tax tips

As digital payments become increasingly prevalent, the Federal Government has announced it’s taking significant steps to modernise the nation's payment system while working to ensure that no one’s left behind. This involves maintaining the use of cash for essential transactions and phasing out cheques in a gradual manner. The government says it intends to consult extensively with stakeholders, including small businesses and people in regional communities, to develop a cash mandate that’s both practical and inclusive.

Despite the rapid adoption of digital payment methods, cash remains an essential part of the Australian economy. Approximately 1.5 million Australians rely on cash for over 80% of their in-person transactions. The government's plan to mandate cash acceptance for essential goods and services such as groceries and fuel ensures that these individuals can continue to participate fully in the economy.

The use of cheques has seen a dramatic decline, with a 90% reduction over the past decade. As digital payment options become more accessible and preferred, the government has set a timeline to phase out cheques entirely by 2029.

Cheques will no longer be issued after June 2028 and will cease to be accepted by September 2029. The government expects banks to play a crucial role in supporting cheque users by facilitating a smooth transition to alternative payment methods.

For individuals who prefer cash or still use cheques, these changes may seem worrying. However, the government says its approach is designed to ensure that everyone can continue to participate fully in the economy, regardless of their preferred payment method. By mandating cash acceptance for essential purchases and providing a long lead time for the phase-out of cheques, the government is taking steps to ensure a smooth transition.

The consultation process offers an opportunity for people and businesses to voice any concerns and help shape the future of Australia’s payments system. Whether you're concerned about privacy and digital security, or simply prefer traditional payment methods, staying informed and engaged is crucial as these changes unfold.

Navigating the Australian tax system can be challenging, especially when it comes to understanding the Medicare levy and the Medicare levy surcharge. Let’s break these down to help you understand who pays them and how private health insurance affects your tax return.

The Medicare levy is a compulsory charge that helps fund Australia’s public healthcare system. Almost all Australian taxpayers pay this levy, which is 2% of your taxable income. This levy’s generally withheld from your pay by your employer throughout the year, so you may not notice it until tax time.

It’s important to note that having private health insurance doesn’t exempt you from paying the Medicare levy; it only affects your liability for the Medicare levy surcharge.

In certain cases, you might be eligible for a reduction or exemption from the Medicare levy. For instance, if you meet specific conditions such as being a low income earner, foreign resident or having a medical exemption, you may qualify for a reduced rate or full exemption.

The Medicare levy surcharge (MLS) is an additional charge designed to encourage higher-income earners to take out private hospital insurance, thereby reducing the strain on the public healthcare system. Unlike the Medicare levy, the MLS isn’t automatically withheld from your income, but is calculated when you lodge your tax return.

You may be liable for the MLS if your income exceeds the MLS threshold and you, your spouse or your dependent children don’t have an appropriate level of private patient hospital cover for the entire income year. The surcharge rates vary based on your income tier.

Your income for MLS purposes includes several components beyond your taxable income, such as reportable fringe benefits, total net investment losses and reportable super contributions. If you have a spouse, their income’s also considered in the calculation.

To avoid the MLS, you need an appropriate level of private patient hospital cover. For singles, this means a policy with an excess of $750 or less, and couples or families need a policy with an excess of $1,500 or less. Your policy must cover you, your spouse and all dependants for the full income year to avoid the surcharge.

Keep in mind that extras-only cover (such as for dental or optical) and travel insurance don’t qualify as private patient hospital cover for MLS purposes.

Facing a tax bill is a common challenge for many Australian businesses, and the ATO has recently shifted to a more active approach to debt recovery. However, this doesn't mean they're out to get you. The ATO’s primary goal is to work with businesses to manage and clear tax debts effectively.

You or your tax agent can review your income tax assessment notices or use the ATO's online services to check your current tax debt. You can also contact the ATO directly by phoning 13 28 66 (the business enquiries line).

If you find yourself unable to settle your tax debt in full by the due date, don't panic. The ATO offers several repayment options, including:

• Self-service payment plans: For debts under $100,000, you can set up a plan online. This option is available if you don't already have an active plan for the same debt and can cover the amount within two years.
• Proposing a payment plan: For larger debts or more complex situations, you can propose a tailored payment plan. The ATO provides tools like the Payment Plan Estimator and Business Viability Assessment Tool to help you create a realistic proposal.

