Opportunity Knocks

Sometimes it pays to act quickly when opportunity knocks.

You never know when the opportunity will cease to exist or if the rules will change to reduce the benefits available.

Some of the opportunities that have a limited timeframe or have been identified as being subject to further review and potential change include:

1.Superannuation Contribution Caps

Concessional Contributions are contributions where a tax deduction is claimed by an employer or a self- employed person.

In July 2012, the Superannuation Concessional Contribution Caps for people aged 50 or over will be reduced from $50,000 to $25,000.

The Government has announced that the $50,000 limit will continue to apply if your superannuation balance is less than $500,000, but after 10 months they still have not outlined the rules that will apply.

The reduction in the concessional contributions cap may impact on many people aged 50 or over who are:

  • salary sacrificing into superannuation;
  • employing a Transition to Retirement strategy;
  • maximizing contributions to support SMSF borrowing;
  • Self-employed

You should (where possible and if suited to your situation) continue to use the maximum $50,000 contribution limit while it exists.

If you are salary packaging into superannuation, you need to ensure you closely monitor the timing of payments into your superannuation fund. The superannuation contribution limits are applied at the time the contribution is received by the fund, not at the time it is withheld from your wages.

If a payment is withheld by your employer in June and does not reach your superannuation fund until July, it will be counted against the next year’s contributions cap. This may result in your cap ($25,000 if under 50 years of age or $50,000 if 50 or older) being exceeded in the following year.

It is the responsibility of the employee, not the employer, to ensure their contribution limits are not exceeded. A tax rate of 46.5% will apply to the excess contribution in most cases, but the tax rate can be as high as 93% of the excess contribution amount in some circumstances.

2. Borrowing by Self Managed Super Funds (SMSFs)

In September 2007 changes were made to the superannuation laws, enabling superannuation funds to borrow to acquire assets.

These laws were significantly modified in July 2010, placing extra restrictions on the type of assets that can be acquired.

An extensive review of the superannuation system (the Cooper Review) was completed in 2010. The Government has accepted the recommendation of the Cooper Review that the ability of SMSFs to borrow be subject to further review by June 2012.

If you are interested in borrowing to acquire property inside an SMSF, talk to us for specialist advice.

3. Costs slashed in transferring property to SMSFs

The following opportunity is not known to have a time limit, nor have we heard any talk of the concessions being removed.

A relatively new opportunity that may be of interest to small business owners and farmers is the new NSW stamp duty concessions that apply when a property is transferred into a superannuation fund solely to provide retirement benefits for the current property owner(s).

Under the superannuation laws residential property cannot be acquired from a member of the fund (very limited exceptions apply), so the stamp duty concession will generally only be available for business property.

Stamp duty was generally the highest cost of transferring a property into superannuation prior to the July 2010 changes, and often was the major factor in deciding not to change the ownership despite the many other positive benefits.

4. Ensure that your FBT is correct

Each year the Australian Taxation Office (A TO) highlights areas where it will focus its compliance (audit) attention.

During the 2009/2010 FBT year the A TO FBT compliance program raised over $185 million from small to medium enterprises (those with a turnover of $2M to $250M), and a staggering $474 million from micro enterprises (those with a turnover of less than $2M).

There is no surprise that they will be again including FBT as a focus of their 2010/2011 compliance program, and have been granted additional funding to increase their resources in this area.

The FBT year ends on 31 March. If you are salary packaging a car don’t forget to record your odometer reading as at 31 March, as your employer may need it for FBT calculations.

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