A tax offset of $540 is available for taxpayers making a non concessional contribution to a complying superannuation fund for the taxpayer?s low income or non working a spouse.

The maximum rebate is available where the taxable income of the low income spouse does not exceed $10800.

The maximum rebatable contribution is $3000.

Certain low income earners may qualify for a government co-contributions if they make eligible personal contributions i.e. non concessional after tax contributions.

• Have income of less than $61920
• Be aged under 71 on 30 June 2011
• If over 65, meet the work rule test
• Lodge an income tax return for the year

The maximum co contribution is $1000 where the person?s income is less than $31920.

Monies can be taken from a Superannuation fund at different points in time relative to a member's age. It is important that you are aware of your rights to take money from your superannuation fund.

Between 55 - 60 (current preservation age)  Transition to Retirement - Member can take a pension & it is reportable or at least the taxable component is with a tax offset equivalent to 15%. Member could also potentially take a tax free lump sum (up to $150,000) if they've retired. Maximum pension cannot exceed 10% of fund value.

Over 60 - If taking pension, non assessable non reportable, no limit to what can be taken if the member has retired. If the member is still working then the limit is 10% of the value of the members fund balance. After 65, there is no limit to what can be taken even if the member is working.

Minimum pension for 2010/11 to be taken prior to 30 June in order to maintain a tax free fund status -

Under 65 years 2%

65 - 74 years 2.5%

80 - 84 years 3.5%

90 - 94 years 5.5%

If you are 60 years or over when you receive a superannuation benefit, the benefit is not assessable income and is not exempt income.  This confirms it is the date the payment is received that determines whether a payment is subject to tax.  So the question becomes, was the payment received before or after the person turned 60.  There is no apportionment.

Under the SIS Act, you can start a pension on 1 July 2009; however a payment does not have to be made until 30 June 2010.  So in the year a person turns 60, it is a common strategy to start the pension on 1 July, but to not make the cash payment until the person turns 60.  This means the fund has paid a pension for the full year.  Also, as the member received the cash when he was 60, he pays no tax on it.  This is a very nice tax outcome.

The only time you have to be careful is where payments were made both before and after the person turned 60.  In that case all of the payments before aged 60 are subject to tax (with a 15% rebate).  All of the payments after the person turns 60 are not subject to tax.

Superannuation can get complicated and either putting too much money into superannuation or drawing too much or too little out can result in more tax than necessary and/or the fund losing its tax free status. Tax free status is only available for funds paying pensions.

Please take due care & revert to us for advice where you are unsure.

Superannuation Contributions

Monies can be contributed from after tax dollars as non concessional contributions or from pre tax dollars as a member concessional contribution (must be essentially self employed) or as an employer concessional contribution.

Employer contributions are typically 9% of gross salary but it is possible to have your employer contribute more by taking less of a salary. (Salary sacrifice)

Concessional contributions (Member aged under 50) - $25,000

Concessional contributions (Member aged 50 & over at 30 June 2011) - $50,000

Non Concessional Contributions - $150,000 with a bring forward rule of 3 years in 1 or $450,000. The $450,000 bring forward rule is applicable only to those 65 & under as at 30 June 2011.

There are restrictions on funds accepting contributions ? Related to age & gainful employment starting at 65.

Tax Planning for Year Ended 30 June 2011

News Alert - Needs Analysis Discovery - FREE to all Noble & Associates clients through 2011/12. As part of our annual compliance process we aim to ensure that we help you discover gaps in your wealth and business development plans.

With a mere one month to go until the end of the financial year, we consider various tax planning opportunities and remind you that it is necessary to manage the risks associated with any tax plan developed as well as execute the plan.

Fundamental Knowledge Required for Tax Planning

Which entities are you planning for? Is it just yourself or is it a group of entities including entities that run business and investment operations? For tax planning that involves groups of entities it is advisable to seek the assistance of a savvy accountant.

Have a good grasp of the tax thresholds associated with individuals, companies and superannuation.

Individual rates -

Tax rates 2010-2011

Companies - 30%

Superannuation Funds (earnings & eligible concessional contributions) 15%

For business tax planning, consider if you are a Small Business Entity (SBE). The primary consideration is having an annual turnover of less than $2,000,000. SBE's have a different range of options including -

- No requirement to accrue prepayments, i.e. insurance prepaid for 12 months can be claimed immediately.

- Accelerated and simplified depreciation is available via general pooling.

Cash Reporting

Certain businesses have the ability to report sales on a cash basis. The business types where this is applicable are typically service based entities.

Accelerate Deductions

Where possible accelerate deductions. Here are some possible ways to accelerate deductions.

Prepay Expenses

Prepay expenses up to 12 months in advance. Interest on investments, especially for individual investors is an obvious option. You still have time to speak to your bank manager and arrange to make a prepayment. The downside is that you need to find the cash.

