The reserve bank decided to keep rates on hold at 4.75 per cent despite recent news that inflation was running higher than expected.

It’s good the Reserve Bank have decided to wait and see if the higher inflation is temporary thanks to recent disasters and seasonal factors, rather than attack it with another interest rate rise.

Households are already facing increased living costs and will be grateful they don’t have to dig deeper into their pockets for at least another month.

The official interest rate is now 4.75 per cent and mortgage holders on variable interest rates are being charged a standard variable rate of about 7.83 per cent by their lenders.

Mortgage holders should always try to pay extra off their loan to give themselves a buffer in case rates do rise. 17 months can be wiped off the average new mortgage and save $30,085 in interest by paying an extra $60 per month or about the equivalent of a 0.25 per cent rate rise.

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.

“Trying to stop thinking in the negative or towards the risks, is like telling someone to stop thinking about a green horse. The more they try to stop thinking about a green horse the more they think about it. The best approach is not to fight thoughts, but to acknowledge them.”

 So let’s look at a few investments before tax, fees and inflation:

1. THE STOCKMARKET

Expected return of 12.01% (All Ords accumulation index compound return since 1979). Risk four out of 10.

2. BONDS

10 year return of 5.5%. Risk zero

3. PAYING OFF THE MORTGAGE

Pretax return of 7.81% (Standard variable rate) which grosses up to 10.6% pretax. Risk zero

4. LOTTO

Expected return of one million percent. Risk of 100% loss is 9.99999999999 out of 10.

5. MARRIAGE

Expected average return of one extra income, zero to four kids, two possible inheritances, a free life coach even if you don’t need one, onerous school fees and a dog. Risk = long term love, fulfillment and satisfaction.

6. DIVORCE

Expected return of minus 50%. Risks unknown.

Lawyer

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.

If you want a loan, expect a grilling from the lender.
Here’s what every lender will want to see.

1.  Operational Strength: The Commonwealth Bank told us, “The aim is to ensure that the business is healthy and growing, or is a start-up with great prospects. Having up-to-date information is important. Customers with a financial year ending in June should be thinking about putting forward trading results to June 2010 and also management figures, if available, for the months between June and the current date.
    
2.  Cash flow: CBA says, “Your business banker will need to check that you can meet ongoing repayments and this can be an area where businesses have difficulty. A good way to help overcome this is to put together a realistic cash-flow forecast.”
    
3. Security: This is all about risk. You will enjoy a lower interest rate if you put up residential property as security.
      
4. Your Experience. Your vision. The reason for the funding – and what it will deliver.
     
5. The lender will check your past credit history. Order a copy of your credit file at Dun & Bradstreet (www.dnb.com.au) or Veda Advantage (www.vedaadvantage.com). Make sure you correct any errors on the file.
     
6. Tax returns for the business for the past two years, plus personal tax rturns for the past two years.
     
7. Be prepared to deal with tighter credit terms. Lenders may cut the loan-to-valuation ratio or impose stricter repayment terms. Work out how you would manage with a smaller loan.
     
8. Be honest. A significant number of borrowers mislead credit providers (as many as 10 percent of applicants, according to Veda Advantage’s 2010 Australian Debt Study). Lenders are alert to the problem, and if you are found out, you won’t get the finance.

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.

What employers need to know about pay-as-you-go (PAYG) withholding.

Getting the help you need:

As an employer, you have certain tax and super obligations you need to be aware of. These obligations include:

• pay as you go (PAYG) withholding
• Super
• fringe benefits tax (FBT)

Running a business or a non-profit organisation gets more complex when you have employees or independent contractors. When you make payment to employees or contractors, you may be required to withhold an amount and send it to the ATO at regular intervals. The ATO calls this process PAYG withholding.

To comply with your PAYG withholding obligations you need to:

• register for PAYG withholding
• work out the status of your workers
• become familiar with the types of payments you need to withhold from
• work out the amount to withhold
• report and pay withheld amount to the ATO
• provide payment summaries and lodge an annual report at the end of each income year.

