Restricted Circulation
Election Tax Policy
OCTOBER 2007
Well, the election promises are all
underway!
INSIDE THIS ISSUE
The coalition has announced that it
will implement tax cuts worth $34
billion over five years if it wins the
election.
1. Election Tax Policy
2. See us before you act!
3. Need a loan?
The cuts, to be implemented
incrementally over the next three
years, will by 2010:
4. Paying Your Tax Debt Made
Simple

5. Great News for Retirees

6. Taxing children as adults
7. Less red tape for small
business

8. Take Care with Loan
Applications

9. Improve your cash flow
Cut the top 45% tax rate for
people earning more than
$150,000 (or $180,000 after
July 2008) per year, to 42%.
Cut the 40% tax rate for people
earning more than $75,000
($80,000 after July 2008) to
37%.
Lift the threshold for the 30%
tax rate from $30,011 to
$37,001.
Leave the bottom 15% tax rate
unchanged, but lift the current
low income tax offset rate of
$750 to $1500, providing an
effective tax free threshold for
eligible low income earners of
$16,000.
Peter Costello also outlined a longterm tax vision that would see tax
scales of 15%, 30%, 35% and 40%
with a low income tax threshold of
1
$20,000 achieved by 2012-2013, a
period that would take the Coalition
beyond its next term should it be
re-elected.
It’s unfortunately too late after the
contract has been signed. To undo
the transaction can cost thousands
in stamp duty and other costs.
The cuts will put an extra $20 per
week in the pocket of an average
income earner by 1 July 2008, and
$35 by 1 July 2010. For a family
with the principal earner on
average weekly earnings and the
second income earner in part-time
work, the income tax cut will be
around $30 per week, rising to $50
per week in 2010.
Therefore, we urge you to see us
first.
Need a loan?
We now have an association with
Lending Link, one of Australia’s
leading finance companies.
Lending Lind does not deal directly
with the public, but provides
lending solutions to the clients of
accountants and solicitors via
referral.
See us before you act!
When you take out a loan, invest,
buy a property or lease vehicles or
equipment, it’s vital to undertake
the transaction in the correct name
or business structure.
You may not be aware, but each
lender has different preferences in
regard to the type of loan they will
make. For example, some will lend
on businesses whereas others will
tie up all your security for the
smallest loan.
Some clients have found this out
the expensive way, as buying
property, for example, in the wrong
name or structure can cost
thousands of dollars in income tax,
capital gains tax and even stamp
duty.
Lending link has 22 of Australia’s
most competitive lenders on its
books, and can direct you to the
most appropriate lender for your
situation.
Other issues arise when you
purchase or lease equipment –
should this be a lease, chattel
mortgage or hire purchase? The
answer varies depending on the
circumstances and the GST status
of the purchaser.
Lending Link do not charge you a
fee, as they are paid by the lender.
They pay us a commission,
which we pass on to you.
One example of using
the wrong structures
to buy assets is when
people
use
a
company to acquire an
appreciating asset such as a
building. This can lead to much
higher tax on disposal, as a
company is not eligible for the 50%
Capital Gains Tax discount.
Paying Your Tax Debt Made
Simple:
If you are behind with your tax
payments, and owe less than
$25,000, you can take advantage
of new arrangements to repay the
debt by instalments.
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The Tax Office has set up
automated self help service phone
lines for:
make super contributions until age
75 if they meet the work test.
Taxing children as adults


