Know more about the Accounting News

Queensland to include interstate landholdings when calculating land tax

The Queensland government has become the first state or territory to include interstate landholdings in the calculation of land tax. The change means that land tax in Queensland will be calculated on the total landholdings in Australia.

Once enacted, the new land tax calculations will apply from 30 June 2023.

Currently, each state and territory governs land tax independently from each other. Generally, if a taxpayer’s landholdings in a certain jurisdiction is above the tax-free threshold, land tax will be applied at various rates.

Therefore, an individual may be able to take advantage of this by purchasing taxable land in multiple jurisdictions and essentially claiming multiple tax-free thresholds.

Additionally, Queensland levies land tax on a marginal tax rate, where taxpayers with higher landholdings pay a higher rate of tax per dollar of rateable land.

After Queensland Revenue Office calculates the gross land tax on your Australian landholdings, that amount is reduced so that your land tax liability relates only to your Queensland landholdings.

Example

Jordi owns multiple properties across Australia, with the following land tax statuses and values:

• main residence in Queensland – exempt
• 2 investment properties in Queensland valued at $700,000
• 2 investment properties in Tasmania valued at $500,000.

Under the current rules, Jordi is liable in Queensland for the 2 investment properties as it is above the $600,000 tax-free threshold:

($700,000 – $600,000) × 1.0% + $500 = $1,500

However, under the new land tax rules, Jordi’s total Australian landholdings are taken into account, which pushes him into the new tax threshold:

($1,200,000 – $1,000,000) × 1.65% + $4,500 = $7,800

The gross land tax on the entire Australian landholdings is pro-rated for Jordi’s taxable properties in Queensland:

Queensland land tax = Gross land tax × Queensland landholdings ÷ Australian landholdings

$7,800 × $700,000 ÷ $1,200,000 = $4,550

What if I only have land in Queensland?

If you only have land in Queensland, there is no change at all.

If you would like us to complete a draft calculation so that you are aware of the new liability, please do not hesitate to contact us.

ATO scrutiny of family trust distributions

On 23 February 2022, the Australian Taxation Office (ATO) issued multiple draft guidance documents relating to trust arrangements that may be caught by anti-avoidance trust tax laws. The ATO guidance focusses on decisions made by trustees which may ultimately attempt to reduce or eliminate an individual’s income tax liability.

When the ATO applies the anti-avoidance laws, the trust distribution is deemed invalid, making you pay tax at the penalty rates of 45% plus Medicare levy.

How do I avoid the penalty rates?

Broadly, the ATO’s preliminary view is that the anti-avoidance rules will apply if a beneficiary of your discretionary trust is presently entitled to income, and the entitlement:

• meets a connection requirement (commonly known as a reimbursement arrangement)
• actually benefits someone other than the beneficiary
• has a tax reduction purpose, and
• is not excepted as an ‘ordinary family or commercial dealing’.

Ordinary family of commercial dealing

The ATO’s announcements do not go into depth about what is, and what is not, an ordinary family or commercial dealing. However, in short, if you are operating your business in a trust structure and you reinvest your earnings back into working capital of your business, these rules will not affect you.

Also, the ATO has stated that distributions made equally to spouses who themselves have a shared financial responsibility of the family unit and ultimately enjoy the shared benefits are acceptable.

What is not OK?

The ATO has released a Taxpayer Alert which has an example of beneficiaries who are adult children of the controllers of the trust.

Arrangements where an adult child receives a substantial distribution but does not receive an actual economic benefit may attract the ATO’s attention.

Getting it right

Making sure you get trust distributions right is an important step each year as part of your obligations as a trustee. If you wish to speak to us directly about your current year situation, please reach out.

We would be happy to discuss your optons for this financial year.

A new property tax coming for NSW

The NSW state government has released details of its much-anticipated revamping of NSW state taxes in the 2022–23 state budget. Originally released for consultation in November 2020, the government is introducing a new property tax for first home buyers who choose not to pay stamp duty.

First home buyer property tax

Beginning 16 January 2023, the first home buyer property tax option will enable first home buyers to choose between paying:

• an upfront stamp duty, or
• an annual property tax.

The main difference which exists for this announcement, compared to November 2020, is that only first home buyers will be eligible for the annual property tax.

Annual property tax option

Owner–occupiers who opt into the property tax will be charged at a rate made up of a fixed amount of $400 plus 0.3% of the unimproved land value of the property. These rates remain in place for each year the first home buyer remains an owner–occupier.

Notably, it is mentioned in the budget statement that the tax rates will be indexed over time by Gross State Product per capita, rather than land values, for subsequent years of ownership.

After selecting the annual property tax option, first home owner–occupiers are allowed to change the status of the property to an investment. Higher rates would apply, being $1,500 plus 1.1% of the property’s unimproved value, but this will replace NSW land tax.

