Tax Updates
Debt/equity Exemption Extended
Small donations to Tsunami appeal "bucket" collections
Benchmark interest rate for Div 7A
Car depreciation limit for 2005/06
Company not involved in a contract so not a personal service business
Electing annual GST reportingAustralia & New Zealand tax information for business
Investor Focus
The effects of the Latest Tax Rate Changes
Article: Australian Taxation Reporter
Are you confused with all the buzzwords circulating throughout the press describing security threats that exist with modern computing? Let??s examine the meaning behind some of the more prevalent threats and look at precautions you can take to avoid failing prey. HackersIndividuals who look for security faults to warn authorities or organisations of a potential problem. They are considered the ??good guys?? but because they do not have authority to access systems, this makes their efforts, regardless of their motives, illegal.
CrackersLook for faults too, but their motives are more sinister. They are trying to take advantage of faults to commit offences.
A TrogjanNamed after the Trojan Horse of Troy, because it has an element of surprise to it (usually a nasty one!).
Worms ?? Do not require the assistance of the user to spread but rather are self-promulgating. A worm will infiltrate your PC, copy itself onto your hard drive and use your email address book to send itself to all and sundry.
Precautions you can take to reduce the probability of you falling prey.
Take regular back-ups of your data. Also consider keeping the most recent version of your data off site. This is to avoid a data loss in case of fire or major catastrophe. Consider placing a firewall on your computer, especially if you are connected to the internet on a 24/7 basis. If you ever receive a suspicious and unrequested file, don??t open it. Delete, and add to your junk mail list.
Observe good password disciplines. Make passwords sufficiently complex. Refrain from sharing your password and change it regularly.
ARM WELCOME ANOTHER BABY!Joshua Matthew Davis
Emma, husband Matt and sisters Tegan and Shae are very excited about their new little brother born on Saturday 30th July. He weighed a whopping 8lb 13 oz. Emma is doing well.
Connie Barberis is acting Corporate Secretary whilst Emma Davis is on maternity leave. So please feel free to call her if you have any questions. Connie is married with 2 children, Geordy 2 & 5 year old Deni. She enjoys getting out on the tennis court and loves finding time to paint ceramics.
Footy tipping competition?
We would like to thank Nathan Batty for administering the Footy Tipping Competition throughout the 2005 season
2005 Winners - see enclosed notice.
1st prize: $1025.20 - Final score 121 - Matthew James (Marita's brother) 2nd prize: $ 577.84 - Final score 120 - Jack Brooks (Client)3rd prize: $ 260.96 - Final score 119 - Michael Forer (team member), Peter Ralph (Client), Mark Langham (team member)
Check out footy tipping on our website for weekly winners.Join us next year for the chance to win big $$$??s.
Marita James is now back on deck for 2 days a week. Baby Lucas is happily being spoilt by his grandmother.
Michael Ryan and wife Linda have just returned from their holidays in France where they got to see the finish of the Tour De France. They even got a photo of Lance Armstrong on the podium. They also spent some time in the UK catching up with Linda??s relatives.
Congratulations to Michael Forer, Bree Morgan and Janine Grange who have been looking after the Financial Planning Area in Michael Ryan??s absence. Great job guys!!
Kevin Thangarajah from our Auditing Team is heading of to the UK in September to take up a position with Price Waterhouse Coopers. We wish him well.
Andrew White has joined us to replace Kevin Thangarajah in the Auditing division. Andrew has a Bachelor of Business (Management), Bachelor of Business (Accounting) and is a member of the Institute of Chartered Accountants. Andrew is married with 2 children, Liam 13 weeks old and 2? year old Alannah. He is also a keen golfer and plays off a handicap of 4. Welcome aboard!
Michael Corral has an Under Graduate Accountant currently studying for his Bachelor of Business (Accounting) at R.M.I.T. Melbourne. Michael??s role at ARM is to assist all accountants with bookkeeping, report preparation and audits. He likes to keep fit and his hobbies are basketball and volleyball.
Our Audit Division
At ARM we have a professional and dedicated team of auditors to meet your needs for audit.
