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Making
sense of your dollars
It’s
tax time again. Here’s the Defence Tax Management Office’s guide
to preparing your tax return for the 2004-2005 financial year.
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Assessable
income
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A
member’s ADF payment summary includes only ADF income. Assessable
income from other sources, including secondary employment,
must also be included in the member’s income tax return.
If income was received from secondary employment, you must
obtain a payment summary from your secondary employer. For
example, employment at a Service Canteen, Club or Mess would
constitute secondary employment.
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THE
ADF Income Tax Guide 2004- 2005 is designed to help members prepare
their 2004-2005 income tax returns.
It’s intended to complement the Australian Taxation Office’s (ATO’s)
TaxPack 2005 and TaxPack 2005 Supplement by highlighting the more
specific tax issues that impact ADF members. It is recommended
that members consult a tax adviser or the ATO, especially where
income other than ADF salary and allowances has been received.
The guide cannot be used as a legal authority in the event of
any dispute between an ADF member and the ATO. It is not a substitute
for the Income Tax Legislation or any income tax ruling or determination
issued by the ATO.
Tax supplements for foreign countries where the ADF has had an
operational presence will be issued for the 2004-2005 income year.
These supplements must be read in conjunction with the ADF Income
Tax Guide 2004-2005.
The guide has been referenced to relevant questions in ATO’s TaxPack
2005 and TaxPack 2005 Supplement with relevant page number included
in the headings.
Q1
– Salary or wages
Amounts that are disclosed in the gross earnings column of the
ADF member’s payment summary for the year ended June 30 2005 include
salary, wages, commissions and bonuses.
These
amounts are assessable income and should be included in the member’s
2005 tax return under Question 1.
Payments for lost salary or wages paid under an accident, insurance
policy or worker’s compensation scheme from which tax was withheld
should also be included at Question 1.
Tax withheld at Question 1 Salary and wages from which tax was
withheld and which are shown on the member’s payment summary should
be included at Question 1. If no tax was withheld, the salary
and wage income should be included at Question 2.
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What’s
new for 2004-2005?
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Changed
taxation thresholds for incomes above $52,000.
Increased private health insurance rebate of 35% for policies
covering at least one person 65 to 69 years old.
Introduction of a mature-aged worker tax offset for workers
aged 55 years or older on June 30 2005.
Expanded types of documents to substantiate work-related
expenses.
Increased super co-contribution of $1.50 per $1.00 contributed
to a maximum contribution of $1,500.
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Allowances,
bonuses and benefits
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Flying Allowance is included in assessable income.
It is possible that a deduction can be claimed as part of self-education
expenses where expenditure on education in relation to flying
relates directly to current income earning activities (refer to
Question D4 of the TaxPack).
- Language
Proficiency Allowance is included in gross earnings in column
1 of the payment summary.
A deduction may be allowed for expenditure in the maintenance
of language proficiency, for example language books, tapes and
so on, where there is a direct relation to current income earning
activity.
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Special Action Forces Allowance is included in assessable income.
It may be possible to claim deductions for self-education expenditure
or fitness expenditure (refer to Question D5 of the TaxPack).
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Vehicle Allowance (VA) is payable to a member who has been authorised
to use a privately owned vehicle when travelling within Australia,
in circumstances such as:
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on duty;
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on leave travel;
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on removal;
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to duty during public transport stoppages;
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on recall outside normal working hours; or
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in respect of a member who lives in, travel between the member’s
normal living quarters and his or her usual place of duty.
VA
is assessable income, except when paid on removal or in respect
of leave to enable a holiday, and should be included in your tax
return.
A tax deduction is allowable for work-related travel expenses
incurred (refer to Question D1). Generally, no tax deduction is
allowable in the case of travel between home and work.
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Q-M2
– Medicare levy surcharge (pp 105-108 )
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A
Medicare Levy surcharge was introduced from July 1 1997.
Generally, higher income individuals and families will pay
an extra 1 per cent of their taxable income for the Medicare
levy surcharge, unless they fall within an exemption category
or have the required level of private patient hospital insurance.
ADF members without dependants will not be liable for the
Medicare levy surcharge. ADF members with dependants, where
their combined taxable income (including reportable fringe
benefits) for Medicare Levy Surcharge purposes (see TaxPack
2005 page 105) of themselves and their spouse is in excess
of $100,000, increasing by $1500 for each dependant child
after the first, will be liable for the Medicare levy surcharge
if any of the dependants do not fall within an exemption
category and they do not have adequate private patient hospital
insurance. The exemption categories are set out in TaxPack
2005 at page 103.
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Other
assessable allowances, against which no specific deductions can
be claimed, include:
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Arduous Conditions Allowance;
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Antarctic Allowance;
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Antarctic Parity Allowance;
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Clearance Diving Allowance;
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Common Duties Allowance;
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Difficult Post Allowance;
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District Allowance;
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Diving Allowance;
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Experimental Diving Allowance;
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Field Allowance;
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Flight Duties Allowance;
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Hard Lying Allowance;
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Home Purchase Assistance Scheme;
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Paratrooper Allowance;
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Seagoing Allowance;
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Service Allowance;
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Submarine Escape Allowance;
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Submarine Service Allowance;
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Trainee’s Dependant Allowance;
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Trainee Leader’s Allowance; and
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Unpredictable Explosives Allowance.
