Q: I have great sympathy for the businesses which were battered by the floods, fires and cyclones in Australia this year. These things can happen to anyone, any time. What should I do to make my business disaster-proof?

A: Identify which data and applications are critical to your business, then ensure you have them backed up off-site. Cloud-based storage facilities are ideal as they are stored securely on the internet. Always keep your back up data off-site so if something does happen to your business, you can retrieve the information after the incident.

Develop a workplace continuity plan. After a natural disaster your employees may not be able to make it to work for days or even weeks. Consider what your employees require to do their job from another location. Access to company information, data and an e-mail system may be required. Again, cloud-based systems may be the best solution for easy access.

Prepare a disaster response strategy. Work with your team to develop an evacuation procedure, develop a plan to save any key assets and securing the worksite against any damage. This type of plan will have a huge impact on the personal safety of your staff and the survival of your business.

Q: Some of my staff are happy to be paid overtime, but others prefer time off in lieu. What are the rules around this?

A: Firstly, check the conditions of employment in the relevant award or enterprise agreement. If there is nothing in there in relation to how overtime is to be handled, you should go by the default position of the National Employment Standards. This states that all employees must be paid for their overtime. Remember it is you or your manager’s responsibility to approve all overtime before it is worked.

Generally, employees covered by the same employment instrument (an award or an enterprise agreement) should be treated the same way: either they all get paid overtime or they all get access to time in lieu. Obviously what works for one employee may not work for another. You can offer both options to your employees. Just remember you will need to keep separate records for those who are paid overtime and those who receive time in lieu. So only do this if you are prepared to do so.

Time off in lieu is calculated at the ordinary time rate. For example, an hour of overtime equals to an hour off work. However, some of the modernised awards, employees are to be given up to two hours of time off for each hour of overtime worked. To look up the detail of the award covering your employees, for to www.fwa.gov.au which is the website of Fair Work Australia, the national workplace relations tribunal.

Three men were today sentenced to over eleven years combined jail time for their involvement in tax fraud worth more $4.5 million.

Ian Henke, Robin Huston and Brian Fox were each charged with conspiracy to defraud the Commonwealth for their role as promoters of an asset-stripping scheme which mirrored elements of the infamous ‘bottom of the harbour’ schemes of the 1970s and 80s.

Through use of an intricate arrangement the Vanuatu based asset-stripping scheme was designed to leave Australian companies in a position where they were unable to pay their tax liabilities. Almost 70 companies in Australia participated in the arrangement.

“Australia will not stand for these types of illegal scheme arrangements,” Tax Commissioner Michael D’Ascenzo said after the hearing today.

“This finding shows scheme promoters that regardless of the type of scheme they use, it will be exposed and justice will be served.

“Those who participate and promote these schemes burden the majority of Australian taxpayers who do the right thing. Tax funds vital community and government programs that the community relies upon.

“If you are participating in an illegal scheme, particularly those using overseas tax secrecy jurisdictions, it is only a matter of time before we find you. This is the same clear message that we are sending to the community through Project Wickenby.”

Reduced penalties can apply for those who come forward to the ATO. To discuss your situation or to make an offshore voluntary disclosure, contact the ATO on 1300 132 346.

Ian Henke was sentenced to four and a half years jail with a non-parole period of 12 months, Robin Huston was sentenced to four years jail with a non-parole period of ten months and Brian Fox was sentenced to three years and nine months jail with a non-parole period of nine months.

Further information about offshore schemes and ATO compliance processes including Project Wickenby can be found at www.ato.gov.au.

Length of time the flood levy will be in place

The Government will apply a flood levy to help fund reconstruction in flood affected areas. The flood levy will apply to individual’s taxable income only in the 2011-12 financial year.  

Amount of the flood levy

A levy of 0.5 per cent will be applied on that part of an individual’s income between $50,001 and $100,000 and a levy of 1.0 per cent will be applied on that part of the taxpayer’s taxable income above $100,000. No levy is payable where the person has income of $50,000 or less.

For example, for someone who has an income of $80,000 this means the cost of the levy to them will be $2.88 per week.

Exemption from the flood levy

Where the person has received an Australian Government Disaster Recovery Payment in relation to a flood event in 2010?11 they will be exempt from the levy.  

Payment of the flood levy

Taxpayers will not have to do anything extra to pay the levy. People will make their levy payments through the tax taken out of their regular pay in the same way that people pay the Medicare levy. This will help prevent taxpayers from receiving a tax bill at the end of the financial year.

