court. To do this they must act within 18 months of the date that the deceased died.

Who can apply?

Not everyone can start this Court process. You need to show that you are an "eligible person". This is defined in the Family Provision Act and
includes:

• The spouse or de facto spouse (this includes same sex couples); A former spouse;
• Children (including some born outside marriage);
• A person who was in a "domestic relationship" with the deceased person at the time of death ("domestic relationship" is defined in the Property Relationships Act www.austlii.edu.au/au/legis/nsw/consol_act/pa1984298/);
• A grandchild who was at any time wholly or partly dependent on the deceased;
• A person who was at any time wholly or partly dependent on the deceased and at any time a member of a household of which the deceased was a member e.g. stepchildren, parents, siblings, etc.

It is important to get advice if you believe you may have a claim against an Estate. The above is general information and is not intended as a substitute for professional advice.

It's time for pre year-end tax planning

Melissa Melrose and Xavier Ugarte

It's that time of year again to begin preparations for the financial year end in June. Contact our office for an appointment if you would like us to review your management accounts for the year to date and help you re-forcast your financial results to 30 June.

From this we can prepare a tax and financial plan to help try and minimise both company and personal tax for the year where possible and also to ensure that the business accounts present well for banking and finance purposes. We can also check to see that all end of year taxation, superannuation and compliance issues are addressed.

Issues to consider before June 2011

1. Accelerate super

If you have the cash available, think about paying your employees' superannuation contributions for the June quarter before the end of June. This way, you can claim the deduction now rather than waiting until the next financial year. If you're a Director of the company, you can also top up your own super contributions. Just be mindful that you do not breach the contribution cap limits.

2. Bringing forward deductions

You can bring forward deductions and increase your refund (or reduce your tax debt) simply by taking a look at what you need to spend money on in the coming months and acting on it now.

For example, you might need repairs to be done, want to replenish your consumables, or need to make trade gifts or corporate donations. It's not always necessary to pay for the items this financial year, as long as you have the invoices and purchase orders for this financial year to support the deduction.

3. Bad debts?

If you have tried everything to recover a debt and there is no hope of being paid, you can write off the debt this financial year and claim it as a deduction.

4. Taking stock

You might not need to do a stock take. If your business has a turnover under $2 million, you might be able to use the simplified trading stock rules if the difference between your opening stock balance and your closing stock balance is less than $5,000.

For everyone else, you still need to do a stock take but you can use the stock take to take care of any obsolete or damaged stock. Once identified, you can choose to value the stock at the lower of cost, replacement, or market sale price. This means that stock that is obsolete or damaged can be written off for tax purposes if it has no value.

5. Plant & equipment deductions

If you operate a small business with a turnover under $2 million, you might be able to claim an immediate deduction for the cost of assets under $1,000. For everyone else, if you have redundant or damaged plant & equipment that has no value and you are unlikely to use in the new financial year, you may be able to claim the remaining written down value.

6. Bonus's

If you intend to pay Directors' fees or bonuses, you can claim the deduction in this financial year if you let the people affected know, before 30 June, that the fee or bonus will be paid.

Ensure that you have proof that you advised them pre 30 June and you have an appropriate corporate record (minute) noting that the fee or bonus will be paid. The payment does not have to be made this financial year to claim the deduction.

7. Sale of assets

If the business has made a profit on the sale of assets during the year, you may be liable for tax on the capital gain. If you have not entered into a contract of sale yet, think about deferring the sale contract until after the end of the financial year to defer the tax.

On the flip side, if your business has assets that are , worth less than what you paid for them think about selling them pre 30 June and crystallise the loss.

You can use the loss to offset any capital gains you made throughout the year and reduce the tax you are likely to pay on those gains. You need to make sure the sale contract is entered into before 30 June to claim the loss this financial year.

8. Company Loans

If you have lent any funds to Directors, Shareholders or their Associates, or paid any expenses on their behalf then these 'debts' need to be repaid to the company by the lodgement date for the company's tax return or an agreement needs to be in place to repay the debt. If existing agreements are in place make sure that the minimum repayments due by the end of the financial year have been made.

9. Related entity transactions

If you're charging management fees between related entities, make sure the fees are raised pre 30 June to claim the deduction this year. These types of transactions are particularly subject to attention by the ATO, so be certain that all charges are commercially reasonable.