Our audit division comprises of small to large sized clients comprising of multinational organisations who specialise in wide and diverse industries including manufacturing of plastics, air-conditioning, steel products, organisations that provide business and professional services; financial services and banking industry.
Our audits are designed to meet the needs and requirements of the users of the financial reports consisting of shareholders, banking institutions, key suppliers and Australian Securities & Investment Commission.
Who needs to be audited?
In accordance with the Corporations Act 2001, a company needs to be audited if all of the following conditions are met:· Turnover is greater than $10 million per annum · Total net assets are greater than $5 million · Number of employees is more than 50If your company is owned by a foreign entity then an audit is required under the Corporations Law.
Your organisation may also need to be audited at the request of primary stakeholders even if one is not required under the Corporations Law. Primary stakeholders include banking institutions, key suppliers or shareholders.
Why ARM Audit Division is the team for you
· Professional and personalised approach
· Approachable and understanding
· Provide tailored audit programs and timetables to suit your needs and availability
· Provide tailored systems and procedural solutions to minimise risk of fraud
· Pro-active in communication of areas for improvement
Any other questions?
If you have any other queries please feel free to contact Marita James, Audit Partner via email at marita.james@astonryan.com.au or on 9551 2822 for a confidential appointment at a mutually convenient time.
ARM FINANCE
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Commercial Lending Industrial/Commercial Property Loans Development Construction Funding, Rural Properties, Vacant Land, Business Loans, Non Financial Products Equipment Finance Cars, Trucks, Plant & Equipment, Office Equipment, Lease, Commercial Hire Purchase, Chattel Mortgage Residential Lending Home Loans, Investment Loans, Construction Loans, Refinance, Debt Consolidation, Lines of Credit, Non Financial Products, Second Mortgage Loans, Person Loans (cars, boats, caravans, motor bikes, credit card consolidation) For a consultation in regard to our finance facilities contact Joe Sibilia on 0439 970 622 or Graham Lee, with 30 years experience in the banking and finance industry, on 0417 115 611 We promise to find the best solution to suit your requirements with a minimum of fuss. |
Boost Your Brain Function
Article: Denise Edelstein. Extracts from Women in Business.
In the past, we came to expect that as we aged, our memory would start to deteriorate. However, recent research has shown this is not necessarily the case. We can boost our brain power now and help protect it for tomorrow. Here??s how?
Blood Sugar is important.
- Low blood sugar can produce foggy thinking, fatigue and mental tiredness.
- If you have mild glucose intolerance, you may have memory loss.
- Eat more low glycemic index (GI) foods and less high GI or over processed foods to maintain your blood sugar and to give you sustained energy.
- Eat regularly and don??t skip important meals in order to maintain your blood sugar and hence your energy levels throughout the day.
Exercise feeds the brain.
- Physical activity increases blood flow, thus increasing the ??food?? to the brain cells on a regular basis.
- If we exercise regularly and eat well, it will encourage healthier blood sugar levels.
Marine Omega-3
- Marine omega-3 fatty acids are essential to the neural building blocks.
- Research also supports the role of omega-3 fatty acids in stabilising healthy blood sugar levels.
- Fish are a good source. However, with mercury levels in fish posing a problem, it is best to avoid the large fish such as Shark (flake) or Billfish (Swordfish / Broadbill and Marlin).
Antioxidants
- Alcohol, cigarette smoke, pollutants and various forms of radiation can cause free radical formation.
- Free radicals can lead to poor memory, foggy brain, reacting poorly to stress, and can lead to serious illnesses such a Alzheimer??s disease and cancer.
- Antioxidants can be found in colourful fruits and vegetables and we should eat 5 to 10 servings daily. The demand for antioxidants is even higher for athletes and people under stress.
If we want to enjoy good health and happiness with our brain intact, we need to have optimum nutrition through a healthy diet, exercise plus whole food nutritional supplements to fill the gaps. Life is not a dress rehearsal. This is it.
Lessons from Warren Buffet
Lauded as one of the greatest share market investors of all time, US investment guru Warren Buffet focuses on the basics when it comes to share investment strategy.
