Tax Information & Tax Topics
Table of Contents (Quick Links to Articles on Page)
Cost of Work Related Clothing & Laundry
Investments and Investment Related Expenses
Interest, Shares and Managed funds
Real Estate and Rental Properties
Interest Deductions and Mixing Loans
Drawing Cash From Your Company – Division 7A
Capital Gains Tax Considerations
Superannuation and Contractors
Employer/Employee Obligations and New Fair Work Laws
Rates of Tax
Tax Rates 2008-2009
| Taxable Income | Tax on this income |
| $0 – $6,000 | Nil |
| $6,001 – $34,000 | 15c for each $1 over $6,000 |
| $34,001 – $80,000 | $4,200 plus 30c for each $1 over $34,000 |
| $80,001 – $180,000 | $18,000 plus 40c for each $1 over $80,000 |
| $180,001 and over | $58,000 plus 45c for each $1 over $180,000 |
Tax Rates 2009-2010
| Taxable Income | Tax on this income |
| $0 – $6,000 | Nil |
| $6,001 – $35,000 | 15c for each $1 over $6,000 |
| $35,001 – $80,000 | $4,350 plus 30c for each $1 over $35,000 |
| $80,001 – $180,000 | $17,850 plus 38c for each $1 over $80,000 |
| $180,001 and over | $55,850 plus 45c for each $1 over $180,000 |
Tax Rates 2010-2011
| Taxable Income | Tax on this income |
| $0 – $6,000 | Nil |
| $6,001 – $37,000 | 15c for each $1 over $6,000 |
| $37,001 – $80,000 | $4,650 plus 30c for each $1 over $37,000 |
| $80,001 – $180,000 | $17,550 plus 37c for each $1 over $80,000 |
| $180,001 and over | $54,550 plus 45c for each $1 over $180,000 |
The above rates do not include the Medicare levy of 1.5%
These rates apply to individuals who are residents of Australia for tax purposes for the whole financial year
Deductions
In order for an expense to be deductible you must have incurred it in the course of an income earning activity and it must not be private in nature. You also need to retain all source documentation as evidence of this expense i.e. receipts and invoices. Generally written evidence must be kept for work expenses if your total deductions exceed $300. We have listed some common deductions below.
You can claim the cost of travel expenses directly connected with your work. However you cannot claim the cost of travel from your home to work and from your work to home. There are some exceptions to this general rule. For instance you may claim the cost of trips undertaken between your home and your workplace if you have to carry bulky tools or equipment that cannot be left at your work place (i.e. for example an extension ladder or cello). The cost of travel can include motor vehicle expenses, public transport, taxi fares, parking, travel expenses incurred in overnight business trips (i.e. meals and accommodation)
With regards to motor vehicle claims there are four methods available in claiming a tax deduction of which you can choose which ever one benefits you the most from year to year. These are as follows:
1. Log Book Method – You keep a record of all actual expenses incurred and claim a business use percentage of these according to a log book kept (a log book must be kept for 12 continuous weeks to establish the business use and will then be valid for 5 years unless your circumstances change dramatically)
2. One Third Actual Expenses Method – You claim one third of your actual expenses. To use this method you must have travelled in excess of 5000 business kilometres. Also note that you cannot use this method if you do not own the vehicle or if the vehicle is not considered a car (i.e. motor cycle, vehicles with carrying capacity of 1 tonne or greater or vehicles with carrying capacity of nine persons or greater).
3. Cents Per Kilometre Method – You can claim a set rate per kilometre of business travel you did up to a maximum of 5000 kilometres. The rates are set out by the ATO and vary depending on the size of your engine. Although you do not need written evidence of your travel you do need to be able to reasonably justify it. Also note that you cannot use this method if you do not own the vehicle or if the vehicle is not considered a car (i.e. motor cycle, vehicles with carrying capacity of 1 tonne or greater or vehicles with carrying capacity of nine persons or greater).
4. 12% Original Value Method – You can claim 12% of the original cost of the vehicle as a tax deduction each year. To use this method you must have travelled in excess of 5000 business kilometres or would have travelled in excess of 5ooo business kilometres had you owned it for a full year. If you leased the vehicle you can use the market value of the vehicle at the time you leased it. Also note that you cannot use this method if you do not own the vehicle or if the vehicle is not considered a car (i.e. motor cycle, vehicles with carrying capacity of 1 tonne or greater or vehicles with carrying capacity of nine persons or greater).
Deductions are available for self education expenses so long as you satisfy strict criteria. They are expenses that you incur when you undertake a work-related course to obtain a formal qualification from a school, college, university or other place of education that has a sufficient connection to your current employment, that is, the course:
a. maintains or improves the specific skills or knowledge you require in your current employment, or
b. results in, or is likely to result in, an increase in your income from your current employment.
You cannot claim a deduction for self-education expenses for a course that does not have a sufficient connection to your current employment even though:
a. it might be generally related to it, or
b. it enables you to get new employment.
