FEDERAL BUDGET – What it means to you

What goodies can you expect to get from this week’s Budget.

Wayne Swan delivered a fairly tame, yet solid, Federal Budget for the nation this week. Whilst the $40.8 billion deficit looks scary it is actually $16.3 billion less than what was expected. The Treasurer is also predicting a return to surplus three years earlier than expected. Good news.
Only a handful of goodies were expected after the handouts we got in last year’s stimulus packages. But what would an election year be without a few incentives? Here is what you can expect.

Low Income Earners

In 2010/11, the Low Income Tax Offset will increase from $1,350 to $1,500. This is great news for low income earners who will be able to effectively earn up to $16,000 tax free. The Senior Australian Tax Offset will also increase to $30,685 for singles and $26,680 each for couples.

Tax cuts

Most taxpayers can expect a $300 tax saving from 1 July as the 30% marginal tax rate threshold increases from $35,000 to $37,000. The 38% marginal tax rate will decrease to 37% resulting in a potential tax saving of up to $1,000 for those earning more than $80,000.

Medicare levy threshold

Singles earning less than $18,488 and couples with a combined income under $31,196 will be exempt from paying the Medicare Levy in the 2009/10 year. However the threshold that taxpayers can claim 20% of net medical expenses has risen from $1,500 to $2,000.

First Home Savers

First Home Saver Accounts holders will no longer have to wait four years before they are able to buy a home due to a relaxation of the rules.

Super guarantee increasing

As announced in the Henry Tax Review, the super guarantee levy will be gradually increased by 3% to 12% in 2019.

$500 more for low earners

The Government will top up the super funds of wage earners by $500 if they earn less than $37,000.

Concessions for over 50s

Workers over 50 who have less than $500,000 in super will be able to contribute up to $50,000 a year from 2012.

Lower company tax

The company tax rate will reduce by 2% to 28% by 2014 with small businesses getting access to the cut a year earlier. Small business also wins with an immediate write-off for assets up to $5,000.

... the 50% tax discount on up to $1,000 of interest income from 1 July 2011. This will definitely make saving alot more attractive and provides an even playing field to those already enjoying tax advantages for share and property investments. This will place downward pressure on banks’ funding costs resulting in more competitive loan rates for home owners.

... the $500 standard deduction for work related expenses from 2012/13. An unofficial “$300 without receipts” system has been operating for umpteen years and it has been long overdue a CPI upgrade. According to ATO statistics, the average tax deduction claimed by individuals in 2007/08 was $3,311.

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Money Tips for School Leavers

You may not have much of it yet but money and its management will be an important part of your adult life. Money doesn’t grow on trees and you need to be smart with it. Here are a few money basics to help you.

MANAGING MONEY

Budgeting
Budgeting is crucial to good financial health. Always have money left over each month after you pay your expenses. Microsoft Excel has some great templates to help you create a budget.

Discipline
The secret to a good budget is DISCIPLINE. I have seen some tremendous looking budgets – with fancy graphs and tables – but unless you follow through then they are just rubbish.

Arrange direct debits
If there is no money in your bank account then you are least likely to spend it. Don’t tempt yourself. Arrange payments to come out of your account the day after you get paid.

Rainy Day account
Start keeping money aside for rainy days. Aim to build up three months of savings. You will appreciate it one day.

TIPS FOR SAVING

Money makes money
Too many people have their savings earning little to no interest. Open up a high interest online account and make your savings work just that little bit harder for you.

Government co-contribution
If you earn less than $31,920 and you contribute $1,000 post tax into super the government will match it dollar for dollar. Free money!

Talk to your bank
The major banks are great in teaching you how to save. Don’t let them talk you into getting a credit card. Make sure you also ask them for a piggy bank!

Dangle that carrot
It is hard to save if you don’t have a goal to save for. Before you prepare a budget, write down a list of goals that you want to achieve.

Extra superannuation
The Government has warned that they are going to struggle to pay pensions for an aging population. The earlier that you can start putting extra in, the better off you will be. Make sure you keep all a track of all super funds in your name.