Here??s a short list of some of his key principles:
· The critical investment factor is determining the intrinsic value of a business and paying a fair or bargain price. Do the sums on the company you are looking to buy, and buy the business rather than the share.
· Never invest in a business you do not understand. You would not buy a house without checking out the land title, its construction history and its location ?? companies are no different.
· Buy companies with strong histories of profitability and with a dominant business franchise. Mr Buffet particularly focuses on a company??s return on equity and the strength of its cash flow.
· Risk can be greatly reduced by concentrating on a few shareholdings. If you are a ??know-something?? investor find 5 to 12 sensibly priced companies that possess long term competitive advantages. (On the other hand, if you aren??t a ??know-something?? investor, exposing yourself to too many companies in the same sector, based on one looking good exposes you to greater risk.)
· You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right. Do not worry about the day-to-day fluctuations on the share market, you should be making long term investments and getting your sums right.
· Be fearful when others are greedy and greedy only when others are fearful. This was one of the reasons Buffet avoided the technology bubble/bust in 2000 ?? he didn??t follow the herd.
· Unless you can watch your shareholding decline by 50 per cent without becoming panic-stricken, you should not be in the stock market. Shares are a 5-10 year investment proposition ?? you can??t sensibly invest money in shares that you are going to need in a few months.
· It is optimism that is the enemy of the rational buyer. Keep a level head.
· The ability to say ??no?? is a tremendous advantage. See point above.
· Much success can be attributed to inactivity ?? most investors cannot resist the temptation to constantly buy and sell. An investor should act as though they had a lifetime decision card with just 20 holes punches in it.
These quotes were extracted from various books by Warren Buffet as quoted on the Simple Wealth and InvestorWeb websites.
Life??s Truth & Conundrums
Why does mineral water that has ??trickled through mountains for centuries have a ??use by?? date?
Why is it that when someone tells you that there are over a billion stars in the universe, you believe them; but if they tell you there is wet paint somewhere, you have to touch it to make sure?
Everyone who grew up in the 80??s has entered the digits 55378008 into a calculator.
Why does gynecologists leave the room when you get undressed?
I??ve often wanted to drown my troubles, but I can??t get my wife to go swimming.
My dad use to say fight fire with fire, which is probably why he got thrown out of the fire brigade.
Did you ever notice that when you blow in a dog??s face, he gets mad at you but when you take him in a car ride, he sticks his head out of the window?
Maya Angelou ?? 70 years old when asked what she had learnt said that?
No matter what happens, or how bad it seems today, life does go on, and it will be better tomorrow.
Even when I have pains, I don??t have to be one.
Regardless of your relation-ship with your parents, you??ll miss them when they??re gone from your life.
Making a living is not the same thing as making a life.
Whenever I decide something with an open heart, I usually make the right decision.
Every day you should reach out and touch someone. People love a warm hug, or just a friendly pat on the back.
I still have a lot to learn.
People will forget what you said, people will forget what you did, but people will never forget how you made them. Feel.
Idiots in Service
I was at the airport, checking in at the gate when an airport employee asked, ??Has anyone put anything in your baggage without your knowledge??? To which I replied, ??If it was without my knowledge, how would I know??? She smiled knowingly and nodded, ??That??s why we ask.??
***
When signing the receipt for my credit card purchase the clerk noticed I had never signed my name on the back of the credit card. She informed me that she could not complete the transaction unless the card was signed. When I asked why, she explained that it was necessary to compare the signature I had just signed on the receipt. So I signed the credit card in front of her. She carefully compared the signature to the one I had just signed on the receipt. As luck would have it, they matched.
***
This week our phones went dead and I had to contact the repair people. They promised to be out between 8 am and 7 pm. When I asked if they could give me a smaller time frame, the pleasant gentleman asked, ??Would you like us to call you before we come.? I replied I didn??t see how he would be able to do that since our phones weren??t working. He also requested that we report future outages by email. (Does YOUR email work without a telephone line?)
Debt/equity exemption extended
The Government recently introduced a "debt/ equity" regime, which basically sets out rules to determine whether money injected into a private company (e.g. by a shareholder) should be treated as a loan or as share capital.