In other words the self education expenses you incur must be directly and sufficiently related to your current income earning activity.
Types of self education expenses that may be claimed are as follows:
1. Category A expenses – Course fees (not available for students who are under the HECS-HELP system), text books, stationery, student union fees, car expenses (log book method or 1/3 actual method under this category only), public transport fares.
2. Category B expenses – deductions for the decline in value of depreciating assets related to self education
3. Category C expenses – expenses for repairs to items of equipment used for self education
4. Category D expenses – Car expenses which are claimed under the cents per kilometre method or 12% original cost method.
5. Category E expenses – expenses incurred that are not allowable as a deduction such as child care whilst attending lectures etc or the cost of travel from your place of education to home or form home to your place of education.
Basically you can claim category A, B, C and D expenses however these will generally have to be reduced by $250 (an amount set out by the ATO). You are however able to reduce the $250 threshold all the way to nil by your total eligible category E expenses.
To claim a tax deduction for a donation it must be made to a deductible gift recipient (DGR) and truly be a gift. Most tax deductible receipts will often acknowledge whether it is in fact a tax deductible donation. Raffles, art unions and draws which result in prizes being won will generally not be a deductible donation.
You can claim the cost of laundry for work related clothing. Generally the tax office allow a claim of up to $150 without receipts. However you will require written evidence if the claim is greater than $150 and your claim for work expenses is greater than $300.
You can also claim the costs incurred in purchasing work related clothing. Work related clothing must either be a work uniform, occupation specific clothing or protective clothing. It does not include general work wear.
A work uniform must be unique and distinctive often having the company logo attached or being made or designed specifically for the employer. In general it must also be a compulsory uniform. If it is a non-compulsory uniform it must be a registered design with Ausindustry.
Occupation specific clothing is clothing that is specific to your occupation and is not every day in nature and allows the public to recognise your occupation. For instance the checked pant a chef wears.
Protective clothing is just that and includes any footwear or article of clothing that is worn to protect yourself from risk or illness or injury posed to your income earning activity. Examples include sun protective clothing for those who work in the sun, safety coloured vests, non-slip shoes for nurses, boots for trades people etc.
Investments and Investment Related Expenses
Any income or capital gains made from investment activities will likely be subject to tax. As such it is imperative that if you are undertaking significant investment activities you seek the advice of a qualified tax agent or expert in order to make sure you are structured correctly and that you understand your obligations. If structured effectively investing can quite often create substantial tax benefits. However without proper advice you could find yourself left with a substantial tax liability and even possibly miss some crucial benefits. Either way it is for your peace at mind that you should understand the tax implications of your investment activities. Below are some practical considerations you should give before undertaking investments into equities and real estate.
Interest, Shares and Managed Funds
Time and time again we continue to come across individuals who cannot understand why they are sometimes left with large tax liabilities from receiving passive income such as interest, shares or fund distributions. The answer is a simple fact that these types of income often remain untaxed until you lodge your tax return.
Interest income for instance is almost always untaxed unless your bank withholds any tax due to not being supplied with a tax file number. This income is subject to tax at marginal rates therefore you should be putting some of it aside to cover your tax obligations at year end.
Same goes for dividends and fund distributions. For those who invest in public companies most dividends you receive will generally be fully franked dividends. This means that the dividend you receive has had tax paid on it at the company rate of 30% and therefore you will be covered for any tax obligations on this income if your marginal rate of tax is in the 30% bracket or under (not including any Medicare levy implications). However many companies also pay unfranked dividends, and these like interest, are untaxed income and will result in a tax liability at year end.
In addition to the passive income you receive from investing in shares, managed funds or fixed income securities you should also be aware that when you sell these assets there will also likely be capital gains tax (CGT) implications. CGT is levied upon any gain you make from the sale of assets and is at your marginal rate of tax. For most CGT events you can have your capital gain reduced by 50% if you hold the asset for greater than 12 months (known as the CGT discount). On the other hand if you make a capital loss then you may only apply your capital loss against other capital gains. You are not able to offset capital losses against your other assessable income.
What about deductions? Generally all expenses incurred in earning passive income through dividends, interest etc will be deductible. This includes interest on loans or margin lending, bank fees, stock broker portfolio management fees etc.
Therefore you can see how imperative it is that you understand what sort of income stream you are receiving from your investment activities. In addition you may also be able to reduce your tax obligations by negatively gearing your investment or effectively investing through another structure such as a trust. All this needs to be considered when investing.
Real Estate and Rental Properties
This is probably the most common topic that arises from dealings with clients and at times can also be one of the most complicated. So what do you need to know about investing in real estate? The answer depends on what you’re doing with that real estate.
As most people are aware your home is generally exempt from capital gains tax (CGT) due to the main residence exemption. This will be the case 100% of the time so long as you only have one principle place of residence and that you never rent that place out. However the issue can become a bit grey when you move out of that residence and rent it for whatever reason or rent it out first then move into it. For instance if you are temporarily posted overseas for work and you decide to rent your place out while you are away are there any tax or CGT implications? The short answer here is yes but you may still be able to avoid CGT. It is important that you get advice regarding this topic as there may be options where you can avoid exposing your main residence to CGT. It is very much a topic that has to be advised on a case by case basis.