Eligibility

The property tax option will be available to first home buyers on purchases of up to $1.5 million. There is also a living component of eligibility, where a first home buyer must live in the property for 6 of the first 12 months of ownership.

At this early stage, we are unsure on other specific details regarding individual eligibility, such as when only one of 2 members of a couple are first home buyers. Please let us know if you need to be alerted when this information comes to hand.

What if I choose to pay stamp duty?

First home buyers who choose to pay stamp duty upfront can still get access to the other stamp duty concessions available in NSW.

Transitional arrangements

Eligible first home buyers who execute contracts in the period between enactment of the legislation and 15 January 2023 will obtain refunds of stamp duty already paid.

Please let us know if you need to receive further updates on this scheme as more and more information becomes available. We would be delighted to help you by providing further advice, including detailed calculations if you need them.

Fringe Benefits Tax and Business

Benefits provided to employees or their associates in addition to salary or wages are known as fringe benefits. These benefits are paid for by the employer from pre-tax earnings, making the provision of benefits attractive to employees as it may reduce their taxable income while receiving payment in other forms.

Fringe benefits tax (FBT) may apply based on the type of benefit provided.

Tax is payable because the benefits are a different form of payment by an employer instead of salary and wages. The tax is calculated on the taxable value of the benefit, which reflects the grossed-up salary the employee would have had to earn to pay for the benefits from post-tax earnings.

Employers can generally claim a tax deduction for the benefits and related FBT payable.

Types of Benefits

There are many different types of fringe benefits employers may provide to employees. These include:

• Vehicle owned by the business provided for private use
• Vehicle lease arrangements
• Car parking
• Entertainment, such as golf club membership or tickets to major events
• Expense payments, such as credit cards or health insurance
• Other types include debt waiver, living away from home allowance, or property benefits.

Some benefits provided to employees don’t attract FBT. If you pay for expenses that an employee would otherwise have been able to claim as a work-related tax deduction, FBT won’t apply. For example, if you pay for employees to attend a professional development course, there won’t be any FBT liability on this benefit. COVID-19 tests required for employment are also exempt from FBT.

FBT Administration

The fringe benefits tax year runs from 1 April to 31 March. You must then include the reportable amount for each employee on their Single Touch Payroll finalisation by 14 July, so it flows through to their annual income statement.

As with all business transactions, keeping accurate records is essential to determining whether FBT applies or not and how much needs to be included on the employee’s income statement, if any.

If you’re interested in seeing how fringe benefits might apply to your business, talk to us about FBT registration and administration. We can advise on the types of benefits available, how much tax is payable or how to reduce the FBT liability. We’ll also get your bookkeeping software set up to make record keeping easy.

Ways to Maximise Your Super

A little goes a long way with compound earnings. The earlier in your working life you start paying attention to your super, the better off you will be at retirement. However, it’s never too late to take an interest in your super fund’s performance and take action to grow your super!

While the best strategy is to get familiar with superannuation contribution options as soon as you start earning money, you can take strategic action to increase your super balance at any stage.

Your strategy will necessarily change over time as your work and financial situation evolve. When you’re not earning much at the start of a career, you may be unable to contribute extra. However, as soon as you earn more than you need to live off, start making extra contributions and reap the benefits of compound growth.

Compound Growth

Compounding happens when you contribute a specific amount to an interest-earning fund and leave the interest in the same account. This way, you keep earning interest on your interest. Check out this table for an example of compound interest earnings. This example clearly shows the advantage of starting to build your super early!

The compound earnings will naturally accumulate as you and your employer continue to contribute to the super fund.

Tips for Growing your Super Balance

• Consolidate super into one fund so you are not paying more fees than you need. If you’re unsure which fund you have accounts with, search for lost super in case you have multiple accounts that you can consolidate.
• Make contributions from your after-tax earnings – this may be a good option if you receive unexpected extra income such as a bonus. The government will also make a co-contribution of up to $500 for eligible low to middle income earners.
• Talk to your employer about sacrificing part of your salary into your super fund, which will reduce your taxable income and make it easier to commit to regular contributions that increase your super balance.
• Check options available for your spouse – it could benefit both of you if you’re able to contribute to their fund as well as your own.
• Take advantage of the bring-forward rules if you haven’t contributed the maximum amount of super in recent years.
• Make downsizer contributions from the proceeds of the sale of your home.
• Sole traders should consider making personal contributions as a tax deduction – this will require the ATO Notice of Intent form to be submitted to the super fund.
• Check whether your super fund is paying for any insurance – review and adjust or cancel if the insurance is not required.

Get Advice for Your Super Strategies

It’s important to get financial or tax advice before making any large payments to your super fund, to ensure you’re getting the most tax benefits from your contributions. There are limits to how much you can add to your super fund in a financial year and other thresholds that apply to different types of contributions.