Late fees
You are giving away money for nothing by paying bills late or regularly having your bank account overdrawn. Poor bill paying may also affect your credit rating and restrict your ability to borrow in the future.

CREDIT TRAPS

Good debt
Only borrow money to make money. That is, only borrow to put towards assets, such as a house or shares, which increase in value. But make sure it generates more than the interest that you are paying.

Credit cards
Probably the best advice is to not have a credit card at all. Credit cards are bad news and get people into trouble. If you do have one then make sure you pay the amount owing in full each month and never increase your limit to bail you out. They also charge outrageous interest rates (up to 25%). Only spend what you earn.


TAX ISSUES AND TIPS

Tax File Number (TFN)
Without a TFN you will have more tax withheld than what you need to and you may not be able to receive certain government benefits. The easiest way to get one is through your school as you don’t have to provide the Australian Taxation Office (ATO) with any documents to prove your identity because your school verifies them. You should receive your TFN within 28 days.

Tax planning
Kerry Packer once said that if don’t try to legally minimize your tax then you are a fool. Tax will be your biggest outgoing so spend time trying to reduce it.

Keep your receipts
The ATO motto is no receipt = no deduction so you could be costing yourself $$$ by not keeping those dockets!

Get a great accountant
Great accountants are like quantity surveyors ... they know where the boundaries are. Avoid paying too much in tax or leaving yourself to a visit from the ATO. And their fees are tax deductible!


WHAT TO WATCH OUT FOR

Identity crime
As it is an important part of establishing your identity when starting a new job or opening a bank account, it is imperative that you keep your TFN secure and NEVER reveal to anyone not entitled to it.

Online scams
Online scams are on the rise and are designed to trick you into giving away your money, passwords and/or personal details. Keep your cards and PIN safe at all times. Make sure your passwords are difficult and regularly update the virus software on your computer. Report any irregularities to your bank ASAP.

Read before you sign
Before you sign anything, always make sure you understand the basics of what you are signing. If you don’t understand then ask questions. Never be pressured into signing or you might regret it later.

Useful links
Australian Taxation Office www.ato.gov.au/students
ASIC www.fido.gov.au

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MR TAXMAN’s TOP TEN INDIVIDUAL TAX TIPS FOR 2010

It is that time of the year when we all need to do some tax planning. June 30 is rapidly approaching so here are some excellent tips for you to get your house in order and increase your tax refund.

1. Car log book
Deductions can be in the thousands if you use your car for work purposes and keep a log book for 12 weeks. Keep all costs associated with the running of your car.

2. Super co-contribution
If your income is under $31,920 and you contribute $1,000 post tax into super the government will match it dollar for dollar. It amazes me how few people actually take advantage of this extra $1,000. Whilst the co-contribution is less generous this year it is still free money!

3. Education Tax Refund
Don’t miss out on this tax rebate which gives a 50% refund on certain education expenses up to $780 expenditure for each primary school child and $1,559 for each secondary school student. You must be eligible for Family Tax Benefit Part A to receive.

4. Minimize capital gains tax (CGT)
The stockmarket had a bumper year this year so you may have made a nice capital gain or two. Reduce CGT by selling any non-performing shares that you may be holding. If Any unrealised gains should be sold after 1 July to defer tax for another year. And remember that if you hold shares for more than 12 months you reduce CGT by half.

5. Salary sacrifice into super
For those under 50 years of age you can contribute up to $25,000 per year into super & only pay 15% tax. This figure increases to $50,000 if you are over 50. Build your wealth quicker rather than paying up to 46.5%.

6. Prepay interest
Prepaying interest 12 months in advance before year end on your rental property or margin loan is an excellent strategy for those that will have a lower income next year due to factors such as maternity leave or redundancy.

7. Keep your receipts
With the ATO increasing their audit activity this year yet again it is important that you keep your receipts. The ATO motto is no receipt = no deduction so you could be costing yourself $$$ by not keeping those dockets!