It is also important to understand you can only ever have one principle place of residence at a time.
Real estate that is acquired to be rented out and produce passive income is fairly straight forward. Basically you must declare all rents as assessable income and you are entitled to claim all expenses incurred in producing this income including interest on loans, rates, agent fees etc. You are also entitled to claim depreciation on any plant, equipment or furnishings in the property as well as a capital allowance on the construction cost of the building.
Any gains derived on the sale of that real estate will also likely be subject to capital gains tax. As discussed above the capital gain calculation may become a little more complicated where that property was used a main residence at some point during the ownership period.
One other consideration may be a potential GST exposure if the property is a commercial property. If this is the case you should most certainly seek advice as you will potentially be required to register for GST and begin lodging a business activity statement with the ATO.
A range of capital gains tax issues arise here when real estate is sold and that real estate was inherited. Basically the result will depend on whether that property was originally purchased pre CGT or post CGT and whether or not it was a main residence. In general, and ignoring main residence issues, if the property was purchased post CGT it will subject to capital gains tax and the cost base of the asset will be that of which the deceased paid for it. If the property was pre CGT it will be exempt from CGT if it is sold within 2 years of the deceased’s death. If it was pre CGT but sold after 2 years from date of death the cost base for CGT purposes will be the market value at date of death. If the property was a main residence for the entire time of the deceased’s ownership period then you will get a full exemption from CGT so long as the property is sold within 2 years of deceased’s death.
Clearly this can be a complicated topic and advice should be sought if you have sold or are thinking about selling an inherited property.
This area is considerably complicated and must be assessed on a case by case basis. There are substantial GST, tax and structuring issues that must be considered. From buying a block of land and constructing a new building to buying a property and renovating or simply substantially renovating an existing rental property, there are a plethora of issues that need to be considered and you should know where you stand before you undertake these activities not after.
Interest Expense Deductions and Mixing Loans
This is a word of caution to taxpayers who take out loans for business or investment use. Be very careful here that you do not mix the purpose of the loan i.e. use it for anything personal. If you wish to borrow funds from the bank for personal use please do your best to avoid drawing down on existing investment or business loans as you will be tainting your interest deduction and even possibly jeopardizing it all together. The ATO in the past have taken an extremely hard line on this, yet we continue to see taxpayers draw down on business overdrafts, rental property loans, business loans etc.
The issue is that by drawing down on a business or investment facilities for private use you make it increasingly difficult to determine what portion of the interest charged is deductible. It becomes even more complex when interest rates change and when you make repayments as the ATO have held that any repayments to a mixed use facility must be apportioned appropriately between what is business and what is private. This is an administrative nightmare, especially when there are large volumes of both deductible and non deductible draw downs, which is why the ATO have taken the stance that if you can not accurately account for the deductible portion of the loan then the whole lot may be held to be non deductible.
It would be wise to accept this word of caution as our experiences have shown that the administrative time spent making these calculations will far outweigh the benefits and convenience of using an existing facility rather than just setting a new one up.
If you must draw down from an existing facility one option may be to organize for your bank to create a sub account to the existing loan that way you can segregate what is business and what is personal. This will also avoid the need to incur establishment fees on setting up a new account.
Residency
To understand your tax treatment the first thing you must do is work out whether or not you are a resident for Australian tax purposes. This is based on the facts of the situation. Generally Australian residents are taxed on worldwide income where as non-residents are only taxed on Australian source income. However non-residents are taxed at higher rates than Australian residents.
The first thing to understand is that when we refer to being an Australian resident we are referring to being an Australian resident for tax purposes not your citizenship. It is very possible to be an Australian citizen but still be a non-resident for tax purposes.
So how do you determine if you are a resident for tax purposes? There are basically 4 tests. The resides test is the primary test and if you satisfy that test you do not have to apply the others. If you don’t satisfy the resides test you may still be considered an Australian resident if one of the three other statutory test are satisfied.
The Resides Test – This test basically asks the question of where do you reside i.e. do you currently dwell permanently in Australia, or will you dwell here for a considerable amount of time? It looks at your behaviour and the way you organise your affairs here (i.e. does your family live here with you, are you renting or do you own, what business/financial ties do you have here etc) as well as your intention or purpose for being here. It also looks at nationality and citizenship. Not one of these factors outweighs the other. They are all considered equally.
The Domicile Test – This test asks the question, is your domicile here in Australia? If not you do not satisfy this test. If yes then the next question is where is your permanent place of abode. If Australia you satisfy this test and are a resident for tax purposes if not Australia then you do not satisfy this test.
The 183 day rule – If you are present in Australia for more than 183 days of the year you may be said to have a constructive residence in Australia unless it is established that your usual place of abode is outside Australia and you have no intention to take up residence here.
