I was reminiscing about old dates – (the tax rules type – not girlfriends!) and thought highlighting a few might be a good reminder to our blog readers out there!

19/9/1985

Capital gains tax commenced.  Any asset acquired after that date started the CGT clock ticking.  When sold or disposed of, any increase in the asset is potentially subject to CGT.

What many don’t realise is that assets acquired originally before 1985 but which are passed down to beneficiaries on death, or gifted whilst alive, after 1985, are deemed to be acquired by the beneficiary and CGT will be applicable on sale (or subsequent gifting).

1997

Dividend Imputation Credit system introduced.  This was designed to stop double taxation of company profits.  Simply, the dividend you receive from your company shares is included in your tax return and you get a tax credit for the tax the coy paid originally (the imputation credit).  What a great piece of legislation!  Especially useful for your SMSF where the members are receiving pensions – the SMSF then has a zero tax rate but the SMSF still gets a refund of those wonderful imputation credits!  A great way to increase your investment return!

1996

Pretty much meant that any money or loans (and now use of assets) by a shareholder of a private company could or would be treated as an unfranked dividend paid by the company – resulting in adverse tax consequences to the taxpayer!  This is a dangerous piece of tax law – often we have to work hard to sort it out!  Be very careful when taking money from your company – it is going to be taxed in one way or another.

2007

Wow!– did things get super good for SMSF’s!   From that year – all superannuation withdrawals and income streams from superfund’s paid to taxpayers who were over 60yo are tax free!  Not only that, when the superfund was paying a pension to the member – the assets of the superfund supporting those pensions were also tax free – ie no tax on income or capital gains!

Also in 2007, the rules changed in relation to how much you could contribute to a superfund.  By combining the above facts, we have spent many wonderful hours in assisting clients to move assets into their smsf, setting up pensions and receiving asset income tax free and super pensions tax free.  Whilst this is complicated work and highly technical, the benefits are terrific and allows clients to vastly improve their retirement assets.  (Remember – the Sole Purpose of your super fund is to provide retirements benefits for the members).

FBT

(A fair while ago…) This commenced and was designed to cut out/limit the amount of benefits that an employer could claim in relation to tax deductions used in relation to employees.  Previously the Law taxed the employee on “the value of the benefit received”.  This was hard to prove and rather easy to get around.  So the FBT rules taxed the employer instead – and made entertainment non deductible.  Whilst we in the country never had long lunches and boozed on from 1.00pm to 5.00pm – apparently it was rather common in the city!  The best tax strategy is to avoid FBT whenever possible as it is messy to account for, takes a lot of work and is a bit of a pain!  Generally it is preferably to eliminate the FBT amount by having the employee ‘pay’ for any benefit.

STS, SBE …Small Business Rules.

These have been in for a while and have continually changed.  The major impact is that for a business with turnover less than $2m, special tax concessions apply.  Some of the benefits of being in “SBE” are:

  • Accelerated depreciation (use depreciation pools)
  • Don’t get hit with balancing profits on trade in of machinery
  • Can pre-pay up to 13 months business expenses and claim a tax deduction in the year of payment (very useful in June).
  • Can potentially access capital gains tax relief on disposals of business assets (eg land, goodwill, buildings).

The ability to eliminate CGT of sale of business assets (eg a farmer selling his farm and retiring) is incredibly valuable!  We have worked through many situations where clients have been able to eliminate hundreds of thousands of dollars of CGT!

I guess the message here is – if you or anyone you know is thinking of selling or leasing out their business assets – and if the asset  value is a lot more than its original cost – then it is vital to get  advice on the options available to you.  Sometimes planning is vital even if the business asset is not being sold – only leased (as in farming land).  The ability to get CGT relief is often ‘time limited’ – so failure to act in the initial years might cost you massive tax bills later – or it might mean you leave a massive CGT time bomb to your kids when we could have possibly eliminated it forever!

Pre 1980

Death Duties were eliminated.  That is good!  However CGT can be a ‘defacto’ death duty in disguise!  Estate Planning is most important  for anyone with any level of assets – and critical for anyone with significant wealth.

Estate planning is such an important duty for parents.   Don’t think of it as “I have to think about dying”…. think of it as “implementing strategies to provide asset protection for your family’s wealth, to drastically cut taxes that might otherwise be payable, and to help your children raise their families and pay their bills through the ‘lurks and perks’ you can leave them!”

The best time to do Estate Planning is when you are fit and well!  Often a detailed analysis of your ‘estate position’ allows us to identify planning strategies that lower tax bills now and for the future, and set up your family’s wealth in the best way going forward.

Sometimes the best outcome of a family review is to put in place protection for the spouses of the business owners – and in doing so often one of the biggest family concerns is covered.

One advantage of having us as your accountants and advisers is that we cover off these dates for you – so you don’t have to remember them so much……but – we can’t help you with the most important date… your spouse’s birthday!