Under the PAYG withholding system:

• the business, non-profit organisation or individual making the payments is called the payer, and
• the individual being paid is called the payee.

What you need to know about PAYG withholding.

Register for PAYG withholding -

You will need to register for PAYG withholding as soon as you know you need to withhold. You can register:

• online at www.ato.gov.au/onlineservices
• by phoning 13 28 66 between 8:00am and 6:00pm Monday to Friday
• by completing an Add a new business account (NAT 2954) form

Work out the status of your workers -

You have different obligations depending on whether your payee is an:

• employee, or
• independant contractor.

The status of your worker depends on your working relationship and is usually worked out by the contracual arrangements made between the two of you.

NOTE: To help you work out the status of your workers, the ATO have developed a decision making tool. To use the decision tool, visit www.ato.gov.au/employers and selecct ‘Contractor or employer?’ – ‘Employee/contractor decision tool’.

Work out the amount to withhold.

The ATO produces tax tables to help you work out how much to withhold from your payments to your payees.

These PAYG withholding tax tables are available for weekely, fortnightly, monthly and quarterly pay periods. You can also get tax tables for particular types of payments, such as payments made under voluntary agreement.

NOTE: The ATO has an electronic calculator to help you work out the withholding amount and the employment termination payment withholding amount. To use the calculator, visit www.ato.gov.au/employers and select:

• tax withheld calculator - this calculator will help you work out the correct amount to be withheld, and
• employment termination payment calculator – this calculator will help you work out the tax-free and taxable amounts of an employment termination payment made on or after 1 July 2007.

To work out how much to withhold, use information your payee gives you on their Tax file number declaration (NAT 3092) and, if applicable, Withholdong declaration (NAT 3093). For example, they may be claiming the tax-free threshold that is shown on their Tax file number declaration, or they may be entitled to a dependent spouse tax offset that is shown on their Withholding declaration.

If your payee is under a voluntary agreement, use the information provided in the agreement to work out the amount to withhold.

Report and pay the withheld amounts.

How often you report and pay amounts depends on whether you are a small, medium or large withholder.

The ATO will tell you what type of withholder you are after you register.

Prepare payment summaries and lodge annual report.

Within 14 days after the end of each financial year (30 June), you need to give each of your payees a payment summary that shows how much you:

• paid, and
• withheld.

You need to also provide the ATO with a PAYG withholding payment summary annual report and you can print the individual payment summaries on plain paper.

If you don’t report electronically, the ATO will give you blank payment summary forms and a personalised PAYG payment summary statement to use.

NOTE: The ATO will send this stationery to you around May each year.

Payment summaries.

There are different payment summary forms depeding on the type of payment. Examples include payment summaries for:

• individual non-business payments
• labour hire and other specified payments
• voluntary agreement payments
• employment termination payments
• personal services attributed income payments
• payments where ABN not quoted.

It’s important you use the appropriate payment summary.

NOTE: To order payment summaries:

• visit the ATO website at www.ato.gov.au and select ‘Find a form od publication’ – ‘Online ordering’, or
• call the ATO’s automised self help ordering service on 13 72 26 and press 4. You’ll need your Australian business number (ABN) and the names of the publications you wish to order.

The ATO provides instructions for completing these payment summaries. To obtain copies, visit the ATO website

PAYG withholding payment summary annual report.

If you have payroll software that meets the ATO’s specifications, you can submit your PAYG withholding payment summary annual report using electronic commerce interface (ECI).

If not, use the stationery the ATO send you so you can provide them with the following:

• a completed personalised PAYG payment summary statement (NAT 7885)
• the originals of all the payment summaries you issued for the financial year.

If you misplace your personalised payemnt summary statement or it contains an error, you can use a generic PAYG payment summary statement.