Individuals on 13 28 65
Businesses on 13 72 26
Up to 1980, people with families
who derived their income via
discretionary trusts, for example
farmers
and
other
business
owners, could earn a significant
amount without paying any tax.
You simply phone these numbers
and follow the prompts. You will
need to quote your Tax File
Number or ABN. Payment terms
are normally for less than 6months,
and it’s important to keep to the
arrangement made with the ATO.
This situation arose because
children under 18 were taxed as
adults – that is, they received the
tax-free threshold which was then
around $5000. The introduction of
Division 6AA of the Income Tax Act
put a stop to this practice. As a
result of this change, a penal rate
of tax applied to income earned by
the child of more than $416 (This
amount is now $1333 per child).
However,
these
are
some
exceptions – some children can still
get the adult tax rate, which means
no tax is payable under $10,000.
The downside is that interest is
charged on the outstanding amount
at around 13%. The good news is
that the interest is tax deductible.
For those taxpayers
who don’t do anything
about their tax debts,
the ATO is using
automatic
dialler
technology,
and
referring debts to
external agencies.
Broadly speaking, the exception
relates to income derived by a child
from trusts that resulted from a will.
The child does not have to be a
child of the deceased, he or she
can be any beneficiary named in
the trust, for example a grandchild,
mistress or distant relative.
Great news for Retirees
The bar has just been lifted for
Australia’s three million retirees –
the social security assets test has
been raised by almost 60%.
For a couple with their own home,
the assets test for receiving a part
pension has gone from $531,000 to
almost $840,000. Previously these
couples received no pension at the
cut-off point of $531,000. At this
level, they now receive $11,000 a
year, as well as significant fringe
benefits.
For example, Frank’s wife died,
leaving her $2million estate to
Frank.
If he invests this and
earned $150,000 a year, the tax
would be $47,850. However, if a
testamentary trust were in place for
the children, the tax would be
$26,400, a saving of $21,450 a
year.
Other beneficial changes for
retirees cut in from 1st July this
year. These include the ability to
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Less
red
businesses
tape
for
Less “retirement
exemption”
Taxable gain
small
The retirement exemption is
available because Tom and Penny
intend to use the proceeds towards
their retirement. If they wish, the
$287,500 can be contributed to a
superannuation fund.
1st
As from
July 2007,
small businesses will only
need to have a turnover of
less than $2million to
access a range of tax
concessions.
The new
turnover test replaces five
separate eligibility tests.
Take care with loan applications
You need to be very careful when
you apply for loans, either through
a mortgage broker, online or
personally.
The concessions include:
 Capital Gains Tax (CGT) 15
year exemption
 CGT 50% active asset
reduction
 CGT retirement exemption
 Simplified trading stock rules
Every time you apply for finance
and you sign the ‘privacy’
document you authorise that lender
to check your Credit Reference
Authority of Australia (CRAA) file.
This file keeps records of where
you live, how many times you apply
for finance and how much you
apply for. It does not keep records
of
the
outcome
of
those
applications.
These concessions can be very
valuable. For example Tom and
Penny started a real estate
business from scratch in 1992. In
1996 the business was going well
and they bought a building from
which to operate for $350,000.
This year, they decided to sell the
business and the building and retire
(Tom is 59 and Penny 58).
However, when applying for a
home loan, if you have been to
three of more institutions, it is
unlikely you will be able to get
finance as a result of three listings
for a mortgage around the same
time.
As the property market was
booming, the business was sold for
$800,000 and the building for
$700,000. As the business cost
nothing, a gain of $800,000 was
made.
The building realised a
capital gain of $350,000. The total
capital gain of $1,150,000 was
reduced to nil as follows:
Notional Gain
Less 50%
general discount
Less 50% “active
asset discount”
$ 287,500
NIL
.
$ 575,000
$ 575,000
If you have been bankrupt or you
haven’t paid your phone bill and
are in arrears too much with your
banks then it will all be recorded on
your CRAA. Some files stay there
for up to 7 years and can seriously
affect
your
chances
for
finance.
$ 287,500
$ 287,500
It’s a good idea
to obtain a copy
$1,150,000
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of your credit file, which can be 20
pages long.
To apply, see
www.mycreditfile.com.au – there is
no charge for this.
allow for different scenarios,
such as the interest rate rises,
price increases and the like.
The budget is a useful tool if
you want to apply for a loan or
additional overdraft.
Improve your cash flow
Your business may be generating
great profits, but if customers are
slow paying, or you need money to
buy equipment, your cash
position can be less than
satisfactory.
Here are some areas you
may like to consider:
Dunlops Taringa
Unit 16
180 Moggill Road
TARINGA QLD 4068
Phone:
07 3871 1522
Facsimile: 07 3871 1533
Email: advice@dunlops-taringa.com
Website: www.dunlopstaringa.com
1. Allow for GST payments by
transferring the estimated GST
into a separate bank account
each month. You can get a
rough idea of the necessary
amount by dividing the GST
paid last year by your sales,
and applying this percentage to
the current month’s sales.
Staff Email Addresses
David Adams: fdadams@dunlops-yaringa.com
Karen Cole: kfcole@dunlops-taringa.com
Toolah Olsen: toolah@dunlops-taringa.com
2. Have strict credit terms and
stick to them. Don’t put “due in
30 days” on the invoices,
indicate
the
actual
date
payable.
Darren Bonney: darren@dunlops-taringa.com
Felicia Vendijanto: felicia@dunlops-taringa.com
Patrice Hunter: advice@dunlops-taringa.com
3. Plan on increases in your costs
– particularly increases in
purchase of supplies and
wages. If you don’t do this, you
will be out of business before
long!
Megan Rasmussen: megan@dunlops-taringa.com
Disclaimer
Every effort is made to ensure this bulletin is free from
errors and omissions.
However, Dunlops and its
employees do not accept responsibility for loss or
damage occasioned to any person acting on material in
this letter. Before acting in a particular way on general
information, please check with Dunlops.
4. Don’t keep to much stock. It
needs to be converted into cash
as quickly as possible. Monitor
your stock turnover days.
5. Have a cash flow budget. This
should allow for busy and quiet
months, tax payments and
holidays. Ideally, at least three
budgets should be prepared to
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