Family Tax Benefit Adjustments in your Tax

This year, FTB reconcilations (top-ups or overpayments) are included in the Notice of Assessment from the ATO and refunds adjusted accordingly.

If you have over-estimated your taxable income, your Family Assistance top-up will arrive in the same payment as your tax refund.

Receiving a nice lump sum can feel like quite a windfall!

However, persons who have been overpaid family assistance throughout the year may be disappointed. FTB overpayments will be deducted from any tax refund due.

While the new way saves waiting for the Family Assistance Office to get around to paying top-ups, unfortunately it doesn't give recipients a clear break-up of the FTB payments included in the reconcilation.

Can you claim Work Skills Vouchers?

Did you know...?

If you are 25 years and over and do not have Year 12 or equivalent or certificate level II or higher qualification, you are probably eligible for Work Skills vouchers to help improve your qualifications.

The vouchers can be used in public, private or community colleges and are worth up to $3,000.

Unskilled workers and those returning to the workforce (such as parents, carers, etc) will get priority according to the latest information.

You can check your eligibility for a voucher through the Australian Skills Vouchers Program website.

Instant Rebate with Medicare Easyclaim

I have to admit, I like the idea of getting a rebate immediately and without a trip to a Medicare office.

If you normally pay to see your doctor, Medicare Easyclaim lets you claim your Medicare rebate on the spot, using the EFTPOS terminal in the doctor’s surgery. Your rebate is paid directly into your cheque or savings account almost immediately.

For more information on the new Medicare Easyclaim visit the Patient Information Page.

$15 Million paid to assist local storm victims

The Australian Government has distributed more than $15 million in emergency assistance to people affected by the Hunter and Central Coast floods, Minister for Human Services, Senator Chris Ellison said today.

Senator Ellison said Centrelink has paid nearly 13,000 claims for the Australian Government Disaster Recovery Payment – totalling $15.67 million - since the assistance package was announced on 10 June.

“The damage and impact of the floods has been widespread across the Hunter and Central Coast region and Centrelink staff have been working tirelessly to get help to those in need,” he said.

“Along with staff from the Red Cross, Samaritans and the NSW Government, Centrelink workers door-knocked houses in affected areas to check on residents’ wellbeing and ensure they’re aware of help available. In addition, staff at the Wallsend processing centre are still working well into the night to process claims as quickly as possible.”

Senator Ellison said he had heard some remarkable stories from the floods. “One story I heard was of a staff member whose roof collapsed while she was in bed, flooding her entire house and destroying most of her clothes and possessions,” he said.

“She showed up for work on Tuesday following the floods at Newcastle Centrelink wanting to help people who were worse off than her.

“30 Centrelink staff flew in from around Australia to help with the recovery effort, many of whom were involved in helping Innisfail rebuild after Cyclone Larry last year. I commend Centrelink staff and their colleagues from the NSW Government and community organisations for getting help to people when they needed it.”

Senator Ellison said the disaster recovery payments offered $1000 per adult and $400 per child for the destruction of their principal place of residence, where homes had been rendered uninhabitable for 48 hours or more as a result of storm or flood damage, or in cases of serious hospitalisation.

“Anyone still seeking assistance should contact the Australian Government Storms Assistance Hotline on 180 2211 which is still available 24 hours a day, or visit their local Centrelink office,” he said.

More than 15,500 enquiries have been answered by the hotline and staff are still receiving hundreds of calls a day. The Commonwealth and New South Wales governments have also contributed $500,000 each to community recovery funds and recovery grants of up to $15,000 for eligible small businesses and primary producers. Further information is available by calling 1800 678 593.

Source: Media Release, Department of Human Services.

Boosting Minimum Wages for Aussies

A decision by the Australian Fair Pay Commission confirms Australia’s status as the nation with the second highest minimum wage in the developed world.

The decision means low paid workers receive an extra $10.26 a week taking the minimum wage from October 1 2007 to $522.12 a week.

With the cost of living being what it is, even with the increase to minumum wages, it still appears pretty rough. As frugal as our household is, I couldn't imagine feeding and housing a family on minimum wage. Still, let's not forget the additional social support available to Aussie families.

The recent report released by the Australian Bureau of Statistics confirms that after families receive government benefits, principally family tax benefit, only 40 per cent of households pay any net tax — that is, they get more back in family tax benefits than they actually pay in tax.

In my opinion, we really do live in the lucky country. Without a doubt, we have one of the most generous social support systems in the world. Unfortunately, generosity is open to abuse and can lead to a sense of entitlement or a cycle of dependency.