Bear in mind that buying capital equipment to generate a deduction will typically only deliver a percentage claim unless your business operates as an SBE. In this case you can claim all costs of less than $1000 and 15% for the first year deduction on any capital equipment over $1000.

Pay Superannuation Prior to 30 June

Superannuation contributions are not deductible unless paid prior to 30 June. The tax office no longer accepts that a payment was made if it is in transit over the 30 June date line. The monies must actually have reached the superannuation fund.

Other Expenses to Consider Prepaying

- Rent

- Training & development costs

- Fringe Benefits Tax Instalment for the June Quarter

- Staff Bonuses

- Interest - Prepayment of interest is covered above in some detail

Salary Sacrifice

Much of the information provided above is more applicable to the business owner. For the wage earner, salary sacrifice offers a viable option for reducing earnings to escape tax at the higher marginal tax rates. Unfortunately, superannuation is typically the only viable salary sacrifice option. Most other expenses that might be salary sacrificed are caught under the fringe benefit tax provisions and expose the employer to the highest marginal tax rate.

Where possible, salary sacrificing superannuation up to your age based limit can be a good way to move income from the higher personal thresholds to the 15% rate attributable to superannuation.

Maximum Concessional Superannuation Contributions

It is very important that concessional contribution limits are not exceeded.

Under 50 Years of age - $25,000

Over 50 years of age - $50,000 (birth date generating an age of 50 or greater to fall prior to 30 June 2011 in order to qualify)

Negative Gearing

Negative gearing involves holding a capital asset that generates capital growth (only taxed as a capital gain on disposal of the asset) while accepting an income yield (typically rent or dividends) that is less than the interest associated with the debt attached to the asset (geared loss). This loss can be offset against other income.

Adjustable Taxable Income

Salary sacrifice and gearing losses may reduce your taxable income but many Government agencies will refer to your adjustable taxable income when calculating various Government benefits.

Complex Strategies

More complex strategies will require our assistance. We can assist with group tax planning, dividend recovery strategies from companies and we can use our Five Step Discovery process to help you develop an appropriate tax plan.

Question from client -

James & I are considering purchasing an investment property in France! From our research we've decided that Perth is too expensive for us, and so we've looked to other areas. As I'm from France and I visit there fairly regularly, we included France in our search and it appears that it's a good idea. Like Perth, Paris also has a shortage of rental properties and the rental returns are usually greater than 10% of the purchase price. With the Australian dollar being so strong at the moment, we thought this was another reason to consider investing in France.

What we need to know is does the ATO treat it the same as an Australian investment property? That is, can we negative gear it? Do we include any rental income, investment expenses and interest/mortgage payments in our ATO returns? Do we buy it as individuals or through the trust etc?

Answer -

Yes, you can gear with overseas assets (borrow to fund the purchase with the interest & other operating costs exceeding the rent), and claim the net loss against other Australian income.

You might consider buying the property into a superfund (SMSF), especially if it will become positively geared quite soon. I'm not sure on how easy it is to finance offshore assets but it might be worth a look.

If you plan on staying in business you could buy the property in your own names. The trust (from where you operate your business) allows the flexibility of sharing income to both of you. If one worked at a job & not the other, you'd have one of you with geared losses & no income to offset against while the other partner recorded more taxable income than necessary so please consider your potential future circumstances carefully.

Some solicitors would argue that you should buy in a trust with a trustee company in order to ensure a degree of asset protection but you could consider this in light of the potential for litigation against yourselves & later on, the possibility of bankruptcy (once the property had less debt against it assuming it is a principal & interest loan and/or capital growth occurs). Mostly, it is people who take excessive risk or who misjudge risk that fall into bankruptcy so your probability of bankruptcy can be managed.

Buying in a Self Managed Super Fund (SMSF) would typically provide the necessary risk protection & best tax outcomes for the long term, especially if you're not optimising your concessional contribution thresholds. ($25000/annum for you (48) & $50,000 annum for James (51).)

The Australian Taxation Office is fighting from a position of ignorance when it comes to the whole trader versus investor question. They are interested in protecting the revenue of the state first & foremost and will ignore logic in order to tax the common man unfairly.

As a result of the GFC, many traders have sustained significant losses. The ATO' s strategy is to paint the trader as a speculator or Investor in order to force the trader into a situation where the trader has to report their activity on capital account thereby quarantining the capital losses. This action prevents the trader from offsetting their capital loss with their other income resulting in a much higher tax liability.

Anyway, here is my take on the whole share trader vs. Investor question and results from a dispute that I'm currently fighting on behalf of a trader client who suffered a horrendous $1,000,000 trading loss.

