“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

The account balance cap

The account balance cap on first home saver accounts is indexed periodically in $5,000 increments.

The maximum annual government contribution

The maximum annual government contribution is based on the contribution threshold that is indexed periodically in $500 increments.

Compulsory acquisition of an asset.
This section explains your CGT obligations if your CGT asset is lost, destroyed or compulsorily acquired.

Generally, there are no CGT obligations for assets acquired before 20 September 1985 (pre-CGT).

There may be a situation where you receive money or another CGT asset (or both) as compensation when you dispose of an asset involuntarily (or under an insurance policy against the risk of such an event happening). In this case, you may be able to choose to:

• defer your liability to pay tax on any capital gain arising on the disposal, or
• get a CGT exemption for any replacement asset if you acquired the original asset before 20 September 1985.

This concession is known as a rollover. It may be available if one of the following events happens:

• all or part of your CGT asset is lost or destroyed
• your CGT asset is compulsorily acquired by an Australian government agency
• your CGT asset is compulsorily acquired by an entity (other than by an Australian government agency or a foreign government agency) under a power of compulsory acquisition conferred by an Australian or foreign law. However, the compulsory acquisition of minority interests – such as shares in a company – under the Corporations Act or similar foreign law are excluded
• you dispose of your CGT asset to an entity (other than a foreign government agency) after a notice is served on you inviting you to negotiate a sale agreement. You must have been informed that, if the negotiations are unsuccessful, the asset will be compulsorily acquired under a power of compulsory acquisition conferred by an Australian or foreign law. However, the compulsory acquisition of minority interests – such as shares in a company – under the Corporations Act or similar foreign law are excluded
• you dispose of land to an entity (other than a foreign government agency) where a mining lease was compulsorily granted over the land, the lease significantly affected your use of the land, the lease was in force immediately before the disposal and the entity to which you disposed of the land was the lessee
• you dispose of land to an entity (other than a foreign government agency) where a mining lease would have been compulsorily granted over the land, the lease would have significantly affected your use of the land and the entity to which you disposed of the land would have been the lessee
• a lease that had been granted to you by an Australian Government agency under a Commonwealth, state or territory law expires and is not renewed.

This rollover is not available for plant disposed of after 11.45am (by legal time in the ACT) on 21 September 1999 and other depreciating assets from 1 July 2001. Instead, if a depreciating asset is lost or destroyed or, acquired compulsorily or by forced negotiation (other than by a foreign government agency), the capital allowances provisions may allow for a balancing adjustment offset.

This means that rather than including an amount in your assessable income by way of a balancing adjustment, you can offset that amount against the cost of a replacement asset (or assets).

If you choose to take rollover, you do not need to lodge a written election stating your choice – it will be clear from the way you prepare your tax return.

You cannot choose to defer a capital loss but you can use it to reduce any capital gain made in the current income year or a later income year.

For rollover relief to apply, the replacement asset you receive cannot be a car, motorcycle or similar vehicle.

Further, from 1 July 2001, for rollover relief to apply, the replacement asset you receive cannot become an item of your trading stock, nor can it be a depreciating asset.

Marriage breakdown.
Read this section if your marriage or de facto marriage ended on or after 20 September 1985 and:

• you transfer an asset or a share of an asset to your spouse
• you receive an asset or a share of an asset from your spouse, or
• a company or trustee of a trust transfers an asset to you or your spouse.

When we talk about ‘your spouse’, this includes your former spouse or former de facto spouse. ‘Transfer’ of an asset means transferring ownership of an asset to the transferee spouse and includes ‘creating’ an asset in their favour (such as a right to use property). Where we talk about ‘an asset’, this includes a share of, or an interest in, a jointly owned asset.

The term ‘transferee spouse’ refers to the spouse to whom an asset is transferred, while the ‘transferor’ is the person (or a company or the trustee of a trust) who transfers an asset to the transferee spouse.