What do you think? Should we have minimum wage laws? Is it better to leave the labour market sort itself? Does the welfare system need to toughen up on some recipients? Who and how?

The Paperwork that Protects You

Statements are sent to you by investment funds, by companies you hold shares in, by your superannuation fund for your protection. Always get the originals sent to you personally. If you cannot look after your own affairs, get them sent to a person you trust (but not your adviser), so there is always a pair of independent eyes looking after you. Love your paperwork!

The importance of this is illustrated by the case of a financial planner and tax agent based in Newcastle. Stuart Forsythe is his name and ASIC's investigation gathered the evidence that had him sent to gaol for six years.

The people who went to see Mr Forsythe were elderly people with superannuation money and savings, and they wanted him to help them choose appropriate investments to see them through their retirement. The first part of the process went well enough when Forsythe put their money into solid funds with a reasonable track record.

Then he made these people what sounded like a really sensible and attractive offer. He arranged for the funds to send all clients statements direct to him at his office. He told them that when he does their tax, he would have all the paperwork handy and that it would easier than them searching around at home to find them. Needless to say, some his clients agreed to this, because it seemed such a good idea.

But here's the trick. Because Forsthye received the clients' statements, he was now in a position to make withdrawals from their investment accounts without their knowledge. He then forged the clients' signatures on withdrawal requests from their various investment accounts and helped himself to their money. They had no idea what he was up to.

Forsythe eventually came unstuck but his victims are still trying to sort out the mess.

As you can see this was a really simple fraud that could easily have been prevented.

All the clients had to do was say no. They should have received the original statements themselves to check what was happening with their money. If they wanted Forsythe to do their tax, they could have sent him the copies whenever they got a statement.

© Australian Securities & Investments Commission. Reproduced with permission.

The Income of Minors and Taxation - Part 3

What rate of tax applies to the income of minors?

The tax rates given below apply in 2006–07 for minors who:

• are residents of Australia
• are not excepted persons, and
• have no excepted income.

Rates

$0 - $416 other income = Nil tax

$417 - $1307 other income = Nil + 66% of the excess over $416

Over $1307 other income = 45% of the total amount of income that is not excepted income.

If the minor’s taxable income is less than $40,000, they will get the low income tax offset. The maximum tax offset of $600 applies if their taxable income is $25,000 or less. This amount is reduced by four cents for each dollar over $25,000.

Example:

Kris is 15 years old. She has no excepted income and $900 in other income. The tax payable on her income is:

Excess over $416 = $900 – 416 = $484
66% of the excess = $484 x 66% = $319.44

As Kris’s taxable income is less than $25,000, she gets the maximum tax offset of $600. The net amount payable by Kris is $0 ($319.44 - $600).

What if the application of the special rules results in serious financial hardship?

If a minor faces serious financial hardship as a result of the application of the special rules, they may get a tax offset of some or all of the extra tax payable if we consider there is serious hardship due to higher tax rates applying rather than ordinary tax rates.

If you are in this situation, you will need to provide information stating the reasons for your hardship when you lodge your income tax return.

Source: Australian Taxation Office

The Income of Minors and Taxation - Part 2

Are all types of income received by minors covered by the special rules?

No. Even though a minor may not be an excepted person, ordinary rates of tax still apply to certain types of income. Such income is called excepted income.


Excepted income includes:

• employment income
• taxable pensions or payments from Centrelink or the Department of Veterans’ Affairs
• compensation, superannuation or pension fund benefits
• income from a deceased person's estate
• income from property transferred to the minor as a result of the death of another person or family breakdown, or income in the form of damages for an injury they suffer
• income from their own business
• income from a partnership in which they were an active partner
• net capital gains from the disposal of any property or investments listed above, and
• income from the investment of any of the amounts listed above.

Excepted net income – that is, excepted income minus deductions relating to that income – is taxed at ordinary rates. All other income of a minor who is not an excepted person will be taxed at higher rates.

Source: Australian Taxation Office

The Income of Minors and Taxation - Part 1

Income of minors
A minor is a person who is under 18 years of age. Special rules apply to the income of minors.

Under these rules, certain types of income received by minors may be taxed at higher rates.

However, minors who are residents of Australia do not have to lodge a tax return if they earn less than $1,334 in 2006-07. This is because the low income tax offset of $600 offsets the tax payable on income less than $1,334.

Why do special rules apply to income of minors?

The special rules were introduced to discourage adults from splitting their income and diverting it to their children.


Are all minors covered by the special rules?