Pay As You Go (PAYG) Instalment taxpayers will have the levy charged in their PAYG instalments. People who received an Australian Government Disaster Recovery Payment can seek a variation to their instalment payment so that they don’t have to pay the levy. The ATO is also investigating the possibility of automating
PAYG Instalment amounts so that people who don’t have to pay the levy are not charged an amount in their PAYG instalments.

Employees who are exempt from the levy ask their employer to not have the levy withheld from their regular pay with other tax withheld. Alternatively, at the end of the year the ATO will assess taxpayers’ tax liability taking into account the exemption from the levy. 

Impact on businesses

Businesses will need to apply a new withholding schedule to their employees to withhold levy payments. 

Businesses will not be required to pay the levy. The levy will be applied to individual taxpayers.

The following letter, titled Tax time processing and refunds provides you with the latest information about current ATO processing.

10 August 2010

Dear tax practitioners

Tax time 2010 processing and refunds for your clients

On the 28 June 2010 the Commissioner wrote to you seeking your assistance in managing your clients’ expectations on the processing of their income tax return, in the lead up to this year’s tax time.

As is normally the case the ATO aims to process income tax returns in a way that balances the need to achieve good service standards for taxpayers while maintaining the integrity of our tax and superannuation systems.

It has been raised with me that there is concern that some of your clients have yet to receive their refunds, despite you having lodged their 2010 income tax return with the ATO in July.

I can confirm that while there have been a significant number and amount of refunds issued, there does remain a number of returns still going through our processing and verification actions. This is normal during this period every financial year. It should be remembered these verifications may be for a variety of reasons.

While our processing times are often shorter than our published service standards, it is important that tax agents and taxpayers do not rely on any expectation for processing of electronically filed returns in less than 14 days. This is particularly important for agents who use taxpayers’ refunds as payment for their fees.

Up to 29 July 2010, the ATO had issued more than 1.25 million notices of assessment, including just over 1.04 million refunds. By Friday 6 August, we had finalised a further 800,000 assessments, the vast majority resulted in electronic funds transfer (EFT) payments. As these refunds issue this week, the ATO will have paid out over $4 billion in
refunds and issued some 1.9 million refunds since 9 July 2010.

As is the case every year, we could not begin processing returns straight away, because we had to test the new software installed for the 2010-2011 year. This happens every year because it is necessary to install new software for any changes in the tax laws. This year, we did not begin processing income tax returns until 9 July 2010. If you lodged
your return prior to this date, processing would have been delayed.

As previously advised, up until 23 July 2010, there had been delays with the processing of returns for taxpayers who have Higher Education Loan Program (HELP) and Student Financial Supplement Scheme (SFSS) obligations. We needed to carry out extended testing of the accuracy of assessments for these returns. Processing of these returns
commenced on 23 July 2010, therefore, if you filed a return before 23 July 2010 and you had a HELP or SFSS obligation, your assessment would take longer to complete.

During the week commencing 2 August 2010, we had more returns on hand than we were able to process. While refunds were issued most days, with some catch up processing, we were able to finalise an additional 800,000 assessments by Friday 6 August 2010. The majority of these refunds are now available in bank accounts or on their way via Australia Post.

Overall, the regular flow of assessments and refunds has not been as consistent during our first four weeks of processing as we would have liked and we are taking steps to smooth out these fluctuations.

This letter may assist you to advise your clients of the current situation.

We apologise for any inconvenience these delays may have caused to you and your clients.

Yours sincerely

James O’Halloran
Deputy Commissioner

In 2008, the government passed legislation to ensure that same-sex couples and families are
treated the same way as other couples and families for income tax and superannuation purposes.

The legislation expanded key terms such as ‘spouse‘ and ‘child‘ to recognise the relationships of same-sex couples and their children.

These changes may affect the information that you need to provide in your income tax return.

Income tax impacts

The income tax changes mean that you may now be eligible for the following tax offsets:

• Spouse (without dependent child or student), child-housekeeper or housekeeper.
• Parent, spouse’s parent or invalid relative.
• 20% tax offset on net medical expenses over the threshold amount.

If you have a spouse, this may affect your claim for:

• senior Australians (includes age pensioners, service pensioners and self-funded retirees) tax offset, or
• pensioner tax offset.

It may also affect your claim for a zone or overseas forces tax offset.

You still need to meet other criteria to be eligible for these tax offsets.