As a general rule, CGT applies to all changes of ownership of assets on or after 20 September 1985. However, if you transfer an asset to your spouse as a result of the breakdown of your marriage or de facto marriage, there is an automatic rollover in certain cases. You cannot choose whether or not it applies.

This rollover ensures the transferor spouse disregards a capital gain or capital loss that would otherwise arise. In effect, the one who receives the asset (the transferee spouse) will make the capital gain or capital loss when they subsequently dispose of the asset. If you are the transferee spouse, the cost base of the asset is transferred to you.

Deceased estates.
If you are a deceased person’s legal personal representative or a beneficiary of a deceased estate, read this section to find out about the special CGT rules that apply.

When a person dies, the assets that make up their estate can:

• pass directly to a beneficiary (or beneficiaries), or
• pass directly to their legal personal representative (for example, their executor) who may dispose of the assets or pass them to the beneficiary (or beneficiaries).
• A beneficiary is a person entitled to assets of a deceased estate. They can be named as a beneficiary in a will or they can be entitled to the assets as a result of the laws of intestacy (when a person dies without having made a will).

A legal personal representative can be either:

• the executor of a deceased estate (that is, a person appointed to wind up the estate in accordance with the will), or
• an administrator appointed to wind up the estate if the person does not leave a will.

Forestry managed investment scheme interests.
This section explains your CGT obligations if:

• you are a subsequent participant in a forestry managed investment scheme (FMIS), and
• you sold or otherwise disposed of your forestry interests in an FMIS in the 2008–09 income year.

Subsequent participant.
You are a subsequent participant if you are not an initial participant. In most cases, this means that you bought your forestry interest from an initial participant.

You are an initial participant if:

• you obtained your forestry interest from the forestry manager of the scheme, and
• your payment to obtain the forestry interest is used to establish trees.
  

Real estate and main residence.
This section explains your CGT obligations for real estate. Real estate includes –

• vacant blocks of land
• business premises
• rental properties
• holiday houses, and
• hobby farms

The CGT exemption for a main residence is also explained in this section.

Apart from the main residence rules, capital gains and capital losses on real estate are worked out under the rules set out earlier.

Land is a CGT asset. In some cases, improvements made to land are treated as separate CGT assets – see Separate assets. A depreciating asset that is found in a building (for example, carpet or a hot-water system) is also taken to be a separate CGT asset from the building. When a CGT event happens to your property, you must work out a capital gain or capital loss for each CGT asset it comprises (or balancing adjustment in the case of depreciating assets sold with the property).

The most common CGT event that happens to real estate is its sale or disposal – CGT event A1. The time of the event is:

• when you enter into the contract for the disposal
• if there is no contract – when the change of ownership occurs
• if the asset is compulsorily acquired by an entity – the earliest of when
  • you received compensation from the entity
  • the entity became the asset’s owner
  • the entity entered it under a power of compulsory acquisition, or
  • the entity took possession under that power.

If land is disposed of under a contract, it is taken to have been disposed of when the contract is entered into – not the settlement date. The fact that a contract is subject to a condition, such as finance approval, will generally not affect this date.

You are not required to include any capital gain or capital loss on your tax return for the relevant income year until settlement occurs. When settlement occurs, you must include any capital gain or capital loss on your tax return for the income year in which the contract was made. If an assessment has already been made for that income year, you may need to have that assessment amended. Where an assessment is amended to include a net capital gain and a liability for shortfall interest charge (SIC) arises, remission of that interest charge will be considered on a case-by-case basis. Generally, it would be expected that the SIC would be remitted in full where requests for amendment are lodged within a reasonable time after the date of settlement – which, in most cases, is considered to be one month. If you consider that the SIC should be remitted, you should provide reasons why when you request the amendment to your assessment. More information about SIC is available on the ATO’s website.

Tomorrow’s Episode……. Compulsory acquisition of an asset, Marriage breakdown and Deceased estates.

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.

