Overview

If you have assessable income from overseas, you must declare it in your Australian income tax return. If you have paid foreign tax in another country, you may be entitled to an Australian foreign income tax offset, which provides relief from double taxation.

Different rules apply for income periods up to 30 June 2008.

You can claim a tax offset for the foreign tax you have paid on income or gains (including gains of a capital nature), that are included in your assessable income. In some circumstances the offset is subject to a limit.

To be entitled to a foreign income tax offset:

• you must have actually paid an amount of foreign income tax, and
• the income or gain on which you paid foreign income tax must be included in your assessable income for Australian income tax purposes.

Differences between the Australian and foreign tax systems may lead to you paying foreign income tax in a different income year from that in which the income or gain is included in your assessable income for Australian income tax purposes. You could have paid the foreign tax in an earlier or later income year; however, the offset can only be claimed after the foreign tax is paid.

If you paid foreign income tax after the year in which the related income or gains have been included in your Australian tax return, you can claim the offset by lodging an amended assessment for that year. You have up to four years to request an amendment to your assessment from the date you paid the foreign income tax or there was an increase or reduction in the amount of foreign income tax you paid that counts towards the offset.

The foreign income tax offset applies to foreign income tax imposed on all forms of income, profits and gains, (including gains of a capital nature) and all taxpayers, whether individuals or other entity types. Note that:

• While the offset mainly applies to Australian resident taxpayers, in the limited circumstances where the foreign income of a foreign/non-resident is taxed as assessable income in Australia, they may be able to claim the offset.
• In very limited circumstances, foreign tax imposed on Australian source income may count towards a foreign income tax offset.

About the Author

Warren Kruger is an Australian Tax Specialist and Advisor.

For a FREE Report "7 Essential Strategies to Reduce Your Taxation NOW!",
Sign Up RIGHT NOW in the Opt In Box located on the top right hand side of this article.

Why do we pay tax?

Tax is money people and businesses pay to the government to provide services to the community such as health, education, defence, roads and railways, social security and welfare.

We collect Commonwealth taxes for the government such as income tax. However, state and local government organisations collect other taxes and rates for each Australian state or territory.

Tax rates for individuals.

These are the rates of income tax you have to pay if you’re:

• An Australian resident for the full 2009-10 income year (1 July 2009 – 30 June 2010), and
  
• Entitled to the $6,000 tax-free threshold.

If you’re an Australian resident for tax purposes, you must declare all income you earn both in Australia and internationally. To help work out if you’re a resident for tax purposes contact Taxwise on 9248 8124.

Tax file numbers.

A tax file number (TFN) is a unique number the ATO gives to individuals and organisations for identification and record-keeping purposes.

If you plan to earn money in Australia, we recommend you apply for a TFN, regardless of your age. If you don’t give your TFN to your employer within 28 days of starting your new job, your employer will have to pay 46.5% of the money you earn from them to the ATO.

Remember: You should only give your TFN to your employer after you start working for them. Never give your TFN when you fill out a job application or when you apply for work on the internet or over the phone.

Also, make sure your super fund has your TFN. If they don’t, they’ll have to pay extra tax on some of the super paid into your account and they won’t be able to accept some types of super contributions. This means they may take the extra tax out of your super account.

To find out whether your super fund has your TFN, check your statement from your fund or contact them.

How to apply for a TFN.

If you’re a secondary school student, you can apply for a TFN through your school if it participates in the ATO’s School Education Program. You can also obtain an application from:

• One of the ATO’s shopfronts
• The ATO website: http://www.ato.gov.au/youth/content.asp?doc=/content/40962.htm
• A Centrelink office.

When you apply, you need to provide original, unaltered documents proving your identity. The TFN application lists the types of documents that are accepted.

If you apply in person or by mail, it will take up to 28 days for the ATO to process your application and send your TFN to you.

Tax returns.

A tax return is a form you use to report your income to the ATO. Your income includes any of the following for an income year:

• capital gains
  
• tax withheld from payments your receive
  
• deductions and tax offsets.
  
• As an individual, you need to lodge an income tax return if:
  
• you pay tax during the income year
  
• your taxable income is more than
  
  • $6,000, if you’re an Australian resident for tax purposes for the full year
    
  • $3,000, if you’re under 18 years of age at 30 June 2010 and your income was not salary or wages
    
  • $1, if you’re a non-resident and you have income taxable in Australia – excluding income that had non-resident withholding tax withheld from it 
    
• you receive a Centrelink allowance or payment (other than a pension or pension-type payment) and you receive other income, and your taxable income was more than $14,000.

