Changes to casual employment
On 6 July 2017, the Fair Work Commission determined that regular casual employees have the right to convert to permanent employment. The determination applies to casual employees that work regular and systematic hours for at least 12 months. There are exceptions where the shift would require a significant change to the employees’ hours or it’s reasonable the number of hours will change or reduce in the next 12 months. A clause relating to this issue should be included in a casual employee’s employment contract.
Overtime entitlement changes
New overtime entitlements for casuals have been issued as well for the Hospitality Industry (General) Award, Registered and Licensed Clubs Award and the Restaurant Industry Award for working longer than 12 hours or working more than 38 hours in a week. New (slightly differing) rates also apply to the General Retail Industry Award, Fast Food Industry Award, Hair and Beauty Industry Award and Horticulture Award.
New flexible part-time employment provisions
The proposed new provisions in the Hospitality Industry (General) Award, the Registered and Licensed Clubs Award, and the Restaurant Industry Award would allow employers to roster part-time employees for between 8 and 38 ordinary hours per week (averaged over the roster cycle), and agree with employees on a guaranteed number of hours each week, and the ‘available window’ in which those hours could be worked (i.e. the employee’s availability). The employee would only be able to alter their availability on 14 days’ notice.
If you need more information about changes to casual employment or if you have any other questions, please feel free to contact us.
Federal budget 2014 – 2015
Incredibly the budget introduced an immediate tax deduction for the purchase assets costing less than $20,000 for small business entities (SBEs) from 12 May 2015 to 30 June 2017. From 1 July 2017 the immediate tax deduction will revert back to $1,000 for small business entities. The write off also extends to allow the write off of any small business entity pool where the balance is less than $20,000 through to the end of 30 June 2017.
Small business tax reductions
The budget also included a reduction in the company rate of tax from 30% to 28.5% for SBEs. The change also allow the continutation of dividends to be franked at the 30% to pass on the tax saving to individuals (limited to the extent that tax was previously paid at the higher rate). Further the budget addressed tax cuts for non-incorporated SBEs (sole traders, partnerships and trusts – most business owers in Australian aren’t incorporated) with the SBE tax offset. This measure reduces the tax paid on SBE income by 5% but is capped at $1,000 per year.
Given the SBEs tax concessions outlined above, the budget addressed the capital gains tax consequences for SBEs changing structure (e.g. changing from trading through a company to a trust) by allowing capital gains roll over relief from changing to and from any entity type. Previously there was only capital gain tax roll over relief for rolling into a company.
Start up concessions
To further encourage entrepreneurship the budget allowed an immediate tax deduction for the costs of professional advisor expenses (accountant and solicitor fees) associated with establishing a new business.
Finally in the FBT realm of the budget, all work related portable electronic devices were exempted from FBT. Previously only one device was FBT exempt per employee per year. The salary packaging of meal entertainment benefits (junket) for employees of not for profit entities has been capped at a grossed up value of $5,000.
There were other business (but not specifically tax related) measures rolled out in the budget that I’ll address in future updates.
Negatively geared property investing
There’s been a lot of discussion recently regarding the removal of negative gearing as a tax minimisation strategy but many still don’t know exactly what it entails and exactly how it can help, so the following is an introduction.
When a taxpayer purchases a residential property as an investment the rental income received is included in their assessable income. Many of the costs of earning that income are tax deductible such as advertising, body corporate fees, council rates, cleaning, garden maintenance, insurance, letting & management fees, postage, printing & stationary expenses, travel expenses and water charges amongst others. Some costs are not immediately deductible but are spread over several years such as borrowing costs, special body corporate fees, depreciable assets (e.g. hot-water system) the cost of house construction and improvements (after 1984). Finally some costs are deductible but do reduce the capital gain when the property is ultimately sold.
On many occasions the taxpayer will borrow to buy the property and in this case the interest (but not the principal) is tax deductible. Where the total deductions exceed the rental income the property is termed to be ‘negatively geared’. The excess of tax deductions reduce the taxpayer’s taxable income and as generally most taxpayers have their other income taxed as it’s earned (e.g. salary and wage income) their end of year tax refund is much greater.
By way of example, if your taxable income is $100,000 (the 37% tax bracket plus the 2% Medicare levy) and you have a $10,000 tax loss from a negatively geared property your refund will be increased by $3,900. Further $10,000 tax loss may not necessarily be a $10,000 cash shortfall as some of the tax deductions may relate to borrowing costs, depreciation on assets and the special building write off (a tax deduction of 2.5% or 4% of the construction cost of the premises) on which there is no cash outlay.
In some scenarios after taking into account the increased tax refund a ‘negatively geared property’ can be cash flow positive! This outcome is generally achieved by taxpayers with a taxable income greater than $80,000 (including the rental loss), who buy a relatively new premises (to get a high level of depreciation and special building write off) and with high levels of borrowings (greater than 70% of the asset value) with interest only loans. More often than not though, most negatively geared properties create a cash shortfall that must be met by the taxpayer with other sources. Over time most negatively geared properties become positively geared (they add to your taxable income) as the principal on the loan is repaid and the interest expense reduces.
This gradual transition is to be expected as the ultimate goal of any investment is to increase your after tax income. A significant part of achieving that outcome is a capital gain upon the sale of the property. Capital gains has also been a hot topic in the area of tax reform recently and in the next blog I’ll provide an introduction to capital gains and how it applies to residential investment properties.
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