Trust distributions.
This episode explains how distributions from trusts (including managed funds) can affect your CGT position. Managed funds include -

• property trusts
• share trusts
• equity trusts
• growth trusts
• imputation trusts, and
• balanced trusts

Distributions from trusts can include different amounts, but only the following two types of amounts are relevant for CGT purposes:

• capital gains
• non-assessable payments
  

Distributions of trust capital gains are treated as capital gains that you have made.

Non-assessable payments mostly affect the cost base of units in a unit trust (including managed funds) but can in some cases create a capital gain. Non-assessable payments do not affect beneficiaries of a discretionary trust.

Trustees, including fund managers, may use different terms to describe the methods of calculation and other terms used in this guide. For example, they may use the term ‘non-discount gains’ when they refer to capital gains worked out using the indexation and ‘other’ methods.

Investments in shares and units.
This section explains your CGT obligations if you sold or otherwise disposed of any shares or units in a unit trust (including a managed fund) in the 2008–09 income year. It also explains what happens when you have a CGT event under a demerger. For information about distributions from a unit trust (other than under a demerger) in the 2008–09 income year, contact Taxwise on 9248 8124.

Managed fund.
A managed fund is a unit trust. Where we refer to a unit trust, we are also referring to a managed fund.


Tomorrows Episode……. Forestry Managed Investment Scheme Interests and Real Estate and Main Residence.

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.

Does capital gains tax apply to you?
These 4 episodes provide general background information about CGT and whether, and how, it applies to you.

How to work out your capital gain or capital loss.
These 4 episodes explain how to work out each capital gain or capital loss you made during the income year.

They do not explain how to work out your net capital gain or net capital losses carried forward to later income years. If you are completing the Tax return for individuals 2009 and want more information on how to calculate your net capital gain for the income year or net capital losses carried forward to later income years (including how to deduct any unapplied net capital losses from earlier years), Contact Taxwise on 9248 8124. For more information about companies, trusts and funds or about completing the CGT summary worksheet, Contact Taxwise on 9248 8124.

Keeping records.
You must keep records of everything that affects your capital gains and capital losses. Penalties can apply if you do not keep the records for at least five years after the relevant CGT event.

Keeping adequate records of all expenditure will help you correctly work out the amount of capital gain or capital loss you have made when a CGT event happens. It will also help to make sure you do not pay more CGT than is necessary. If you have applied a net capital loss, you should generally keep your records of the CGT event that resulted in the loss for four years from the income year when the net capital loss is fully applied.

Keeping good records can help your beneficiaries reduce the impact of CGT after you die. If you leave an asset to another person, the asset may be subject to CGT when a CGT event happens to that asset in the future – for example, if your daughter (the beneficiary) sells the shares (the asset) you have left her in your will.

Tomorrow’s Episode……. Trust distributions and Investments in shares and units.

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.

Thinking of starting a business.

If your thinking about starting your own business there are important decisions you need to make.
For example;

• what type of business should you start?
• will it be a business or just a hobby?
• what do you need to do before you start?
• do you need a business plan?
• are you really ready to start a new business?
• what financial information do you need?
• will you need an Australian business number?
• will you have a tax responsibilities?

At this stage of your business life cycle, it’s important to think about, understand and plan your business tax needs. Time spent now will help you manage your tax obligations when you start your business and make the right decisions.

Starting your business.

When you start your business, you need to consider tax to get your business off to a good start. For example, do you know:

• what records you need to keep and how to set up a record keeping system?
• how goods and services tax (GST) works?
• what you need to report in your tax return?
• what deductions you are entitled to claim?
• how often you have to lodge you business activity statement (BAS)?
• how to pay your tax?
• how working from home may affect your tax?

 
Running your business.

As your business grows and changes you need to be aware of how your tax obligations may also change. For example, do you know:

• how to change your business structure?
• what changes when you have employees?
• how pay as you go (PAYG) withholding works?
• you have to pay super for employees?
• how to pay fringe benefits tax (FBT)?
• how to treat payments you make to independent contractors?
• how to work with the ATO electronically?

 
Ceasing your business.