Remember, entering into a payment plan means committing to paying future tax obligations on time.

When proposing a payment plan, it's essential to accurately assess your capacity to pay. The ATO will require specific information depending on your business structure. This may include income sources, expenses, and cash flow information for the past three months.

It's important to note that the general interest charge (GIC) applies to unpaid tax debts. This rate is currently 11.38% per annum. The government has also recently announced plans to make GIC non-tax-deductible, which would increase the effective cost of unpaid tax debts.

The key to managing your tax debt successfully is proactive communication. If you're experiencing difficulties, don't wait for the ATO to contact you. Reach out to the ATO directly, or to your registered tax agent, as soon as possible. By engaging early and honestly, you can avoid more serious potential consequences like director penalty notices, garnishee notices or having your tax debt disclosed to credit reporting bureaus.

If you’re thinking of making a permanent move between New Zealand and Australia, what do you do about your superannuation fund or KiwiSaver scheme? Under the Trans-Tasman Retirement Savings Portability Scheme, retirement savings can be transferred between Australia and New Zealand.

It’s important to note that the scheme is voluntary – for individuals, Australian superannuation funds and KiwiSaver scheme providers. Check with your Australian super fund or your New Zealand KiwiSaver scheme provider to confirm that they participate. Only APRA-regulated complying super funds and NZ KiwiSaver scheme providers can participate in the transfers, and not all super funds will accept KiwiSaver transfers.

Transfers from Australia to New Zealand

• Eligibility: You must be aged under 65 (the current eligibility age for NZ super) and provide evidence of permanent emigration to NZ.
• What you can transfer: Your entire balance can be transferred from a complying APRA-regulated super fund; you may also be able to transfer ATO-held unclaimed super money. Exclusions apply for self managed super funds (SMSFs) and certain interests.
• Where you can transfer: To any participating KiwiSaver scheme.
• Contribution caps: There’s no limit on how much you can transfer, as the NZ system doesn’t have contribution caps.
• Tax on transfers: A transfer from your super fund to a KiwiSaver scheme is not taxed, and withdrawals are tax-free once you are legally allowed to access them. Check for any other possible NZ tax implications with your financial advisor.
• Access to funds: Transferred Australian savings can’t be used to buy your first home, and can’t be transferred to a third country if you move again. Funds are held in two parts – you can access the Australian component when you reach age 60 and are retired; for the NZ component you’ll need to reach the NZ retirement age (currently 65).
• Moving back to Australia: If you decide to move back, you’ll need to find a fund that will accept transfers from a KiwiSaver scheme and be able to demonstrate which savings components previously counted toward your non-concessional contributions cap and the tax-free and taxable components of your savings so they keep that status. If you don’t provide the information, you may have to pay excess contributions tax or additional tax.

Transfers from New Zealand to Australia

• Eligibility: You must be aged under 75 and provide evidence of permanent emigration to Australia.
• What you can transfer: Your entire KiwiSaver scheme balance can be transferred.
• Where you can transfer: To any Australian APRA-regulated complying super accepting KiwiSaver transfers. You can’t make a transfer to an SMSF.
• Contribution caps: NZ-sourced savings are treated as non-concessional contributions and are subject to the non-concessional cap. Contributions over the cap might result in excess non-concessional contributions and you might need to release an amount or pay extra tax. Your total superannuation balance also impacts what you can contribute.
• Tax on transfers: Transfers from an NZ KiwiSaver scheme to an Australian super fund are not taxed. Withdrawals are tax-free in retirement once conditions of release are met.
• Access to funds: KiwiSaver scheme savings can’t be transferred to an SMSF, and they can’t be transferred to a third country if you move again. Funds will be held in 2 parts – to access the Australian component you’ll need to be aged at least 60 and meet the Australian definition of retirement; for the NZ component you’ll need to reach the NZ retirement age (currently 65).
• Moving back to NZ: If you decide to move back, you’ll need to find a fund that will accept transfers from an Australian super fund. The rules for transferring super funds to KiwiSaver will apply.