Eligible taxpayers will be able to claim a 50% tax offset in respect of eligible education expenses incurred during the year of $750 ($375 offset) for primary school studies and $1500 ($750 offset) for secondary school studies ( some other studies also qualify). General eligibility based on FTB eligibility,youth allowance, ABSTUDY,labour market program. Amounts in excesss of any tax liability is paid as a refund.
TAX OFFICE TARGETS 2008-2009
Each August, the tax office publicly releases its targets for the year. It’s a valuable guide for taxpayers – forewarned is forearmed.
While it’s not yet August, tax office Second Commissioner Jennie Granger has recently given an "early bird" view of some of the areas that the tax office's compliance program for 2008-09 will be addressing, and an overview of its tax time focus for individuals and small business.
For tax time this year, the tax office will be paying particular attention to investors (with key areas of risk including the sharemarket (46% of people now own shares), and capital gains events, particularly the following areas.
Rental properties. The tax office notes that more than 1.5 million people claimed more than $24 billion in rental deductions in their tax returns last year, with almost 170,000 people claiming for the first time.
Rental properties are a long-time problem area for the tax office. Common errors are regularly being made, and Granger says the tax office will soon be writing to people who claimed rental deductions for the first time last year with information on the "do’s and don'ts".
The tax office will also be writing to people who have been selected because they have some of the following characteristics: Unusually high claims for rental deductions; low rental income in relation to rental deductions; high claims for interest expenses’; and high claims for borrowing expenses.
The Second Commissioner warned that a letter from her office "is a big hint". She said if a tax agent client receives a letter from the tax office in relation to rental property deductions, the agent should encourage the client to check carefully about all the information they provide, "as we'll be checking carefully too".
Dividends and interest. Data-matching is a major tax office weapon here. This might seem like an obvious target, but it is one taxpayers can easily overlook. Accounts closed or money moved during the year can lead to amounts of interest earned being overlooked, but the tax office’s data-matching process will show this up.
Sale of investments and CGT. Granger says the tax office has "reason to believe that compliance with capital gains tax is improving, but we also think there is still room for further improvement".
As an indication of the scale of the CGT issue, she said that as at 31 October 2007 approximately 1.2 million people declared around $16.26 billion in capital gains in their 2006 tax returns. The number of taxpayers who declared net capital gains rose by 3.8% in the 2006 tax year, mainly from shares and property sales. The tax office heavily uses data-matching with the states and territories regarding sales of investments.
Avoiding dodgy tax schemes. Again, obvious; but SMEs and others should be wary of schemes promoted to them that claim what seem to be too-good-to-be-true tax outcomes.
Saving for retirement. Don't forget about the new superannuation caps. Those who have sold assets to invest in superannuation may have a CGT liability that will need to be disclosed correctly.
Other target areas identified include:
Salary packages of executives and directors. The tax office will expand its review of highly paid executives and directors, generally people with income over $1 million. The majority of adjustments made by the tax office relate to benefits acquired under employee share schemes.
Employees and their work expense claims. The tax office will look at the growth in work expense claims, particularly by nurses (with a focus on self-education), medical practitioners (travel and entertainment expenses) and chefs (expenses for travel between home and work, and for pre-vocational courses). More generally (not just in the above occupations), the tax office will be looking at anomalous or "out of pattern" claims for self-education, car and travel expenses. The common adjustments made relate to car expenses, travel expenses, self-education, and ambit claims for clothing and laundry expenses.
Small business. The tax office will be expanding its coverage of income tax issues this year. This includes; sale of assets and investments, foreign source income, and employer obligations (including superannuation).
Offshore income. The tax office has been writing to some taxpayers encouraging them to make, if required, a voluntary disclosure of undeclared income held offshore. So far, 3339 letters have been sent out, and 733 people have made disclosures involving income of over $31 million.
These disclosures have mainly been investment income from interest and dividends, wages and pensions. The tax office is also conducting 80 audits linked to Vanuatu with over $90 million in allegedly false deductions. In addition, it is writing to another 500 Australians with apparent links to Vanuatu seeking more information on their tax affairs.