These changes may also affect your access to:

• an Education tax refund
• a family trust election

If your relationship ends, the changes also affect your access to:

• Capital gains tax rollover relief
• First home saver account contributions made by your former spouse

Recognition of a same-sex relationship may also affect:

• your liability for:
  • Medicare levy reduction or exemption
  • Medicare levy surcharge
• those who are classed as ‘associates’ for personal services income purposes

New definitions

What is the definition of a spouse?

Your spouse includes another person (whether of the same or opposite sex):

• who you were in a relationship with that was registered under a prescribed State or Territory law, or
• who, although not legally married to you, lived with you on a genuine domestic basis in a relationship as a couple.

What is the definition of a child?

Each of the following is also the child of an individual:

• the individual’s adopted child, stepchild or ex-nuptial chid
• a child of the individual’s spouse
• someone who is a child of the individual within the meaning of the Family Law Act 1975.

Common questions

What relationships are impacted?

Both de facto relationships and registered relationships are now recognised.

A de facto relationship is where two people who are not legally married live together on a genuine domestic basis in a relationship as a couple.

A registered relationship is one that is registered under certain prescribed state and territory laws that provide for registration of relationships. Currently, Victoria, Tasmania and the Australian Capital Territory provide for the registration of a relationship.

When were the changes implemented?

The changes to recognise same-sex relationships took effect for superannuation purposes on 1 July 2008 and for Income tax purposes from 1 July 2009.

Why does the ATO need to ask my gender?

There are times when we will ask you to nominate:

• your salutation (Miss, Mrs, Ms, Mr or other)
• your gender (male or female)
• your spouse’s gender (male or female).

This may be to:

• establish proof of your identity
• consent to repay your spouse’s Family Assistance Office (FAO) debt
• transfer any unused portion of the senior Australian tax offset (SATO) to your spouse
• transfer any unused portion of the pensioner tax offset (PTO) to your spouse.

Currently the age pension age is different for males and females and one of the conditions of entitlement to receive a transfer of any unused portion of SATO or PTO is to be the age pension age for your gender.

How should I complete my tax return if I am still married but now in a genuine same-sex de facto relationship?

Generally, you should complete your income tax return based on your domestic situation on 30 June of the relevant financial year.

Example:

Adam is married to Tanya but separated from Tanya to move in with David. Since that time Adam and David have been living together in a genuine domestic relationship as a couple. Prior to separating from Tanya, Adam completed his income tax return recognising Tanya as his spouse while David completed his income tax return as a single person. From 1 July 2009, both Adam and David will complete their income tax returns recognising each other as a spouse.

What happens if our same-sex relationship ends?

From 1 July 2009, a person who was in a same-sex relationship may be recognised as a ‘former spouse’ under a ‘family law obligation‘. This means that you may be eligible for:

• capital gain tax (CGT) rollover relief if the family home was transferred to you as part of a relationship breakdown settlement, and
• a share of the first home saver account contributions made by you while you were living together in a genuine domestic relationship as a couple.

Example:

Richard and Damian have lived together as a couple in Canberra since March 2006. In 2007 they purchased their joint home and in 2009, when the Australian Capital Territory Government passed legislation, allowing same-sex couples to register their relationship, they were among the first to formally recognise their union. Richard and Damian separated during the financial year 2009-10 (after 1 July 2009). Damian wished to remain in the home and negotiated with Richard to transfer his share as part of the relationship breakdown settlement.

As the transfer date of the property from Richard to Damian (the transferee spouse) was after 1 July 2009, Damian will be able to apply for CGT rollover relief.

With the introduction of the new Tax Agent Services Act 2009 there are benefits to taxpayers who use a registered tax agent or BAS agent. If you are paying someone to do your BAS, make sure they are registered.

The new law includes a Code of Professional Conduct which aims to ensure services provided to you, by registered agents, meet appropriate ethical and professional standards.

Taxpayers are further protected by safe harbour provisions which may guard you from administrative penalties, where your agent did not take reasonable care.

The introduction of our new income tax processing system has inevitably impacted both taxpayers and tax agents. I apologise if you waited longer than usual for your notice of assessment and/or refund.

I would like to especially thank tax agents for their patience and support while we completed this essential work. Without knowing each individual circumstance, I am not aware of situations where agents have been holding things up. Rather, they have been working with us to ensure the impacts on their clients have been minimised.

If you are due a refund and we have taken longer than 30 days since your return was lodged to issue a notice of assessment, you are entitled to interest.

The introduction of our new system was a one-off event, replacing a system more than 30 years old, and vital to the future of the administration of the community’s tax system. Unfortunately, there is no time of year we could do this without impacting taxpayers and agents.