Once the ATO receives and processes your tax return, they will send you a Notice of Assessment to let you know the outcome of the assessment.

When to lodge a tax return.

You only have from 1 July to 31 October to lodge your tax return unless Taxwise prepares and lodges it for you.

If, due to circumstances beyond your control, you cannot lodge your tax return by 31 October, phone Taxwise on 9248 8124 as soon as possible (before 31 October) to find out if we can lodge for you at a later date.

The ATO only considers your tax return to be lodged on the day they receive it if it’s complete. If it’s incomplete – for example, if you don’t sign it – they may send it back to you.

Remember, if you don’t lodge your tax return on time, you may incur a penalty.

Ways to lodge a tax return.

Contact Taxwise on 9248 8124 to organise a tax specialist to help you pay less tax.

Claiming work-related expenses.

You may be able to claim some of your work-related expenses as a deduction on your tax return. However, you can only do so if you can show:

• you incurred the expense in the course of earning your assessable income, and
• how you worked out the amount you’re claiming.

If you make a mistake on your tax return.

If you complete and lodge your tax return and then later find you made a mistake after the ATO sent you your Notice of assessment you can write to them and ask the ATO to amend your assessment. This usually takes a maximum of 56 days (about eight weeks) to process.

You can ask the ATO to amend your assessment if you:

• forgot to include some assessable income – for example Centrelink payments
• forgot to claim an allowable deduction
• filled out a question incorrectly
• forgot to fill out a question.
  

Record keeping.

You should keep all the records you used to prepare your tax return including:

• payment summaries from employers or organisations you receive money from, including Centrelink
• bank statements showing bank interest you received
• dividend statements.
  

If you claim deductions, you also need to keep written evidence to prove claims for those deductions.

You need to keep your records for five years from when you lodge your tax return.

More information.

Contact Taxwise on 9248 8124.

About the Author

Warren Kruger is an Australian Tax Specialist and Advisor.

For a FREE Report "7 Essential Strategies to Reduce Your Taxation NOW!",
Sign Up RIGHT NOW  in the Opt In Box located on the top right hand side of this article.

Taken from Taxpayers Australia’s Budget Overview 2008
         
Here is a summary of the major initiatives announced as part of the 2008/09 Federal Budget. Taxwise Australia has edited and omitted those items which it believes are irrelevant to the Members of its Client Club.
    
          
Tax cuts

Previously announced election cuts to personal income tax rates and increases in thresholds as follows:

• From 1 July 2008:
        
  
  • The 30 per cent threshold will be raised from $30,001 to $34,001
  • The low income tax offset (LITO) will be increased from $750 to $1,200
  • The 40 per cent threshold will increase from $75,001 to $80,001
  • The 45 per cent threshold will increase from $150,001 to $180,001
        
• From 1 July 2009:
      
  
  • The 30 per cent threshold will be raised to $35,001
  • The LITO will be increased to $1,350
  • The 40 per cent tax rate will be reduced to 38 per cent
        
• From 1 July 2010:
      
  • The 30 per cent threshold will be raised to $37,001
  • The LITO will be increased to $1,500
  • The 38 per cent rate will be reduced to 37 per cent
         

The increase in the LITO creates an effective tax-free threshold for low-income earners of $14,000 in 2008-09, $15,000 in 2009-10 and $16,000 in 2010-11.
         
From 1 July 2008, senior Australians eligible for the senior Australians tax offset will pay no tax on their annual income up to $28,867 for singles and $24,680 for each member of a couple.
          
By 1 July 2010, these thresholds will rise to $30,685 for singles and $26,680 for each member of a couple.
         
Note: The Government’s goal is that by 2013-14 the number of personal income tax rates will be reduced to three (15 per cent, 30 per cent and 40 per cent) and the LITO will be further increased.
    
         
Medicare Levy & Medicare Levy Surcharge
          
From 1 July 2008, singles with an income up to $100,000 and families with an income up to $150,000 will no longer be subject to the surcharge.
         
The Medicare Levy low-income threshold for pensioners below  pension age will increase from $21,637 to $22,922 for the 2007/2008 income year.
          
The Medicare Levy low-income thresholds have increased from $16,740 to $17,309 for singles and from $28,247 to $29,207 for members of a family.
     
           
Education Tax Refund
       
From 1 July 2008 the Government will introduce a new 50 per cent Education Tax Refund. Parents entitled to Family Tax Benefit part A, or whose school children receive Youth Allowance or similar payment, will be able to claim:

• A 50 percent tax refund up to $750 in educational expenses for each child undertaking primary school studies which represents a maximum refundable tax offset of $375 per child.
     