The Superannuation Test – This test covers commonwealth government employees and states you are a resident if you are a member of the superannuation scheme established under the Superannuation Act 1990 or an eligible employee for the purposes of the Superannuation Act 1976.
Apart from being a resident and non-resident there is also a thing called a temporary resident. This is basically for people who are here on a temporary working Visa such as a 457 visa (this does not include student visas). Basically the individual will be taxed at resident rates on all employment income and as a non-resident on all other income (i.e. anything of an Australian source at non-resident tax rates).
Rebates and Tax Offsets
Low income taxpayers are entitled to a rebate known as the ‘low income rebate’. For 2008/2009 the maximum offset is $1200 and for 2009/2010 it is $1350. Those with taxable income of $30000 or under receive the full offset. For those over, the offset will reduce by 4 cents for every dollar over $30000.
Taxpayers whose assessable income includes certain benefits or payments are entitled to what is known as a ‘beneficiary rebate’. Some of the various benefits or payments are:
a. Certain government payments (i.e. newstart allowance, sickness allowance, special benefit, partner allowance, mature age allowance, widow allowance)
b. The parenting payment to the extent it is not exempt
c. Amounts paid as wages or supplements to participants in Community Development Employment Projects
d. Commonwealth education payments (i.e. youth allowance, ABSTUDY etc)
e. Various other payments
The rebate is calculated as:
lowest marginal tax rate x [Taxpayers benefit amount – tax free threshold]
For 2009/2010 the lowest marginal tax rate is 15% and the tax free threshold is $6000.
Some taxpayers are eligible for a rebate known as the ‘spouse rebate’ where they have a dependent spouse who earns little income. For the 2008/2009 year the maximum rebate was $2159 and reduces by $1 for every $4 that the spouse has ‘separate net income’ over $282. Please note that you are not eligible for this rebate if you or your partner were eligible for Family Tax benefit Part B in relation to a dependent child or student.
The government has established the Education Tax Refund (ETR) which will enable eligible families to claim a 50% refundable tax offset every year of up to $375/year for children in primary school and $750/year for children in secondary school. Eligible expenses include laptops, home computers and associated costs, home internet connection, printers and papers, education software, school text books and learning materials, prescribed trade tools and any other expense that supports a child during school.
The tax offset will be claimed through the taxpayers’ tax return and applies from 1 July 2008 onwards. To be eligible for the offset you must be eligible for Family Tax benefit (FTB) Part A.
Company Issues
It is important for people who operate their activities out of a company to understand that in the eyes of the law companies are treated as separate legal entities to their owners. This means that people, who draw cash from their company, other than what is paid to them as a wage, generally have to repay that money by lodgment date otherwise the amount owing will be subject to Division 7A. Division 7A basically deems any amount owing by shareholders or associates as unfranked dividends unless they enter into a commercial loan agreement with their company. This basically means that any unsecured loans outstanding each year will have to be repaid over 7 years at the benchmark interest rate set out by the ATO. If this applies to you please ensure to discuss this with one of our tax agents, as it is important to manage these loans effectively so that you do not end up paying more tax than you have to.
Businesses and Structuring
Before you begin any business you should seek advice on your business structure. There are many types of structure and several factors that will determine which is the best structure for you. It will completely depend on your personal circumstances and there is certainly not a ‘one size fits all’. What may benefit one person may not benefit another person.
Some of the more common structures are as follows:
1. Company
2. Trust
3. Partnership
4. Sole Trader
Please take the above advice as a word of caution. Without proper structuring you could end up costing yourself thousands of dollars in extra tax and potentially expose yourself to substantial business risks and personal liability when their could have been an effective way to protect yourself.
Note also that structuring isn’t just relevant for businesses. It applies to a whole range of circumstances such as investing, superannuation, providing for children in marriage breakdowns, providing for people with disabilities and estate planning and protecting inheritances in the case of death.
Capital Gains Tax Considerations
There can be significant tax implications to selling capital assets. If a capital gain is made there is likely to be capital gains tax to be paid when you lodge your tax return. Please note no tax has been withheld when this income is earned and therefore it almost always results in a tax liability at year end.
If you are unsure of your circumstances and potential tax liability associated with selling particular assets it would be wise to seek advice from a tax agent before you sell the asset so that you understand what the implications of doing so are. Plus there may be ways to minimise the likely tax implications that should be planned for before the asset is sold to ensure you receive all the concessions you are entitled to.
