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13th September 2005

Dear subscriber

Welcome to the latest issue of the
Taxpayers Australia e-newsletter

For those of you who are receiving this for the first time, this e-newsletter ds not replace 'the Taxpayer' Journal, which members receive in paper or electronic format as part of their membership .

This e-newsletter notifies members that the latest issue is available for download and contains news and special items of interest for taxpayers in general.

'The Taxpayer' journal is sent to all members of Taxpayers Australia Inc as part of their subscription. More information about subscribing is available here .

We also include the current editorial which carries a discussion of current matters of relevance to all taxpayers.

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We now store previous issues of the Taxpayer
e-newsletters on our website. So if you accidentally delete one or can't find an old issue, please follow this link.

Taxpayer Journal Download
(Taxpayer Members Only)

Please note that the following downloadable file is for Taxpayer members only.
If you are not a member but would like to be kept up to date with all tax issues, click here to purchase a subscription .

Issue 6 (2005/06) of the 'Taxpayer' Journal is now available for download on the Taxpayer website: please click here to go to the download area

If you are a member you will get the 'Member Login Requested' page. Simply enter your membership number and password in the boxes provided. If you cannot remember your password, click on 'password reminder', or if you are new to the website, click on 'New user', and this will generate a password for you.

This issue of the 'Taxpayer' Journal includes:

• Editorial: The need for personal tax reform
• Lodgment concession for SMSFs
• Car fringe benefits and excess contributions
• Income and capital: Spotting the difference
• Interest deductions and real property
• State Divisional Council General Meetings 2005
• CGT trap when buying a home for your child
• Land tax: New provisions
• Seminars

Editorial: 2005/2006 Tax Summary
(taken from Issue 6: 2005/06 Taxpayer Journal)

It is history now that the Senate has passed the tax cuts announced by the Government in its May 2005 Federal Budget, and they have now received Royal Assent. Those tax cuts were held up by the Opposition parties and only became law subsequent to the Government effectively obtaining control of the Senate in its own right.

Several other changes announced in the May 2005 Federal Budget have also been passed, including abolition of the superannuation surcharge and the terminations payment surcharge.

At the time these changes were announced, the Association applauded the Government for its reforms. Our main fear, however, was that the raising of the income tax thresholds at which the two top marginal tax rates apply from 1 July 2005 and again on 1 July 2006 could result in reform inertia, and that the Government might believe that the problems had been solved.

That concern was magnified as the Treasurer, Peter Costello, explained his reasons for not further lowering the top marginal tax rates wherein he recited his political concern that high income earners would get higher tax reductions and that such an outcome would make it difficult to justify the changes.

In recent weeks, however, the Business Council of Australia has released its blueprint for reform of the personal tax system, as has the Australian Chamber of Commerce and Industry. Sinclair Davidson has released a paper through the Centre for Independent Studies debunking the reasons for not justifying tax cuts. Liberal MP Malcolm Turnbull has released his own discussion paper setting out the cost of approximately 250 different tax reform measures. The Prime Minister has also stated that he is in favour of reducing taxes further provided the budget settings are OK.

Further, the Labor party has stated that it is not averse to cutting the top tax rate but its priority is to address high effective marginal tax rates that effect taxpayers receiving social security payments.

In short, the need for continued tax reform is not only as strong today as it was prior to the Government's recent tax changes, but it would also seem to be getting stronger around the world. Around 14 countries, mainly in the former Eastern Bloc, have now adopted flat income taxes. It is understood that Germany, the UK and the USA are at least exploring the advantages and disadvantages of introducing a flat income tax.

In Australia there is a need for continuous reform of the tax system. There is no doubt that tax rates are too high and still cut in at low income levels. There is no doubt that the rules are overly complex and must be simplified in order to reduce the cost of compliance. There is no doubt that the current system drives complex tax planning and tax avoidance, resulting in ever more complex legislation. There is no doubt that the high effective marginal tax rates dissuade those on welfare from returning to the workforce. There is no doubt that the high marginal tax rates act as a disincentive for entrepreneurs and others. There is no doubt that Australia's high tax rates act as a disincentive for expatriates to return home.