• A 50% per cent tax refund of up to $1,500 in education expenses for each student undertaking secondary school studies which represents a maximum refundable tax offset of  $750 per child
  Parents may claim a 50% refund for eligible education expenses incurred when they complete their 2008/09 income tax return, such as:
      
  • Laptops
  • Home computer and associated costs
  • Home internet connection
  • Printers and paper
  • Education software
  • School textbooks materials
  • Prescribed trade tools
         

Capital Allowances – Depreciation period for computer software
     
Extending the useful life of depreciating captial expenditure on computer software over four years on a similar basis as hardware.
          
The Government will increase the depreciation period for expenditure on ‘in-house computer software’ which is capital in nature from 2.5 years to 4 years. This measure will apply to expenditure on ‘in-house computer software’ incurred on or after 7.30 pm (AEST) on 13 May 2008.
        
Expenditure on ‘in-house computer software’ is expenditure by the taxpayer on acquiring, developing or having someone else develop computer software which is mainly used by the taxpayer.  Expenditure on ‘in-house computer software’ will continue to be depreciated on a straight line basis. A 4 year depreciation period for expenditure on ‘in-house computer software’ is the same period as the Commissioner for Taxation’s ‘safe harbour’ effective life for computer hardware.
        
    
Luxury car tax
   
The Government will increase the luxury car tax rate from 25 per cent to 33 per cent from 1 July 2008.  There will be no changes to the luxury car tax threshold (currently $57,123).
        
The tax change will result in a car with a current price of $100,000 (inclusive of goods and services tax and luxury car tax) being subject to an additional $2,541 in luxury car tax.
    
    
Entrepeneurs’ Tax Offset
        
The Government will apply a income test to the eligibility criteria for the Entrepreneurs’ Tax Offset (ETO) to more appropriately target the offset towards genuine small, micro and home-based businesses.
         
Currently, the ETO is claimed by many taxpayers for whom business is not a primary source of income and who have other, more significant, forms of income.  The family income test will restrict access to the ETO for businesses with high alternative sources of household income.
          
The ETO provides a 25 per cent tax offset on the income tax liability of small businesses that have an annual turnover of $75,000 or less, phasing out from a turnover of $50,000.  The family income test will further limit access to the ETO by restricting eligibility for singles from $70,000 and families from $120,000 adjusted taxable income per year.
        
This new measure will apply from 1 July 2008.
     
        
Increase in Child Care Tax Rebate
      
From 1 July 2008 the Child Care Tax Rebate (CCTR) will increase from 30 per cent to 50 per cent as anticipated. The cap on the expenses claimed will be lifted from the current amount of $4,354 to $7,500 per child.
    
The CCTR will be paid quarterly from 1 July 2008 with the first quarterly payment by October 2008.
        
    
Baby Bonus
       
On 1 July 2008, the Baby Bonus will be increased to $5,000 and indexed according to the CPI annually.
       
From 1 January 2009, the Baby Bonus will be:

• only available where family income is not greater than $75,000 in the six months from the birth of a child (annualised $150,000), indexed annually
       
• paid in fortnightly instalments over six months for all recipients; and
     
• available to parents who adopt children under 16 years of age.

   
Family Tax Benefit Part B and Dependant Tax Offsets
         
Family Tax Benefit part B will be granted to families where the primary earner has an adjusted taxable income of $150k or less (indexed annually).
          
Similarly, other dependency offsets, such as the dependent spouse, housekeeper, parent of invalid relative offsets, will also be targeted to those on $150k or less.
         
From 1 July 2009 Family Tax Benefits will be provided through Centrelink and Medicare, and not the ATO.
         
These changes are designed to reduce workforce participation disincentives that can be associated with the dependency tax offsets and more closely align the eligibility criteria with those applying to family assistance.
       
     
First Home Buyer Savings Accounts
       
The Government will provide $1.2 billion over five years in the Budget to assist first home buyers to save for a home. Enhanced First Home Saver Accounts will provide people saving for a first home with direct contributions into the accounts and only tax earnings in the account at  a low rate.
   
The first $5,000 of individual contributions to these accounts each year will now attract a 17 per cent Government contribution, providing more assistance to average income earners.
   
Earnings will be taxed at a low rate of 15 per cent. Withdrawals from the account will be tax free when used to buy or build a first home.
       
    
Income tested benefits
   
Broadening the definition of income for income-tested benefits to include:

• Salary sacrifice super contributions
• Net financial losses
• Reportable fringe benefits

From 1 July 2009, income tests used to determine eligibility for a range of government financial assistance programs will be tightened to include forms of non-wage remuneration and, where appropriate, losses from discretionary activities.
        