This is particularly so for small businesses (i.e. turnover less than $2 million or net assets of less than $6 million). Apart from the usual 50% CGT discount which is usually available for assets which have been held for greater than 12 months there are also the following potential small business concessions:
1. 50% Active Asset Reduction
2. Retirement Exemption
3. 15 Year small business concession
4. Certain capital gain rollovers
Fuel Tax Credits
General Fuel Tax Credit Information
Businesses that use fuel in their businesses are generally able to claim a credit for the amount of fuel used. This is done through your business activity statement. The rate at which you can claim the credit will depend on what activity you are conducting. Currently you can claim fuel tax credits for the following activities:
- Road transport activities for vehicles that have a gross vehicle mass (GVM) of greater than 4.5 tonnes
- Agriculture
- Fishing
- Forestry
- Mining
- Marine Transport
- Rail Transport
- Nursing and Medical
- Generating Electricity
- Non-fuel use
- All other business activities, machinery, plant and equipment
Please note that these rebates do not extend to normal light weight motor vehicles. To see if you are eligible and to find out what rates apply please contact us or alternatively visit the ATO website for more information.
Employment Issues
Myths to Contracting With Your Employer Instead of Being Paid a Wage
An ongoing issue that we continue to receive many questions about is whether or not you are better off invoicing the business you work for as a contractor (through a company, trust or as an individual) rather than just being paid a wage as an employee. It seems many people are hearing things from friends or associates about this topic (which are quite often untrue or misrepresented) and wish to apply what they hear to their own personal circumstances.
This is very much an area that must be reviewed on a case by case basis. Where it may benefit some people, it does not necessarily mean it will benefit you. It is a complex area of law and professional advice should be sought before going down this path as you could very well be disadvantaging yourself if you do. Here are some of the complex issues we often get asked about regarding this topic.
Myth 1. I am a high salary and wage income earner (in the 38% tax bracket) and work solely for one person. Wouldn’t I be better off getting an ABN and contracting with my employer through a company to obtain the 30% tax rate or in a trust so I can split my income with my wife?
Not necessarily. These strategies are highly dependent on whether or not you come under the Personal Services Income (PSI) regime. PSI legislation was designed to catch out people who act in almost every way as an employee but rather than receive a wage they contract with their employer with the main objective of splitting their income with a spouse or getting taxed at a lower rate. Therefore if you fall under the PSI rules, no matter how you receive your income from your employer (e.g. contract payments), that income must be wholly declared in your personal tax return effectively giving the same result as had you worked as an employee in the first place. It is irrelevant whether you are contracting through a company or trust.
So how do you know if you fall under the PSI rules? As stated above it is designed to catch people who work in an employee like manner but receive contract payments or other forms of remuneration other than a wage. There are a number of tests to determine this and it must be analyzed on a case by case basis. Advice should be sought. Here a few indications that suggest you fall under the PSI regime:
1. You are a contractor and receive more than 80% of your income from 1 source
2. You get paid on an hourly basis rather than getting paid to produce a result
3. You are ultimately not personally liable for defects in your work
4. You are under the authority of your employer
5. You can not sub-contract the task or work you have been given
6. Your employer provides all the necessary tools to complete the job you are performing
Therefore if you are working for one person then more often than not you will satisfy the above and fall under PSI which basically means there is no benefit for you to contract with your employer out of a trust or company. However if you contract and source work from several people and operate in a business like manner than there can be substantial benefits in operating out of a trust or company but again, this will depend on your own personal circumstances. Please contact us if you believe this concerns you.
Myth 2. As a contractor can I claim extra deductions that wouldn’t be available to me as salary and wage earner?
The general answer here is no. We have often had enquiries from people who have heard that it is easier to claim things like motor vehicles and phones as a contractor rather than an employee. This is completely untrue. Deductions such as these will be available to anyone regardless of how you receive your income so long as they have the necessary nexus with your income earning activity.
Myth 3. I am an employer. Is it true that I do not have to pay my contractors and sub-contractors superannuation unless they are employees?
This is not true at all. Recently we posted a warning to all employers about this topic on our website. In essence the superannuation rules regarding contractors operate very much like the PSI rules listed above. Generally if you employ contractors and they in almost everyway operate as an employee and their contracts are wholly or principally for labour then they will be defined as employees for superannuation purposes.
This means superannuation must be paid for those types of contractors. This does not apply to all contractors so if you are unsure about your superannuation obligations please contact us for advice.
Important: There has been considerable confusion and dispute in recent years as to whether superannuation must be paid by employers for people who work for them as contractors. The general rule is that superannuation only needs to be paid to employees who earn salary and wages.
However the definition of employee is then further expanded to include certain contractors who are in almost every way acting as an employee and whose contracts are wholly or principally for labour. The tests for when a contractor will constitute an employee for superannuation guarantee purposes can basically be summarised as follows:
1. Has the contractor contracted with the employer to produce a result or have they simply contracted to provide the employer with their labour to achieve the result?
2. What level of control and authority does the employer have over the contractor?
3. Does the contractor work predominantly for this one employer or do they perform (and are available to perform) work for other parties?
4. Does the contractor charge on an hourly basis or do they charge for a completed job (or job in stages)?
5. Can the contractor sub-contract the work that they have contracted to perform or must they perform that work themselves?
6. Would the contractor be personally liable for any defects in the work? Does the contractor bear the commercial risk and responsibility for any poor workmanship?
7. Does the contractor provide their own tools or equipment to perform the services required?
8. The fact that the contractor has an ABN and invoices the employer does not mean they are not an employee for superannuation purposes!