These rules, among other things, affect the treatment of repayments relating to such money (so that interest on a "loan", for example, may instead be treated as a payment of a nondeductible dividend, rather than deductible interest).
Due to concerns about compliance costs, the Government had previously announced:
- a transitional arrangement, exempting "at-call" loans to private companies from the rules until 30 June 2005; and
- an exemption from the debt/equity rules for some smaller private companies.
This exemption will now be extended, so that the new rules won't apply to companies with an annual turnover of less than $20 million (as opposed to the previous carve-out, which basically applied to companies with CGT assets with a net value of $5 million or less).
This means that companies satisfying the carveout can effectively ignore the debt/equity rules.
Other amendments will also be introduced to reduce compliance costs associated with the debt/equity provisions.
The amendments take effect from 1 July 2005.
Small donations to Tsunami appeal 'bucket collections'
Ordinarily, an individual who makes a monetary gift or donation of $2 or more to a deductible gift recipient is allowed a deduction for the amount of the donation provided they can produce supporting documentary evidence, such as a receipt.
However, many people made donations of spare change to "bucket collections" for the Boxing Day 2004 Tsunami disaster and would not have obtained receipts.
Recognising this, the ATO will allow taxpayers to claim a deduction of up to $10 where they made one or more small cash donations (each of $2 or more) to "bucket collections" conducted by deductible gift recipients collecting for the Tsunami appeals, even though they have not obtained receipts or other evidence.
Benchmark interest rate for Div 7A
The benchmark interest rate for an entity with an income year commencing 1 July 2005 is
7.30% p.a. for:
- private company loans made (or deemed to have been made) after 3 December 1997 and before 1 July 2005; and
- trustee loans made after 11 December 2002 and before 1 July 2005.
This rate is used to:
- determine if a loan made in the 2004/05 income year is deemed to be a dividend; and
- calculate the amount of the minimum yearly repayment for the 2005/06 income year on an amalgamated loan taken to have been made prior to 1 July 2005.
Car depreciation limit for 2005/06
The car limit for the 2005/06 financial year is $57,009 (which is the same as that which applied in the 2004/05 financial year).
The car limit of $57,009 is used to calculate depreciation deductions.
Editor: Note that this amount is also used to determine the luxury car tax threshold, at which point luxury car tax becomes payable.
Company not involved in a contract, so not a Personal Service Business
Editor: The following case serves as a warning to make sure that your documentation is always in order ?? especially the names of the actual parties to a contract.
The AAT has upheld a decision by the Commissioner of Taxation to refuse to consider a company to be a Personal Services Business (PSB), because the main service contract was with the director of the company (as an individual) and not with the service company.
Other individual letters of engagement, although addressed to the company, were offered under, and referred back to, the general terms of the main contract.
The Tribunal found that the contract was in fact between the director and the client (and not between the company and the client) and that the director derived the relevant income.
Therefore, since it was the director that carried on the relevant business and not the company, the Commissioner was not in a position to be able to issue a PSB Determination.
However, the AAT also found that, even if the company had been involved in the contract, it was still not carrying on a PSB, as it did not meet any of the relevant tests.
Taxpayers may be eligible to elect to report and pay (or claim) GST annually if:
- they are not required to be registered for GST (i.e., their turnover is below the relevant threshold and they are registered voluntarily);
- they have not elected to pay GST by instalment amounts; and
- they have not previously been offered the annual reporting option.
In addition, taxpayers who have reported nil amounts for GST on activity statements they have lodged may wish to consider canceling their GST registration or may choose to elect annual GST reporting.
The due dates for electing annual GST reporting for 2005/06 are:
· 21 August 2005 (monthly GST lodgers);
· 28 October 2005 (quarterly GST lodgers)
Editor: If you think you may be eligible to report and pay GST annually, and would like to take advantage of this option, contact this office if you would like us to make the election for you.
Australia and New Zealand tax information for business
As part of a joint initiative, the ATO and New Zealand Inland Revenue have released some web-based information to help Australian and New Zealand businesses with their tax affairs.