There is no doubt that we need tax reform of the personal tax system and we need a community push to make it happen. Business tax reform and reform of indirect taxes resulted from a community push. Personal tax reform needs the same impetus.

NATIONAL CONFERENCE 2005 - 'Keeping you informed'
4th & 5th November 2005 - Rydges Riverwalk, Melbourne

Taxpayers Australia is proud to present our Annual Conference.

This year we will be focusing on hot topics in Tax & Superannuation, presented in plain English with practical examples and Q & A discussions at the end of each session.

Join other taxpayers, accountants, tax agents, SMSF advisers and SMSF trustees at this unique event, and keep yourself up to the minute with the hot topics in Tax and Superannuation including:

• Service Trusts and How to Cope with the New Rules
• GST Hot Topics
• Contemporary Tax Structures
• Payroll Tax and Land Tax
• Compliance
• ATO Relationships with Taxpayers and Tax Agents
• SMSF Compliance
• The Role of the Board of Taxation
• Current Issues in Estate Planning
• FBT - Strategic Re-assessment

You can download the full brochure here. And book your place here.

HIGHER EDUCATION LOAN PROGRAM

Taxpayers with an outstanding HECS debt will be required to repay that debt via an increased PAYG withholding amount or by PAYG instalments. The percentages for the 2005/2006 income year are:

A full report on the Higher Education Loan Program is included in Issue 6 of the Taxpayer journal, which is forwarded to members of Taxpayers Australia Inc each fortnight as part of their membership subscription.

[Source: ALP media release of 7 September 2005.]

POLITICIANS "DEBATE" TAX REFORM

Wayne Swan, the ALP Treasury Spokesman, said during a doorstop interview at Parliament House on 6th September 2005 " when you see the figures in today„s papers, where the very wealthy are minimising their tax, it shows the need for fundamental tax reform¦¦ we need to deal with the rates and the threshholds, we need to deal with compliance and concessions so all Australians get a fair go and pay a fair rate of tax".

He went on to add: “certainly its outrageous that the very wealthy are minimising their tax while honest taxpayers who are paying their income tax are paying very high rates of tax. That„s why we say we need fundamental reform of rates and thresholds, we need to deal with concessions and we need to deal with compliance. This has been obvious for some time. Mr Swan apparently also repeated this on Brisbane radio, which gave the Minister for Revenue (Mal Brough MP) the chance to ask which concessions Mr Swan is proposing to abolish. Mr Brough asked: “will he abolish:

• Family tax benefits;
• Concessions for truck owner-drivers;
• Concessions for primary producers to encourage improved water facilities;
• Deductions for steel capped boots and protective clothing for tradesmen and labourers;
• Capital gains tax concessions for small business, or
• The income tax deductions and other concessions vital to support Australian charities.

[Source; Press Release No. 077 of 6th September 2005]

SUPERANNUATION CO-CONTRIBUTIONS

The Government has advised that it has now paid out some $309 million to the superannuation accounts of eligible income earners. Some 63% of total
co-contribution recipients are female.

[Source; Press Release No.075 of 6th September 2005 of the Minister for Revenue]

Editor: Note that for the year ended 30 June 2006, the eligible personal superannuation contributions will be matched at $1.50 for each dollar contributed. The maximum co-contribution will be $1,500 on total income (assessable income plus reportable fringe benefits) up to $28,000. The maximum co-contribution will then phase out at a threshhold of $58,000.

BANKRUPTCY AND SUPER CONTRIBUTIONS

The Government announced on 16 December 2003 that it would make changes to the Bankruptcy Act 1966 to allow bankruptcy trustees to recover certain contributions made to a superannuation fund before bankruptcy. The “reforms would allow bankruptcy trustees to recover:

• “excessive contributions„; and
• contributions made with an intention to defeat creditors.

On 6 September 2005, the Government released a consultation paper on the recovery of superannuation contributions made before bankruptcy.