9. Contracts with a company, trust or partnership will not be considered to constitute an employee-employer relationship even if the above is satisfied.
If you are unsure as to whether or not you have superannuation obligations to contractors you engage then please contact us for advice. Alternatively there is an ‘employee/contractor decision tool’ provided by the ATO where you can answer a series of questions and it will provide an answer. This can be accessed through the ATO website.
Very Important for Employers and employees!
Website – Fair work online and Fair work Ombudsman – www.fairwork.gov.au (Deal with general info, all complaints and enforcing minimum standards etc)
Phone: 13 13 94
Website – Fair work Australia – www.fwa.gov.au (Deal with dispute resolution, termination of employment, enterprise bargaining etc)
Phone: 1300 799 675
You may or may not have heard recently that from 1 January workplace obligations and minimum standards have received a complete over haul. It is very important that employers understand their obligations and employees understand what they are entitled to.
Up until 31 December 2009 employment conditions were regulated by the federal government for companies and all other entities were regulated by the state. From 1 January 2010 the federal government have enacted the Fair Work Act 2009 and most states (including Queensland) have passed on their powers to the commonwealth meaning that we now are effectively regulated by one government department which is Fair Work Australia. They will be in charge of enforcing all minimum standards and resolving any workplace disputes regarding unfair dismissal, termination of employment etc.
The essence of the fair work act was the introduction of the National Employment Standards (NES). These are the bare minimum conditions that all employees will be entitled to. In summary they are as follows:
NES – 10 Minimum Entitlements
1. Maximum weekly hours of work – 38 hours/wk plus reasonable additional hours
2. Requests for flexible working arrangements
You have 21 days from date of request to reply – can be refused on reasonable business grounds. This is only for parents or carers of under school age children and children under 18 years with a disability. You need 12 month continuous employment to be eligible.
3. Unpaid Parental leave and related entitlements
Applies to both birth related and adoption related leave.
An employee must have worked for the employer 12 months or more immediately before the date of birth or placement of the child.. Casuals are also entitled to parental leave so long as they worked fir 12 months on a regular and systematic basis and also reasonably expect to have continued working for the employer on a regular and systematic basis. Parental leave is available to both parents in a relationship including de-facto and same-sex couples.
12 months unpaid leave (generally this can only be taken by one parent at a time and in a single continuous period) plus option to request an additional 12 months (reduced by the amount of any leave taken by their partner). Employee must request for additional 12 months in writing 4 weeks prior to end of initial period of leave. Employer must respond in writing within 21 days. Employer can refuse on reasonable business grounds.
Adopting parents can also take up to 2 days unpaid pre-adoption leave for necessary adoption interviews or exams (unless the employer requires them to take other leave they have available).
Parental leave will differ for parents where both are employees (employee couple) or parents who are single (or the only employee in the couple). See website for details.
Any other leave taken during the parental leave reduces the total of unpaid leave for the couple
Right to be consulted while on parental leave about decisions made by employer that will have a significant effect on the status, pay or location of the employees pre-leave position.
Discrimination on the basis of family or carer’s responsibilities or pregnancy is illegal.
Minimum entitlements to parental leave under the NES apply to all employees in Australia regardless of whether you fall under the NES. However if state laws are more beneficial to employees than the NES then those apply.
4. Annual leave
4 weeks paid/year and additional week for some shift workers at employee’s base rate of pay. Awards may provide for annual leave entitlements over and above the NES. If this is the case then the award applies (although NES is at base rate of pay many awards now stipulate that loading must be applied to annual leave entitlements – review the award to see if loading applies and for rate)
To be eligible for the extra week as a shift worker you must be classified as a shift worker under an award or agreement or be employed in an enterprise where shifts are continuously rostered 24 hours a day for seven days a week and they are regularly rostered to work those shifts and they regularly work Sundays and public holidays.
Although the NES does not provide entitlements for employers to direct employees to take annual leave most awards or agreements will stipulate when this can be done.
Some awards allow employees to cash out their annual leave when certain conditions are satisfied.
Annual leave accrues from year to year and is pro-rated for part timers based on ordinary hours worked.
This entitlement does not apply to casuals.
5. Personal and carers leave and compassionate leave
10 days paid personal/carers leave
o Applies when employee is sick or injured or needs to care for and immediate family member (spouse, de facto partner, child, parent, grandparent, grandchild, sibling) who’s sick, injured or has an unexpected emergency.
o Does not apply to casuals
2 days unpaid carers leave per occasion
o Applies to all employees including casuals
o Applies same as paid personal/carers leave
o Full time and part time employees can only use this when they have used up their paid personal/carers leave
2 days paid compassionate leave per occasion
o Applies when an immediate family member gets an injury or illness that threatens their life or dies
o Does not apply to casuals
2 days unpaid compassionate leave per occasion
o Applies to casuals only
o Applies when an immediate family member gets an injury or illness that threatens their life or dies
Notes:
o Employees can not accrue or take any personal/carers leave or compassionate leave while getting workers compensation payments unless and award or agreement says otherwise
o Only personal/carers leave accrues from year to year and is pro rated for part timers based on ordinary hours worked.