Revenue results so far
Just in case you were wondering if all this activity by the taxman actually produces any results, the following table shows the tax office audit and review activity and the tax revenue that has flowed from that.
No. of audits/reviews completed
Dividends and interest
Over 160,000 (with 20,000 still in progress)
CGT reviews re investments
$50.2m in revenue adjustments
Executives and directors
175 questionnaires sent (162 returned)
Work expense claims
17,000 reviews last year
Offshore income (excluding Vanuatu)
3339 letters sent (733 voluntary disclosures made)
Under a contract of service, the payer usually has the right to direct the way in which the work is done. Of course, where the nature of the work involves the professional skill or judgement of the worker, the degree of control over the manner of the performance is diminished. What is important is the lawful authority to command that rests with the payer.
The hallmark of a contract for services is that the contract is one for a given result. The contractor works to achieve the results in terms of the contract. The contractor works on her/his own account, i.e. a plumber.
How the work is performed
Tasks are performed at the request of the employer. The worker is said to be working in the business of the payer.
An independent contractor enters into a contract for a specific tasks or series of tasks. The contractor maintains a high level of discretion and flexibility as to how the work is to be performed. However, the contract may contain precise terms as to materials used and methods of performance, and still be one for services.
An employee bears little or no risk. An employee is not exposed to any commercial risk. This is borne by the employer. Further, the employer is generally responsible for any loss resulting from poor work.
An independent contractor stands to make a profit or loss on the task. She or he bears the commercial risk. The contractor bears the responsibility and liability for any poor work or injury sustained in the performance of the task. Generally a contractor would be expected to carry her/his own insurance policy.
Place of performance
A worker under contract of service will generally perform the tasks on the payer's premises.
A contractor on the other hand will generally provide all their own assets and may work at a number of locations.
Hours of work
An employee generally works standard or set hours.
An independent contractor generally sets their own hours of work.
An employment contract will generally provide annual leave, long service leave, sick leave and other benefits and allowances.
Generally an independent contract would not contain leave provisions (although mere non payment does not simply make the contract one for services).
An employee is generally paid an hourly rate, piece rates or award rates.
Payment to an independent contractor is based upon the performance of the contract.
An employee is generally reimbursed for expenses incurred in the course of employment.
An independent contractor is responsible for their own expenses.
An employee is generally recruited through an advertisement by the employer
An independent contractor is likely to advertise their services to the public at large
An employer reserves the right to dismiss an employee at any time (subject to any state or federal laws).
An independent contractor is contracted to complete a set task. The payer may only terminate the contract without penalty where the worker has not fulfilled the conditions of the contract. The contract will usually contain terms dealing with defaults made by either party
An employee has no inherent right to delegate tasks to another. However, there may be a power to delegate some duties to other employees
An independent contractor may delegate all or some of the tasks to another person and may employ other persons.
Plant and equipment is usually provided by the employer
The contract usually specifies who is to provide the plant and equipment. This is usually the responsibility of the contractor.
Scheduling of work
An employer determines or controls the time frame within which the work is to be performed.
The work would be performed in accordance with agreed schedules and consistent with the obligations under the contract.
Expectation of work
An employee usually has an ongoing expectation of work.
A contractor is usually engaged for a specific task.
Method of payment
An employer usually pays an employee according to an award or employment agreement.
A contractor usually invoices the person who engages them for their services
An employee pays PAYG tax which the employer pays on behalf of the employee.
A contractor usually deals with her/his own tax.
Relationship to the business
An employee is usually an integral part of the employer's business
A contractor's work is usually an accessory to the business.
Ability accept other work
A full-time employee is usually restricted to work for the one employer during normal business hours
A contractor can accept as many contracts as they wish.
Right to refuse work
An employee does not have the right to continually refuse a reasonable task.
A contractor usually agrees to the tasks beforehand. The contract governs the tasks that must be performed.