No. Several categories of minors are excluded from the special rules. These minors are called excepted persons.

A minor is an excepted person if on 30 June 2007:

• they were working full-time, or had worked full-time for three months or more in 2006-07 (ignoring full-time work that was followed by full-time study)
• intending to work full-time for most or all of 2007-08, and
  not intending to study full-time in 2007-08.
• they were entitled to a disability support pension or rehabilitation allowance, or someone was entitled to a carer allowance to care for them
• they were permanently blind
• they were disabled and were likely to suffer from that disability permanently or for an extended period
• they were entitled to a double orphan pension and received little or no financial support from relatives, or
• they were unable to work full-time because of a permanent mental or physical disability and received little or no financial support from relatives.

Ordinary rates of tax apply to all the income of an excepted person.



Continued in Part 2

Source: Australian Tax Office

Understanding Benefits: Rent Assistance

What is it?

Rent Assistance gives extra help to you if you receive more than the base rate of Family Tax Benefit Part A, and pay rent to private landlords.

Who is eligible?

You may also be able to get help if you pay:

• lodging, or board and lodging;
• site fees (eg. caravan, mobile home);
• mooring fees for a boat or vessel that you live in.

Rent Assistance is generally not paid to people who pay rent to a government housing authority (such as a Housing Commission), own or are buying the home in which they live (except for mobile and relocatable homes), are getting Incentive Allowance, or pay less than the threshold amount of rent.

How much is it?

Rent Assistance is paid at the rate of 75 cents for each dollar of rent paid above the rent threshold, up to specified maximum rates. The rate of Rent Assistance depends on how many children you have, and whether you are partnered or single.

Maximum fortnightly payments range from $122.22 for a single person with one child up to $138.18 for a couple with 3 or more children. These rates are a guide only. For an estimate on how much you may be able to claim, use the online Family Assistance Estimator.

How do I get it?

Rent Assistance is paid along with your Family Tax Benefit. You can choose to get your Rent Assistance as fortnightly payments even if you choose to defer all of your Family Tax Benefit until after the end of the income (financial) year.

Rent Assistance cannot be paid through the tax system.

In order to claim rent assistance, you'll need to supply the Family Assistance Office with a copy of your current lease or tenancy agreement.

Source: Family Assistance Office

Starting a New Job? Claiming the tax-free threshold

When you start a job, your payer (employer) will give you a Tax file number declaration form to complete. Centrelink is also a payer and they will give you this form if you apply for payments.

You tell your payer you want to claim the tax-free threshold by printing X in the Yes box at ‘question 9 - Do you wish to claim the tax-free threshold from this payer?’

You have 28 days to give your payer a completed Tax file number declaration form with your tax file number (TFN) on it or to claim an exemption from quoting a TFN. An exemption may be claimed if you do not earn enough income to pay tax and you are under 18 years of age.

After that time, they must start taking tax out of your pay at a rate of 46.5%.

If you don’t have or have forgotten your TFN, you can indicate on the Tax file number declaration form that you are making an application or enquiry to get your TFN. This will mean your payer will tax you at the normal rates for 28 days.

However, if you have not provided your TFN at the end of the 28 days, they must start taking tax out of your pay at a rate of 46.5%.

What if you have more than one payer?

You cannot claim the tax-free threshold from more than one payer at a time. If you do, it will result in you not paying enough tax for the income year. This may result in a large tax bill when you lodge your tax return.

If you have more than one payer, you need to choose which one to claim the tax-free threshold from. Generally, it is best to claim the threshold from the payer who pays you the most.

You have more than one payer if:

• you have a part-time job and also receive Centrelink payments, or
• you have two (or more) jobs.

Once you have selected the payer you want to claim the tax-free threshold from, print X in the No box at question 9 with your other payers.

If your circumstances change, you can fill out new Tax file number declaration to ensure you continue to claim the tax-free threshold from the payer who pays you the most. However you must always make certain that you are not claiming the tax-free threshold from more than one payer at a time otherwise you may end up with a tax debt at the end of the income year.

© Commonwealth of Australia. Source: Australian Taxation Office

Choosing an Income Protection Insurance Policy - Part 3

How much will you receive?

Income protection policies have a formula for calculating how much you will be paid. It may depend on your income at the time you took out the policy or your income over a number of years. The schedule attached to your policy will tell you how much you will receive every month.

The insurer may not check that you have correctly stated your income at the time you take out the policy. They may only check it when you make a claim. If, for example, you are self-employed, make sure you can produce tax returns, invoices or other documents establishing your income. Otherwise, the insurer could pay you less.