It was a huge task and the single biggest upgrade we have ever done. When we switched from the old system to the new we converted 27 million taxpayer records, 32 million accounts and 282 million forms. To do this, we had to stop processing tax returns in early 2010.

We chose early in the new calendar year as we thought it would have the least possible impact. We usually only receive around five per cent of returns during this period, as most people who don’t use an agent must lodge their tax return by 31 October.

Given that income tax returns during this time would be lodged by tax agents, we started communicating with them in the months leading up to the new year about our plans to change over to the new system, providing an opportunity to lodge some refund claims early.

We explained we would need to stop processing tax returns from just before Christmas through to the end of January. We also explained we expected delays through February as we worked through stockpiled returns. Unfortunately we did run into two unanticipated issues with the new system that caused delays outside what we had originally planned.

One delayed matters for two weeks (which also had an impact on returns still coming in to us), and the other resulted in 140,000 refund cheques not printing. However, these cheques were sent last week.

These sorts of things are not unusual when implementing a system of this size, however it added to the time in which we could not process returns. It meant a longer-lasting impact on taxpayers and tax agents than we had originally expected.

Despite the delays, our new system has processed more than two million tax returns, including one million refunds. Since early April we have processed all newly lodged returns as per our service standards (94 per cent of electronic returns in 14 days and 80 per cent of paper returns within 42 days). We took a cautious approach during our ramp up of the processing of returns to ensure the accuracy of the calculations in assessments.

We do not have a stockpile of returns waiting to be processed. However, as is normally the case, there will always be some returns in our system because:

• we need to scrutinise high risk refunds that could indicate fraud
• there is a tax debt owing or an obligation due to the Child Support Agency and/or Centrelink
• there is information missing or incorrect in the return that we need to follow up with the taxpayer or agent, and/or
• people have lodged several years’ worth of outstanding returns with their 2008-09 return.

I assure you we have worked extremely hard to minimise the impact of the new system on tax agents and the community.

I look forward to providing you with improved service into the future.

Yours sincerely

Michael D’Ascenzo
Commissioner of Taxation

If you’re a small business with an annual turnover of less than $2 million you may qualify for the extra 50% business tax break on eligible assets. But how do you know what is eligible?

Meet Maria, a small business owner who wants to buy a new computer for her shop. She wants to know – Is the computer eligible for the extra 50% tax break? What about software? By when does she have to buy it and by when does she need to start using it to get the extra deduction? How much will her deduction be?

After phoning Taxwise, she knows the computer is eligible as long as it is new, costs more than $1,000, is purchased by 31 December 2009 and is installed or first used by 31 December 2010. Assets must be tangible and as software is not a tangible asset it is not eligible for the tax break.

Maria buys the computer for $2,400 (excluding GST and the cost of the software used on the computer). She will be able to claim an additional $1,200 tax deduction (50% of $2,400) in her business income tax return for the year in which she installed or first used the computer. This is in addition to the decline in value deductions she would normally claim for such business assets.

After applying the 30% company tax rate (the rate which applies to Maria’s business), this tax deduction would reduce the amount of tax Maria’s business would have to pay by $360.

If you’re like Maria and thinking about taking advantage of the business tax break, you need to check the facts before you buy. Phone Taxwise on 9248 8124.

The May Federal Government Budget announcement included important changes to the way salary sacrifice to super will be treated.

The first change affects super contributions maximums, or caps. In the 2009 – 2010 financial year, the concessional contributions cap (for employer contributions, including salary sacrifice) will reduce to $25, 000 per person. For those aged 50 and over, the cap will reduce to $50,000. The non-concessional contributions cap (for after tax contributions) will be calculated at six times the concessional cap, so it remains at $150,000 in 2009 – 2010.

Note that the reduced limits apply to contributions received during 2009 – 2010, even if some of those contributions relate to employment before 1 July 2009.

The second change will see some forms of salary sacrifice super contributions included as ‘non-wage remuneration’ in various income tests for individuals. These include contributions that have been made by an employer or associate of the employer, for which the individual has or might reasonably be expected to influence the size of the contribution or the way the amount is contributed.

These contributions are called Reportable Employer Superannuation Contributions, or R E S C s, and from 1 July 2009, you’ll be required to report RESCs in PAYG annual withholding reports and employees’ PAYG summaries.

Speak to Taxwise (08-9248-8124) or our resident financial adviser, Mark Christie (08-9344-6495) to make sure you’re prepared for these changes, and that any affected employees are aware of the potential taxation implications of their salary sacrifice to super.