8. Spouse super contribution
If one spouse’s income is less than $10,800 then the other can put up to $3,000 into the spouse’s super fund and receive an 18% rebate ($540) in tax.

9. Get a great accountant
Great accountants are like quantity surveyors ... they know where the boundaries are. Avoid paying too much in tax or leaving yourself to a visit from the ATO. And their fees are tax deductible!

10. Just do it!
You now have got some great tax tips, it’s time to take action. Times are tough so every dollar saved counts.

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MR TAXMAN’S TOP TEN BUSINESS TAX TIPS FOR 2010

Business owners always ask me for a tip or two around this time every year. Here are a few great strategies for your business to try to implement prior to 30 June 2010 to legitimately reduce tax.

1. Deferring income & bring forward expenses
It is always a good idea to try & defer your taxable income to next financial year. For those operating on a cash basis then simply delay the “receipt” of the income. If you operate on a non-cash basis then you may want to defer your invoicing til next year.

2. Scrap obsolete stock & plant
Got some old plant or stock that your business simply can’t sell? Then physically write it off before 30 June & get a tax deduction for it this year. You can value trading stock at the lower of actual cost, replacement cost, or market selling value. This valuation can be applied to each item of trading stock.

3. Claiming deductions for expenses not paid at year end
Just because you haven’t paid for something doesn’t mean that you can’t claim it. Businesses are entitled to an immediate deduction for certain expenses that have been “incurred” but not been paid by 30 June 2010 including:

• Salary and wages - claim the number of days that employees have worked up to 30 June 2010, but have not been paid until the new financial year.;
  
• Directors fees - claim a tax deduction for directors fees that are “definitely committed” to at 30 June and has passed an appropriate resolution to approve the payment;
  
• Saff bonuses - claim a tax deduction for staff bonuses and commissions that are owed and unpaid at 30 June where the business is “definitely committed” to the expense;
  
• Repairs and maintenance - claim repairs undertaken and billed by 30 June but not paid until next year.

4. Income splitting
It amazes me how many smart business people are really dumb when it comes to reducing tax. Too often I see them paying 46.5 percent tax on income which could be in put in their lower taxed spouse (0 percent or 16.5 percent) or company (30 percent).

5. Write-off bad debts
Like obsolete stock, for a business to get a tax deduction on its bad debts it must physically write off the debt prior to 30 June. Note that the debt must have been originally shown as income in order for the write off to be allowed. Put you decision in writing such as a board minute. You also need to show that you have made a genuine attempt to recover the debt to prove that it is bad.

6. Take advantage of the Small Business Entity (SBE) concessions
If the turnover of your business is less than $2 million then there are some great tax concessions that you can get including:

• Immediate write-off for assets costing less than $1,000 (which is set to rise under the proposed Henry Tax Review to $5,000)
  
• immediate deduction for prepaying expenses such as lease payments, interest, rent, business travel, insurances and subscriptions up to 12 months in advance by 30 June.

7. Don’t spend purely for a tax deduction
There are so people that get caught out at this time of the year in spending money purely to get a tax deduction. If you are running a business via a company then you are only getting 30 percent back. If you want a $100,000 tax deduction then I will gladly invoice you & accept payment. Why spend money when you only get a fraction back? Don’t get caught out by the fancy marketing of retailers in coming weeks. Always think of my A-B-C motto … Absolute Bloomin’ Cash.

8. Pay employee super
In order to obtain a tax deduction in the 2010 financial year for employee superannuation contributions, the contribution must to be received by the superannuation fund by 30 June 2010.

9. Private company loans to shareholders
If you have borrowed funds from your company ensure that the appropriate principal and interest repayments are made by 30 June. Non-compliance with the strict ATO rules will result in the entire loan amount being deemed as an unfranked dividend paid and taxed at marginal rates.

The private use of certain company assets (such as boats and cars) is now also potentially caught by the taxman unless a market rental fee is paid.

10. PAYG instalments
If business has been tough this tax year consider varying the PAYG instalment for the June 2010 quarter.

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