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Taxing time ahead

Ashleigh SwaynWith just a few short weeks remaining of this financial year, it’s a good time to make sure you’re up-to-date with a handful of significant changes that will almost certainly impact your business in the year ahead.

LAFHA changes spur rising employment costs

With the Government concerned by the escalation in the number of claims made under the Living Away From Home Allowance (LAFHA), under proposed reforms, access to this tax exemption for temporary residents will be limited. From July 1, expatriate employees who do not have a residence in Australia will lose out.

At this time, the LAFHA will be included in the taxable income of the employee rather than being taxed in the hands of the employer through the fringe benefits tax system. The employee will be required to substantiate their actual expenses on accommodation and food in order to claim deductions for these expenses.

Curtailing the LAFHA will impact many industries, especially those gripped in severe skills shortages that need to attract talent from overseas. With the new reforms, the after-tax salaries of expatriate employees are expected to drop significantly, in which case employers may need to increase gross salaries in order to compensate for the extra tax payable. This, of course, will lead to a substantial increase in employment costs that employers will have to shoulder. Alternatively, many businesses may choose to offshore some of the work.

ATO crackdown on family/discretionary trusts

Family and discretionary trust structures are popular for family investment vehicles and most small business owners have one. They provide a level of risk management by separating the business from your personal assets, and they are also tax efficient.

As the trustee or director of the trustee company, you can distribute income in the most tax efficient way. Now, I know this sounds technical, but many trust deeds, which are the governing rules for a trust, state that the income of the trust must be distributed to beneficiaries before the end of the financial year. Accordingly, trustees will need to document trust distributions before June 30. With this new ATO crackdown, selected trustees will be required to provide the trustee’s resolution for 2012, the trust deed, and any amendments made to the deed to the ATO in early July 2012 to prove compliance.

So if you have a family or discretionary trust, it’s critical to have your trust deed reviewed. Interim results need to be prepared before the end of each financial year and a resolution drawn up before June 30 to distribute the income of the trust.

Income testing the 30% private health insurance rebate starts soon

For higher income Australians, private health insurance premiums are set to rise significantly from July 1 this year, as the 30% rebate becomes subject to means testing.

While this will come as an unpleasant shock for many, Treasury modelling estimates that 99.7% of policy holders will keep their private health insurance despite the increases. Their confidence in this stems from the fact that the Government is also lifting the Medicare levy surcharge to dissuade higher income earning Australians from abandoning their private health insurance cover at this time. So from July 1 this year, the Medicare levy surcharge will also become means tested.

Means testing the health insurance rebate will kick in for individuals earning more than $83,000 and families earning more $166,000. Individuals and families earning less than these amounts will not be affected at this time.

However, singles on taxable incomes of more than $83,000 can expect their health insurance premiums to jump by between $150 and $500 a year, depending on their income, and families will face increases of between $300 and $1000 on their health cover once their combined incomes amount to more than $166,000. The rebate will disappear entirely for singles earning $129,000 and couples earning more than $258,000.

Without wanting to be political, I think this is just another example of the Government censuring successful, hard-working, small business owners who work round the clock to sow their business and income success.

Tell us what you think of the changes in the comments section, below.

Ashleigh Swayn is CEO of Countplus mbt, a leading chartered accountancy practice offering accounting, financial planning and finance expertise.

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