The changes will mean, for the purpose of means tested benefits, individuals who have access to salary sacrifice to reduce their taxable income will be treated on an equivalent basis to those who do not have access to salary sacrifice arrangements.
     
Salary sacrifice contributions to superannuation will be assessed as income for all relevant tax and income support payments such as below Age Pension age (as is the case for those of Age Pension age), family assistance, child support and a range of government assistance delivered through the tax system.
        
Individuals will continue to have access to tax benefits that accrue through salary sacrifice however these benefits will no longer automatically flow through to the assessment of means tested personal benefits and tax offsets.
       
Reportable fringe benefits will also be assessed as income in those government support programs that do not include them.
        
Net financial investment losses will be added to income in all applicable tax and transfer programs.  Affected programs are family assistance, the Higher Education Loan Program and particular tax offsets. Net rental property losses will also be added to income for those programs where they are not already included.
    
   
Super Clearing House
   
The Rudd Government will provide funding of $16.1 million over three year to the ATO to set up an optional Superannuation Clearing House (SCH) facility to cut the red tape burden on businesses.
   
Where employees can choose their own superannuation fund from the many hundreds available, an employer may be required to pay superannuation into a large number of different funds, a process that can be highly onerous.
   
A SCH will allow an employer to pay their contributions to a single location. The clearing house will then distribute them to the relevant superannuation funds as selected by their employees.
   
The optional clearing house facility will manage employers’ obligations under Superannuation Choice, including the time consuming task of checking details entered on the Choice form and distribution of contributions to the nominated funds.
    
This facility will be offered free of charge by the Australian Government to small businesses with fewer than 20 employees and on a fee-for-service bases to larger businesses. The facility will be contracted to the private sector.
   
Businesses that use the clearing house facility will have their legal obligation to make superannuation contributions discharged when payment of the correct amount is made to the clearing house. The facility will be available from 1 July 2009.
   
Please Credit Taxpayers Australia for the contents of this article
  

About The Author

Warren Kruger is an Australian Tax Specialist and Advisor.

For a FREE Report "7 Essential Strategies to Reduce Your Taxation NOW!",
Sign Up RIGHT NOW  in the Opt In Box located on the top right hand side of this article.

With the costs of medical and dental care spiralling upwards, almost everyone will be entitled to claim a rebate for medical expenses in their next return coming up on 1 July. 

What you need to do just after June 30th.

• Phone MediCare and ask to be sent an ANNUAL STATEMENT for everyone listed on your MediCare card;
   
• Phone your Private Health Company (if you have private health, that is) and ask to be sent an ANNUAL STATEMENT;
       
• Visit the Chemist/Pharmacy where you buy your PRESCRIBED medicines from and ask for a printout of all your purcahses for the period 1 July to 30 June;
       
• Collect & collate any other receipts in respect of the Gaps you have paid for the services offered by any of the practitioners listed below.

HOW MUCH IS THE REBATE WORTH ?

A 20% offset/rebate is allowed for net medical expenses on the surplus over $1500 after deducting reimbursements paid (or payable by) a government, public authority, society or association.

In other words, it is the portion you pay yourself – the GAP.

WHO CAN CLAIM THE REBATE?

A tax offset can be claimed for expenses PAID by a taxpayer in the
year of income in respect of :

• the taxpayer him/herself
    
• wife or husband (or de facto spouse)
     
• any child of the taxpayer to 21st birthday regardless of the child’s income

WHAT MEDICAL EXPENSES QUALIFY FOR THE REBATE?

Medical expenses are defined are defined as the net amount of payments (after deducting reimbursements received or receivable from MediCare or Private Health Fund) –

• to a legally qualified medical practitioner, nurse or chemist, or a public or private hospital, in respect of an illness or operation;
      
• to a legally qualified dentist for dental services or treatment of artificial teeth;
     
• to a person registered under a law of a State or Territory for the supply, alteration or repair of artificial teeth;
      
• for therapeutic treatment administered by referral from legally qualified medical practitioners, eg physiotherapist, speech therapist;
     
• for the purchase or repair of an artificial limb, an artificial eye or hearing aid;
     
• for the purchase or repair of medical aids prescribed by legally qualified medical practitioners;
      
• for the testing of eyes, or the prescribing of any spectacles by a person legally qualified to perform those services, or for the supply or repair of spectacles in accordance with such a
  prescription;
      
• to a person who looks after someone who is blind, or confined to bed or a wheelchair;
     
• to keep a trained guide dog for a blind person;
     
• to keep a trained dog to assist or guide the hearing impaired or other disabled individuals;
     
• certain payments made to nursing homes or hostels by individuals needing a particular level of personal or nursing care.