For further information on income protection insurance, visit ASIC's page on Insuring Your Income.

See Part 1
See Part 2

© Australian Securities & Investments Commission. Reproduced with permission.

Choosing an Income Protection Insurance Policy - Part 2

What kind of cover do you want?

Once you've decided you want to take out cover, you need to consider how comprehensive you want the cover to be. The more comprehensive the cover, the more expensive it will be.

1. Do you want to receive a benefit if your disability is: - partial (eg you can return to work part time) or total

- permanent or temporary

2. Do you want to be covered if you are "disabled" in a broad or narrow sense? Different policies will consider that you are disabled if you are unable to do:
- your usual occupation
- any occupation to which you are suited by education and training or
- any occupation at all.

3. Do you want to receive a benefit for a disability that is the result of:
- an accidental injury
- sickness or illness or
- both?

4. If the policy covers sickness or illness, does it cover "pre-existing" illnesses?

A pre-existing illness is one that you:
- may have had before you took out the policy (even if you have recovered) or
- one that you had symptoms or treatment for (even if it was not severe enough to prevent you working).

This is particularly important if you are taking out a new policy each year (instead of paying an annual premium to continue an existing policy). The insurer may have the right to refuse a claim if you contracted an illness under one policy, but were not disabled until after you had taken out the new policy. The illness becomes "pre-existing" and is therefore not covered under the new policy.

5. How long do you want to receive benefits?

For example, benefits for temporary disability will usually be limited to a period of one or two years only.

6. Do you want to receive an insurance payment even if you are receiving other money?

Some policies will not make payments (or will reduce the amount they pay) if you are getting money from another source as a result of the accident or illness. For example, if you are getting workers' compensation or disability payments through Centrelink, the insurer could pay you less or not pay you anything.

7. Does your policy cover you if you aren't working when the disability occurs? For example, you may be between jobs or a seasonal worker moving from job to job.

See Part 1

See Part 3

© Australian Securities & Investments Commission. Reproduced with permission.

Choosing an Income Protection Insurance Policy - Part 1

Most people only read their policy from cover to cover when they need to make a claim. Unfortunately, by this time it's often too late.

In 60% of cases involving disputes over unpaid claims during 1999, consumers did not have the insurance they thought they did. Make sure you know up front what to expect from your policy. Courtesy of ASIC'S comsumer site FIDO, here's what to look out for so you get the cover you need:

Is Insurance Part of Your Superannuation Package?

Before deciding whether to insure yourself against loss of income, check if you already have disability insurance through any superannuation fund you contribute to. If you do, check what sort of insurance it is and when it will pay.

Superannuation funds commonly offer insurance that pays benefits if you become permanently disabled and cannot return to work (to replace at least some of the income you would have earned if you were still employed). It is usually (though not always) cheaper than a policy you take out yourself. Your super fund's product disclosure statement (PDS) tells you about your insurance coverage. Ask you super fund for a copy of your PDS.

See Part 2

See Part 3

© Australian Securities & Investments Commission. Reproduced with permission.

Know Your Tax Offsets: Baby Bonus

I am still talking to women who were/are eligible for the Baby Bonus and had no idea! Don't miss out... know your tax entitlements or talk to someone who does.

What is it?

The baby bonus is a payment from the Tax Office you may be entitled to if you had a baby or gained legal responsibility for a child aged under five, between 1 July 2001 and 30 June 2004.

The baby bonus is a refundable tax offset – even if you do not pay tax, do not have any income or do not have to lodge a tax return you can still claim it. The baby bonus is paid whether or not you currently get any other family benefits.

Who qualifies?

If you had a baby or you gained legal responsibility of a child aged under five (for example, through adoption), after 30 June 2001 and before 1 July 2004 – whether or not you already have other children – you could receive the baby bonus. Usually, it is paid to the mother of the child. If you had a baby or you gained legal responsibility of a child aged under five (for example, through adoption), after 30 June 2004, you are not eligible for the baby bonus. You may be eligible for the new Maternity Payment which is administered by Centrelink.

How much is it?

How much baby bonus you get depends on your own taxable income each year. If your taxable income is $25,000 or less you will be entitled to an annual amount of $500. The ATO have an online calculator to help you work out your baby bonus.

Do I need to Lodge a Tax Return?

Typically you will need to lodge a tax return if:

• you have paid income tax during the financial year
• your taxable income is above the tax-free threshold of $6,000 and you did not receive Centrelink payment,
• you received a Centrelink payment, had other income, and your taxable income was above the threshold amount listed in TaxPack.