The information is designed for people considering business opportunities or who may have established business dealings in Australia or New Zealand.
From an Australian point-of-view, it includes:
- establishing a market;
- selling goods from Australia;
- conducting business through an agent;
- entity structures; and
- providing services in New Zealand.
It can be accessed at http://www.ato.gov.au/businesses/pathway.asp?pc=001/003/ 074&mfp=001/003&mnu=26730#001_003_074
Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information's applicability to their particular circumstances.
The effects of the Latest Tax Rate Changes?
Taxpayers need to reconsider their property investment strategies, in light of the changes in the federal budget.
The budget Treasurer Peter Costello handed down in May will have important implications for investor??s tax planning and wealth-creation strategies. Changes to personal income tax thresholds and superannuation contribution charges require us to go back to the drawing board and reassess our strategies. At the top of the list of things to review is property investment.
Many investors have been attracted to negative gearing into property because it offers relief from high marginal tax rates. Negative gearing refers to the situation in which interest payments and other related expenses are greater than the rent generated from the property. The excess of expenses over rental income can be claimed as a tax deduction. The higher your marginal tax rare, the greater the tax subsidy.
The latest statistics from the Australian Taxation Office show that taxpayers had an overall rental loss of $1.37 billion. This means negatively geared properties exceeded positively geared investment. Our love affair with property has created 1.4 million landlords. People lured into property are not only high-income earners. More than 50% of people with negatively geared property investments earn less than $60,000. You can thank our high rates of personal taxation for that.
The Reserve Bank and the Productivity Commission are uncomfortable with the number of investors using negative gearing to lighten their tax burden. The emphasis on property investment was a factor in the rapid growth in house prices in the 1990s. The reduction of the capital gains rate although still enabling investors to claim deductions at their marginal tax rate, has only increased the tax effectiveness of this type of investment over recent years. Between 1993 and 2003, there was a 43% increase in the number of landlords.
The changes in the personal tax thresholds mean that each dollar of tax deduction will yield lower savings in tax dollars, reducing the tax-effectiveness of negative gearing. Investors who drop down a tax bracket need to take into account the loss of some tax relief. For example, each $10,000 of deductions claimed will save only $4,350 in tax instead of $4,850 if your income no longer attracts the highest marginal tax rate.
If your marginal tax rate drops from 43.5% to 31.5%, the tax savings will fall by $1,200 for every $10,000 of deduction. As a result, the cashflow benefit that negatively geared properties generate will be lower and investors will need more capital growth to make up for the lost tax benefits. It could simply mean investors have to hold on to their property a bit longer to reap the rewards.
A reduction in the tax benefits will not be enough to move investors out of property but it will reduce its attractiveness for investors who move into lower tax rates. This comes on top of the recent review of depreciation allowances for rental property, which has reduced depreciation claims for some property investors.
The superannuation surcharge did a good job of encouraging high-income earners to buy property instead of putting money into super. With the abolition of the surcharge, super will be a more attractive investment. Many more high-income earners will change their attitude towards building wealth in the super system instead of investing in other assets.
The introduction of super contribution splitting in 2006 will turn this trend into a stampede. Super splitting will allow high-income earners to create two reasonable benefit limits and take advantage of two tax-free thresholds. These changes will trigger a large inflow of funds into super. Managed or industry super funds do not ordinarily invest in residential property, so some funds that would have made their way into residential property will be directed elsewhere.
Investors who have a DIY super fund can have the best of both worlds by investing in residential property within their fund. However, existing residential property cannot be shifted into your own super fund. DIY super funds are prohibited from buying residential real estate from associates, which includes members of the fund and relatives.
Investors need to be aware of the effects the latest tax rate changes will have on their property investment strategies. Negative gearing into property investment can still be a worthwhile strategy if the underlying investment is sound and you are prepared for a long-term reward.
For more information please contact Michael Ryan and the team at Focus Financial Planning.
Michael Ryan CPA CFP
Authorised Representative
Premium Accounting Group Ltd
AFSL Number: 237498
C/- Focus Financial Planning Pty Ltd
Ph: 03 9551 2822