“Attorney General Philip Ruddock and Minister for Revenue and Assistant Treasurer Mal Brough said that the release of the paper demonstrated the Government„s ongoing commitment to preventing bankrupts from using superannuation funds to put excessive sums out of the reach of creditors.

The Bankruptcy Act 1966 currently allows debtors to shield their assets from creditors by making pre bankruptcy payments to superannuation, an anomaly highlighted by the recent court case, Cook v Benson*.

The consultation process is directed to identifying the best way to balance the interests of creditors with those of the bankrupt in retirement, while minimising compliance costs and complexity.

Interested parties are invited to make a submission to enable all viewpoints to be properly considered. Consultation will be with Treasury, the Attorney General„s Department and Trustee Service Australia. Submissions should be sent by 4th November 2005 to:

The Manager
Superannuation and Bankruptcy Review
Insolvency and Trustee Service Australia
GPO Box 821
CANBERRA CITY ACT 2601

However, if possible, submissions should be made by email

* The Consultation Paper notes that in Cook v Benson, it was held “that contributions made to a superannuation fund prior to bankruptcy were settlements of property for the purposes of section 120 of the Bankruptcy Act 1966 and that the trustees were purchasers of valuable consideration. Consequently, the bankruptcy trustee was not able to recover the contributions.

The proposed changes in brief

The new measures will allow bankruptcy trustees to recover:

• excessive voluntary superannuation contributions and payments to retirement accounts (RSA.s) made before bankruptcy; and
• contributions to superannuation funds or RSA„s made before bankruptcy where the transfer was made with the intention of defeating creditors.

It is proposed that the following “contributions would not be recoverable:

those made more than two years before the commencement of the bankruptcy where it can be shown that the bankrupt was solvent when the contributions were made;

• eligible termination payment rollover amounts;
• government co-contributions; and
• employer contributions to a defined benefit fund with more than four members.
  

The consultation paper can be viewed here.

DON„T EXTINGUISH AN ELIGIBLE SERVICE PERIOD (ESP) UNNECESSARILY

In general, when a member cashes out their entire fund benefit, its associated ESP will be extinguished.

Therefore, where a member has a benefit with an attractive ESP (i.e. one with significant pre-1983 time), it may be strategically important for them to retain all or some of the benefit, thereby maintaining its ESP.

Maintaining a benefit and its ESP can be achieved by either:

• leaving it in place, as is;
• doing a partial cash out; or
• rolling it over.

So, be careful before cashing out that benefit, as you may unwittingly extinguish a valuable ESP.

(Please note that this topic may be especially important to persons having super balances in old employer sponsored funds.)

HURRICANE KATRINA APPEAL

The Salvation Army Australia Hurricane Katrina Appeal has been approved for deductible gift recipient status by the Australian Government. Gifts to this fund will be tax deductible until 2 December 2006.

Gifts made through the Australian Red Cross will also be tax deductible.

[Source: Press Release No. 078 of 7 September 2005 by the Minister For Revenue]

Electronic Australian Income Tax Legislation

Taxpayers Australia, partnered by Eurofield Information Solutions are proud to be able to offer the Electronic Australian Income Tax Legislation via our website.

Instantly accessible, affordable and up-to-date as of 1 July 2005, this software contains the full text of all Australian Income Tax Legislation, including:

• AAT
• ADJR
• Crime Taxation Offences
• Family Trust Distribution
• Fringe Benefits Tax
• Financial Transaction Reports and regulations
• Rating Acts and Regulations
• Taxation Administration/Over Payments
• Income Equalisation Deposits
• New Business Tax System
• Income Tax Assessment
• Superannuation
• PDFs/ Development Allowance
• Superannuation Contributions Tax
• Retirement Savings
• Termination Payments Tax

All this for only $69.95 inc. GST

You can purchase your copy here

SEMINARS

You can get more information on these seminars and book your place here

We can take bookings via email

over the phone: 1300 657 572

by fax: 03 9819 7720

or by post: PO Box 292, East Kew, Victoria 3102

If you wish to book your place for a particular seminar, please select the appropriate link from one of the tables below.

November seminars