Here is my logic response to the Australian Tax Office's forced tax assessment on my client -

You mighty sir, should come down from your ivory tower and learn the hard way about the marketplace. You might postulate pompously about this place of the common man while your bloodsucking bureaucracy is funded off the backs off the merchant & the labourer but you must experience the 'tooth & claw' of the marketplace to really appreciate what trade means.

You use the word speculation in your letter. Here is the Wikipedia, (Our Common Human Consensus) Meaning of Speculation -

In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum

For all intents & purposes neither trading NOR investing can ever hope to promise safety of the initial investment. Ask your banking cronies who brought us the GFC!

Speculation has nothing to do with the question, was Mrs Brown buying & selling shares on capital account or on revenue account or was she a trader or an investor?

Though if you insist on using the term do please note the definition at this major dictionary site - http://dictionary.reference.com/browse/speculation - speculation is -

engagement in business transactions involving considerable risk but offering the chance of large gains, esp. trading in commodities, stocks, etc., in the hope of profit from changes in the market price.

The Nature of trading vs. Investing

Share Trading/ Revenue Account

Trading takes place when an entity enters a marketplace with the intention of participation that will lead to profit. Thus a trader must buy & sell.

A share trading marketplace in the strictest sense of the word, is a signalling system that allows for a trader to realise an arbitrage opportunity on the sale of a share or security. In a true marketplace & not in a duopoly or oligopoly, the arbitrage is always the difference in the market knowledge between buyer & seller / vendor & purchaser.

A TRADER is less concerned with the real value of the underlying asset as defined by increase or decrease in Net Present Value than with PERCIEVED value as reflected by the price of the security in the market place.

Mrs Brown relied on her husband Mr Brown to act as her agent and participate in the share market on her behalf. Mr Brown relied on research that he believed would provide him with arbitrage knowledge.

Hallmarks of a trader -

• Greater interest in market price of the security rather than underlying value of the asset
• Seeking out & using arbitrage knowledge
• Use of pattern based trading systems or paying for information from analysts who are perceived to have KNOWLEDGE or doing research

Mr Brown, agent of Mrs Brown exhibits a pattern of paying for what he believed was arbitrage information. He gets minimal broker buys on one account & then he REPLICATES what he believes is valuable unique MARKET knowledge with a LOWER COST market platform. This is the SYSTEM he uses. REGULAR TRADERS generally develop a PATTERN or a SYSTEM.

Traders use MARKET KNOWLEDGE & CAPITAL and will usually develop a SYSTEM.

Investment/Capital Account

Hallmarks of an investor -

• Investors look to secure real change in value of the investment that requires TIME.
• The pattern of an investor is typically a buy & hold strategy. Warren Buffet is a perfect example, often holding securities or stocks through high & low market prices over decades.
• Investors look for their investment to pay a cash return or dividend.

Minimum requirements for conducting a business -

While the Australian Taxation Office likes to RIG the SYSTEM by playing the ?business by degree? card, let us consider what 'business' really means.

What does Wikipedia say about what a business is - However, the exact definition of business, like much else in the philosophy of business, is a matter of debate and complexity of meanings.

Well let us at least explore minimal constraints for defining a business.

1. A market place where a buy/sell transaction can transpire. By default an ability to buy must automatically suggest an ability to sell.

2. Access to capital that can fund the purchase of stock item/s that can be sold in a marketplace. (Even a single saleable item of the lowest common monetary denominator should suffice). Shall we say $.0 ad infinitum to a final decimal of 1?

3. Ability to communicate one's intent in the marketplace, either to buy or to sell.

A business does not require frequency of trading or a business plan to be a business. Ask the one eyed man in the desert around Alice Springs with the last glass of water on the planet, bought by him from the Australian market today, as to how much PROFIT he would be able to collect should he be presented with the heads of the Australian banks, passwords in hand & access to a payment gateway & trading platform after 1/366 years in the said desert without water.

Indicators of Australian Taxation Office Understanding in relation to Capital Account

Capital Gains discount is ONLY available on Assets held > 12 months! This reflects tacit understanding that investors require TIME & CAPITAL in order to be permitted by law to reflect their market activity on CAPITAL ACCOUNT.

Mrs Brown leveraged knowledge & capital NOT time & capital. Unfortunately the knowledge was faulty (as knowledge often is) and Mrs Brown sustained a TRADING LOSS.

Having your Insurance paid from Superannuation

There are a number of insurance types that can be paid tax effectively by superannuation funds on behalf of members. These include –

• Life Insurance (proposed change on the way to make it deductible)

• Total Permanent Disability (proposed change on the way to make it deductible)

• Terminal Medical Condition (proposed change on the way to make it deductible)

There are significant potential pitfalls associated with some of these arrangements. Professional advice should be sought.