About The Author

Warren Kruger is an Australian Tax Specialist and Advisor.

For a FREE Report "7 Essential Strategies to Reduce Your Taxation NOW!",
Sign Up RIGHT NOW  in the Opt In Box located on the top right hand side of this article.

There isn’t a day I don’t get asked about this topic.

So I thought a very brief, and I mean brief, outline of the very basic rules regarding the ATO’s practice should be discussed.

So here goes.

To understand your tax situation, the first thing you need to do is to work out whether you are an Australian resident for tax purposes.

Australian residents are generally taxed on their worldwide income whereas non-residents are generally taxed only on their Australian-sourced income.
 
This article outlines the residency tests for individuals.
Different tests apply to companies and trusts.
The residency tests used by the Tax Office to determine your residency status for tax purposes are not the same as those used by other Australian agencies for other purposes such as immigration.

Generally, you are an Australian resident for tax purposes if you have:

• always lived in Australia
• moved to Australia and live here permanently
• been in Australia for more than half of the financial year, unless your usual home is overseas, and you do not intend to live in Australia.

Some Common Situations

The following shows your residency status in some common situations, though it may depend on whether the country you are going to or coming from has a tax treaty with Australia.

• If you go overseas temporarily, and do not set up a permanent home in another country then you are generally an Australian resident for tax purposes.
      
• If you are an overseas student enrolled in a course at an Australian institution that is more than six months long, then you are generally an Australian resident for tax purposes.
    
• If you are visiting Australia for more than six months and for most of that time work in the one job and live at the same place then you are generally an Australian resident for tax purposes.
       
• If you are holidaying in Australia, or are visiting for less than six months then you are generally NOT an Australian resident for tax purposes.
      
• If you migrate to Australia, and intend to reside here permanently then you are generally an Australian resident for tax purposes.
      
• If you leave Australia permanently then you are generally NOT treated as an Australian resident for tax purposes from the date of your departure.

Residency Tests And Tools

There are four main tests for residency:

Resides

Primary test – if you reside in Australia according to the ordinary meaning of the word, you don’t need to apply any of the other 3 tests

Statutory tests – if you don’t satisfy the residency test (the primary test) then you may still be considered an Australian resident if one of the 3 statutory tests is satisfied.

• Domicile
    
• 183 day rule
    
• Superannuation

If you have recently arrived in Australia or are leaving Australia, then contact me to help you work out your residency status. You can do this at http://tinyurl.com/2n57vb

About The Author

Warren Kruger is an Australian Tax Specialist and Advisor.

For a FREE Report "7 Essential Strategies to Reduce Your Taxation NOW!"  Sign Up RIGHT NOW  in the Opt In Box located on the top right hand side of this article.

During the course of the past few months, I was amazed at the number of Clients that do not have this kind of cover. So why is it so important from the point of view of a Tax Return ?

Taxpayers who do not have adequate private hospital insurance are liable for an additional tax of 1% – called the Medicare Levy Surcharge.  It is imposed on the entire taxable income and is imposed for that part of an income year where there is inadequate hospital cover.

Where an unmarried, single taxpayer’s taxable income is $50,000 or more and there is no private hospital cover, a minimum of $500 in extra tax will become payable.  For a married person or an unmarried person with dependant children, the threshold is $100000 combined taxable income of both partners/spouses. This means that a minimum of $1,000 in additional tax will be payable.

Now the funny thing is that the cost of private hospital insurance is less than the additional tax payable. For example. if you are aged 30 or less, this insurance can cost as little at $360 per year. So the result is that you would be ‘buying money’.

How do you avoid paying the Medicare Levy Surcharge ?

Ensure that your taxable income is under $50,000 if you are single or under $100,000 for you and your partner/spouse. Take out a policy of private hospital cover with any of the private health insurers/funds such as HBF, MediBank Private etc.

What kind of insurance do you need ?

If private hospital insurance is all the cover you need, request a policy that will enable you to enter the letter H on your tax return.  Advise the health fund that you want the cheapest method to put the letter H on your tax return.

As mentioned above, the medicare levy surcharge is imposed on a daily basis.  So every day that you do not have the letter H on your tax return, means a day that you will be liable to pay the extra tax.

In conclusion, if you fall into the income brackets where the medicare levy surcharge is payable and you do not have private hospital insurance, call any of the private health funds, without delay, and Start Buying Money.

About The Author

Warren Kruger is an Australian Tax Specialist and Advisor. For a FREE Report "7 Essential Strategies to Reduce Your Taxation NOW!"  Sign Up RIGHT NOW  in the above right Opt In Box