Other reasons you need to lodge a tax return include such things as:

• you are the liable prent under a child support assesment,
• You have a reportable fringe benefits amount,
• you are entitled to the private health insurance offset,
• you carried on a business,
• you made aloss or claim claim a loss you made in a previous year

... along with a host of other reasons.

If you are unsure, it is worth getting in touch with your accountant or tax agent to clarify your obligation. Did you know the ATO now have an online tax tool to help you determine if you need to lodge?

If you are not required to lodge a return this year, you should submit a non-lodgement advice to the ATO (this is included in TaxPack 2007). If you are registered under a tax agent, they will inform the Tax Office for you.

Tax Office warns of illegal early access to superannuation

In like vein to yesterday's post on early withdrawal of super, the ATO has recently released a media alert warning people to beware of shonky schemes:

The Tax Office has warned people from non-English speaking backgrounds to beware of schemes offering access to superannuation benefits before retirement.

Deputy Tax Commissioner Raelene Vivian said schemes offering early access to superannuation for a fee are illegal and anyone involved faces the loss of their super benefits, legal penalties and a hefty tax bill.

“We have detected promoters offering early access schemes to people from non-English speaking backgrounds in western Sydney.

“Anyone who is offered a scheme which, for a fee, arranges access to their superannuation before they retire, should contact the Tax Office on 13 10 20 without delay.”

Ms Vivian said promoters are misusing self managed superannuation funds they have established or that they establish for their clients, to access superannuation benefits.

She said they are charging fees of up to 20% or more of the fund’s assets for their services.

“They then claim the client can withdraw the money to pay off debts or to fund the purchase of a home, to buy a car, a boat, pay for a holiday or other purposes.

“Involvement in early access to superannuation schemes as either a client or a promoter is illegal and attracts significant legal and financial penalties.”

Ms Vivian said early access to superannuation is only granted in cases of severe financial hardship or on compassionate grounds with approval from the Australian Prudential Regulation Authority.

“In these situations people do not need the services of a promoter and no fee is required.”

Q & A: Early Release of Superannuation

This weeks question is another common query; can you withdraw the money in your superannuation early?

This seems to be one of the first 'solutions' to pop into the mind of a lot of people when really it should be considered only as a last resort.

By law, you generally get your super only when you:
- permanently retire from the workforce, and also
- reach the minimum age set by law, called your 'preservation age' (this is typically between 55 and 60 depending when you were born).

You can get your super earlier only if you:
- suffer permanent incapacity for work, or
- possibly in cases of severe financial hardship, or
- on 'compassionate grounds'.

Severe financial hardship

Contact your fund. If the rules allow early release of benefits, you must satisfy the trustee that you have been receiving a Commonwealth income support payment for a continuous period of 26 weeks and you cannot meet your reasonable and immediate family living expenses.

Compassionate grounds

Contact your fund. If the rules allow early release of benefits, the 'compassionate grounds' are set out in the law. The Australian Prudential Regulation Authority (APRA) must consider your application first, before your fund trustee can make a final decision.

Compassionate grounds involve medical treatment for serious conditions that is not readily available through the public health system, transport for medical treatment, changes to a home or vehicle because of a severe disability, palliative care, funeral and burial expenses, or to prevent the forced sale of your home by your mortgagee.

Illegal early access

Avoid illegal schemes that try to get your super money out early, and save yourself from getting cheated and from heavy tax and legal penalties. These schemes are sometimes promoted by word of mouth or shady advertising.

Report to ASIC or the Australian Tax Office (ATO) anyone who tries to talk you into getting your preserved benefits early through a self-managed super fund or for a fee. AVOID THESE SCAMS and do not risk your money.

Source: Information for this response has been sourced from the Australian Securities and Investments Commission.

Lodge on Time and Don't Risk a Fine

A few people have asked when their returns must be done by so I thought it worth mentioning here.

You have until the 31 October 2007 to lodge your 2006-07 tax return.

Late fines range from $110 to $550 if you lodge within four months after the due date, and up to $2,750 after that period. Interest is also incurred on outstanding tax.

Individuals lodging their own return must do so by October 31, whereas those registered under a tax agent have longer.

One reason many people avoid lodging on time is the fear they will have to pay a tax debt. If this applies to you, be aware that:

• you have plenty of time before now and the first payment,


• the ATO can work with you to come up with a manageable payment plan, and


• the longer you leave it, the more fines and interest charges you will eventually have to pay.

The lesson here is lodge on time and don't risk the fines.