o An employer is entitled to know how much leave is to be taken for all of the above entitlements (as soon as practicable). They are also entitled to request evidence that substantiates the reason for leave (when requested). The employee is not entitled to leave if they can not satisfy the above. Awards may include terms regarding this.
o All leave is to be paid at the base rate of pay
o Personal/carers leave may be cashed out if an award applies for it
6. Community service leave
Applies to various emergency services and jury service
There is no set limit on the amount of community service leave an employee is entitled to. It will be whatever amount of time is reasonable in the circumstances.
Leave for voluntary emergency activities is unpaid
Leave for jury service is paid at a rate of ‘make up pay’ for up to 10 days for all employees except casuals. ‘Make up pay’ is the difference between an employees base rate of pay and any jury service pay. An employee must try to claim jury service pay.
7. Long service leave
Under the NES an employee’s long service leave entitlements are generally derived from an applicable pre-modern award or state reference transitional award. It will depend on what is in the award but generally you get long service leave for continuous service of 7-15 years which can generally be taken after 10 years of service (or earlier under some state laws and awards).
There are various exceptions to pre-modern award long service leave entitlements. See the website.
Transitional entitlements for certain employees who have LSL entitlements pre 1 January 2010 pending the developments of a uniform national long service leave standard.
Any untaken long service leave is usually paid out on termination (this can sometimes depend on the circumstances of the termination). An employee may be eligible for a pro-rata payment on termination after a minimum period of 5 years continuous service (it was 7 years under the Queensland state system so you should seek advice if this concerns you).
Eventually long service leave entitlements will be covered by a uniform national long service leave standard. This is not anticipated to be in place before 2010.
8. Public holidays
Paid day off on a public holiday (includes all public holidays under both federal and state law) except where reasonably requested to work
Not entitled to pay if they do not ordinarily work on the day the public holiday falls i.e. part timers and casuals may not get paid unless they usually work on those days.
Rate of pay for employees who work on a public holiday will depend on what the award says. Employees who get the day off are at their base rate of pay.
Employer can request and employee to work on a public holiday and the employee has the option to refuse but both the request and the refusal must be reasonable.
9. Notice of termination and redundancy pay
up to 4 weeks notice of termination (5 weeks if employee is over 45 and has had at least 2 years on continuous service) and up to 16 weeks redundancy pay, both based on LSL.
10. Provision of a fair work information statement
Casuals – only certain elements of the NES applies
1. 2 days unpaid carers leave and 2 days unpaid compassionate leave per occasion
2. Maximum weekly hours
3. Community service leave (except paid jury service)
4. Day off on public holiday (possibly not paid unless they usually work on that day)
5. Fair work sheet
If the casual has done 12 months regular and systematic work (and has a reasonable expectation of continuing employment on a regular basis);
1. Can request flexible hours
2. Parental leave
What’s not OK
Unpaid work trials
You should get a pay slip within 1 day of being paid. This is becoming mandatory.
If award results in pay reduction then you must maintain pay at level they were on. Fair work will step in for reduced pay.
In addition to the NES, new award wages were introduced. These awards are called ‘modern awards’ and work in conjunction with the NES. They stipulate the minimum pay and conditions of employment for various occupations and can be found at the fair work website www.fairwork.gov.au.
If you have any questions or need specialist advice regarding the new workplace rules please contact us or call fair work Australia on 13 13 94.
What Employers should be doing with each new employee:
1. Have them fill out an employee declaration
2. Have them fill out the super choice form
3. If they start a new super fund with you have them fill out the necessary employer sponsored superannuation documentation
4. Have employee sign off on employment details i.e. rate of pay, expected hours and status of employment i.e. casual, part time, full time.
5. If new employee is an apprentice officially sign them up with department of education and training within 90 days. Advise the employee that it is up to them to advise you of the stages of there apprenticeship so you can adjust their wages accordingly. Provide them with the apprentice wage rates.
6. Make sure all entitlements and rates of pay adhere to the NES and any applicable award
The Government has announced a new measure to cut red tape for many businesses which have to make superannuation contributions to numerous super funds for their employees. From July 2010, small businesses will be able to pay one superannuation contribution to a ‘clearing house’, which will then forward payments on to super funds nominated by the employer.
Medicare is the nominated clearing house and small businesses will be able to begin registering with it online in May 2010 (for a July start).
How will the service work?
Small businesses with less than 20 employees will register for the service online and pay their superannuation contributions to Medicare, which will split them up and forward them on to the nominated super funds. Employers will pass on choice-of-fund nominations to Medicare. Medicare will develop an online system for registration and on-going payments, with payments initially being made via electronic funds transfer (EFT).
Superannuation
Self managed super funds
Myth
Self managed superannuation funds (SMSFs) can acquire residential property from a fund member.