You need to tell the ATO if you’re affected by the following:

• you have ceased trading altogether
• you are registered to operate a business but you’ve never traded
• you have sold or transferred ownership of your business

To tell the ATO you’re no longer in business:

• phone the ATO on 13 28 66 between 8:00am and 6:00pm, Monday to Friday, or
• If you have a digital certificate, you may cancel your ABN online at www.abr.gov.au

Online cancellation is fast and secure, and your cancellation details will usually be updated within 24 hours.

What to do next.

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. 

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.

Protect yourself against promoters marketing dodgy tax schemes!!

What is tax planning?

Tax planning is when you organise your tax affairs to give you the greatest tax advantage. Tax planning is legitimate when you do it within the letter and the spirit of the law. You may receive advice about tax planning arrangements and schemes from financiers, accountants, lawyers, tax agents, financial planners and other businesses.

When should you be aware of tax planning?
   
Be alert to those advisers and promoters who market dodgy tax schemes – ones that are not within the spirit of the law and sometimes not even within the law. If you invest in a dodgy tax scheme, you are risking your original investment plus you could have to pay back any missing tax with interest and penalties long after the promoter and your money are gone.

It is often difficult to tell a legitimate scheme from a dodgy one. Promoters can be very good at convincing you the scheme is a good one, using professional marketing tools and attractive sales pitches offering big tax deductions or refunds. It can be difficult to tell if you are getting sound advice.

Here are a few lines that you may hear which should raise a red flag in your mind:

• There are no risks. We guarantee the returns.
• You don’t need credit or asset checks, we’ll lend you the money.
• Even if the investment doesn’t go ahead, you’ll still make a profit from your tax refund.
• Sign this secrecy agreement – we don’t want our competitors stealing our ideas.
• There’s no need to ask the Tax Office if it’s okay. We already have a ruling.
• You can get up to 100% tax deductions fully supported by Tax Office rulings.
• A top lawyer and accountant have looked at the investment and they think it’s great.
• Your funds will be managed by an international bank (or international trust, or global corporation).
• We’ll put your money in a tax-free overseas account.
• You can run your business through your own offshore company.
      
  The bottom line is: if it sounds too good to be true, it probably is.

How do you investigate?
   
Before you invest:

• Check licence details free at www.fido.gov.au – people who offer financial products and advice must work for a business that holds an Australian financial service licence issued by the Australian Securities and Investment Commissions (ASIC).
  
• Contact ASIC at infoline@asic.gov.au if you haven’t received either a product disclosure statement or prospectus (as a potential investors you must be given one of these).
  
• Get independent advice from an adviser who has no connection with the seller or the investment 
  scheme.
  
• Check with the ATO at www.ato.gov.au or by phoning the ATO on 1800 177 006 to find out if the 
  scheme has a product ruling – many tax effective investments have product rulings. A product ruling provides you with a legally binding assurance that the tax benefits set out in the ruling will be available, as long as the scheme is carried out as described in the ruling.
  
• Check taxpayer alerts at www.ato.gov.au or phone the ATO on 1800 177 006 to find out if the 
  scheme has any of the characteristics described in the alerts. Taxpayer alerts are early warnings of significant and emerging tax planning issues the ATO are assessing.
  
• Visit the ATO’s website at www.ato.gov.au to apply to the ATO for a private ruling to confirm the tax effects of the arrangement. You can rely on private rulings as binding, as long as the scheme is carried out as described in the ruling.

How do you report promoters of dodgy schemes?
    
If you have concerns about a promoter or a tax scheme, call the Tax Evasion and Referral Centre anonymously on 1800 060 062.

The ATO will investigate further and take action to stop the promoter marketing the scheme if it seems outside the law. This will help stop other taxpayers from investing in the scheme.

How does the ATO work with ASIC and ACCC?
   
The ATO aims to protect you against promoters of dodgy tax schemes. Not all schemes are tax related, so check the Australian Securities and Investment Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC), SCAMwatch to find out about other dodgy schemes and scams.

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.