Fact
Trustees are prohibited from acquiring assets for the fund from a related party of the fund, with some limited exceptions. One of these exceptions relates to business real property.
Business real property generally means land and buildings used wholly and exclusively in a business. There are a number of factors to be taken into account when determining if an enterprise is carrying on a business.
Business real property is exempt from the rule prohibiting trustees from acquiring assets from related parties. Business real property that is subject to a lease between the fund and a related party is exempt from the in-house assets rules relating to loans to, investments in, or leases with a related party, or investments in a related trust of the fund.
SMSF trustees may acquire up to 100% of the fund’s total assets in the form of business real property, provided they acquire it at market value. Trustees must ensure that the level of investment in business real property is in line with the fund’s investment strategy, including diversification of assets, liquidity and maximisation of member returns in the fund. Where a fund invests 100% of its assets in business real property, trustees must ensure that the fund continues to meet these requirements, for instance they must ensure the fund has sufficient liquidity to meet its liabilities (such as pension payments).
Where business real property is used in primary production business, such as a farm, it can still meet the test of being used wholly and exclusively in a business provided no more than two hectares of land contains a dwelling that is used for private or domestic purposes. However, the main use of the whole property cannot be for domestic or private purposes.
Examples
Q. Leo owns a residential property that is rented to an arm’s length tenant. Leo is also a member of the Leo Superannuation Fund. The fund has four members. Can the Leo Superannuation Fund acquire the property from Leo?
A. No, the property is a residential property, the acquisition of which is not covered by one of the exceptions under the acquisition of property from a related party rule.
Q. Dianne owns a factory that is rented to an arm’s length tenant. She is also a member of the Dianne Superannuation Fund. The fund has four members. Can the Dianne Superannuation Fund acquire the property from Dianne?
A. Yes, as the property is a factory used in a business, it would fall under the business real property exception under the acquisition of property from a related party rule.
Q. Joe owns a farm on which an area of land of less than two hectares contains a dwelling that is used for domestic or private purposes. Joe is a member of a self managed superannuation fund. Joe wants to sell the farm to his superannuation fund. Can Joe’s superannuation fund acquire the farm?
A. Yes, the fund could acquire the farm as the amount of land being used for domestic or private purposes is less than two hectares, thus the exemption under the acquisition of property from a related party rule.
Q. Bob’s SMSF wants to purchase a residential property and then lease it out. The property does not belong to any of the fund’s members or their relatives, or to any other related parties of the fund. Is this allowed?
A. Yes. An SMSF is allowed to acquire residential property from a non-related, or arm’s length, party. An SMSF can also lease residential property to non-related parties. Conversely, SMSFs are prohibited from acquiring residential property from related parties, and may only lease residential properties to related parties where the value of the property represents 5% or less of the fund’s total assets.
Limits on how much you put into super
Myth
I’m turning 50 soon after 1 July 2009 so I miss out on making the $ 50,000 contribution to my super fund until after June 2010.
Fact
You can contribute a maximum $50,000 in the year you turn 50 and future years until 30 June 2012. If you are under 50 the maximum you can contribute is $25,000.
This cap applies to contributions made from your employer. Employer contributions include contributions they make to meet their Superannuation Guarantee obligations as well as any salary sacrifice amounts (that is, amounts you have agreed with your employer to take out of your salary or wages before they deduct any tax). Your employer sends this money directly to your fund.
The most common contributions this cap applies to for the self employed are personal contributions they make for which they claim a tax deduction.
Work test
Myth
If you are between 65 and 74 you can still make personal superannuation contributions if you are doing unpaid voluntary work.
Fact
People who are aged between 65 and 74 must meet the work test to be allowed to make personal superannuation contributions. The work test requires a person to be gainfully employed. Unpaid work does not meet the definition of gainfully employed.
Tip
People aged between 65 and 74 need to satisfy the work test — at least 40 hours gainful employment in a consecutive 30 day period — in the financial year in which the contributions are made.
Gainful employment means employment or self employment for gain or reward in any business, trade, profession, vocation, calling, occupation or employment. For this reason a person who only receives passive income such as trust distributions or dividend income would also fail to meet the gainful employment test.
As many of you may or may not have heard there have been recent developments surrounding the ability of Self Managed Superfunds to borrow to buy assets such as property and shares. Traditionally borrowing by Superfunds has never been allowed however in light of recent changes to the law it is now possible but under very stringent rules. They basic conditions that need to be satisfied are as follows:
1. Any borrowing must be on a limited recourse basis (i.e. Only the asset being purchased with the borrowings can be secured). This also means no personal guarantees can be used.
2. The asset must be held by what is known as a “bare trust” under an installment arrangement with the Superfund. Basically the Superfund must make repayments to the trust by way of installments until the borrowings are completely repaid in full.
The structure and paperwork of this type of arrangement is extremely complex and professional advice must be sought before entering such an arrangement. Please contact us if you seek advice or are interested in this type of arrangement.