Retention payments will generally be included in assessable income
unless, when the payment is received, there was a certificate
in writing issued by the CDF under section 23AD of the Income
Tax Assessment Act 1936 to the effect that the person is on eligible
duty (not including an attaché at an Australian embassy or legation)
with a specified organisation in a specified area outside Australia
(see ATO Interpretative Decision ID 2004/80).
This is the case even if the retention payment was made while
the taxpayer’s other income was exempt foreign employment income
under section 23AG of the act.
The retention payment is not considered to be a payment arising
from the “foreign service” but is paid to encourage the taxpayer
to remain as a member of the ADF (see ATO Interpretative Decision
ID 2003/373).
Where a retention payment has been included in assessable income
and all or part of the payment is required to be repaid, under
section 59-30 of the Income Tax Assessment Act 1997, you will
generally be required to amend the income tax return for the year
in which you originally received the retention payment and included
it in your assessable income.
Q2
– Allowances, earnings, tips, director’s fees etc.
Travel allowances and award overtime meal allowances that do not
exceed the Commissioner of Taxation’s reasonable allowance amounts
do not have to be
shown
on payment summaries by payers.
If an ADF member receives such an allowance and it is not shown
on a payment summary, they do not have to include it as income
at this question, provided they have fully expended the allowance
on deductible expenses and they are not making a claim for expenses
relating to the allowance in their tax return (see question D2
for travel expenses and question D5 for overtime meal expenses).
Other allowances, earnings, tips or directors fees received during
the year that have not had tax deducted from them and have not
been shown on PAYG payment summaries under individual nonbusiness,
should be included at Question 2.
Uniform Maintenance Allowance
Uniform Maintenance Allowance should be included in assessable
income at Question 2. A deduction can be claimed for the cost
of replacement, laundry or repair to compulsory uniform.
For more details in relation to the deductibility of uniform expenditure,
please refer to Question D3 of this guide, as well as to Taxation
Rulings TR 95/17 and TR 97/12 and Taxation Determination TD 1999/62.
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Superannuation
surcharge
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A
SUPERANNUATION surcharge of up to 12.5% applies to all surchargable
contributions made by or on behalf of “higher income earners”.
In 2004-2005, the full 12.5% surcharge applies to members
whose taxable income, reportable fringe benefits amount
plus surchargeable contributions is $121,075 or over, with
the surcharge phasing in from $99,710. As the superannuation
surcharge law is complex, it is recommended that you consult
your tax adviser or the ATO. Both DFRDB and MSBS members
can contact Comsuper for more information on superannuation
surcharge. The Federal Government announced abolition of
the superannuation surcharge from 1 st July 2005 as part
of the 2005-2006 Budget. The legislation had yet to be passed
through the Parliament at the time of preparing this guide.
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Family
tax benefit (pp 75-78) Family tax benefit (pp 75-78)
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REVISIONS
to the family tax benefit (FTB) rules now mean that:
you
have up to two years after the end of the claim year to
lodge a lump-sum FTB claim; and
if you do not lodge your income tax return (if required
to do so) within 12 months of the due date, a debt will
be raised for the full amount of FTB you received in that
year, but if you lodge your income tax return within 12
months after the due date, you can have your non-lodgement
debts cancelled and receive any FTB top-up you may be
entitled to. For more information on the FTB, refer to
pages 75-78 of TaxPack 2005.
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Q3
– Lump sum payments
Unused annual leave
Where a lump sum payment is made to an ADF member in lieu of their
unused annual leave, the payment is included in the member’s assessable
income in the income tax year that the amount is received.
The amount is taxed at the ADF member’s marginal tax rate except
where the payment is in respect of unused annual leave and associated
bonus or other payment related to that leave, that accrued in
respect of service before August 18 1993.
The maximum amount of tax payable within the above exception is
30% (plus Medicare levy and surcharge, if applicable).
Unused long service leave
Where an ADF member receives a lump sum payment in lieu of unused
long service leave, shown as an amount on the payment summary
the amount is to be included as assessable income in the year
it is received, as follows:
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Five per cent of the amount received in respect of unused long
service annual leave that accrued before August 16 1978. It’s
taxed at members’ marginal rates.
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The whole amount received from service attributable to the period
from August 16 1978 to August 17 1993 is included in full. It
is taxed at marginal tax rates subject to a maximum rate of 30
per cent.
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From August 18 1993, all payments attributable to unused long
service leave are included.
They are taxed at members’ marginal tax rates. Amounts at B on
the payment summary relate to a payment for unused annual leave
before August 16 1978. Don’t include amounts shown on the payment
summary as lump sums D or E.
For amounts shown at D, complete Question 4 – Eligible Termination
Payments. For E, complete Question 22 – Other Income.
Medicare levy and surcharge (if any) are added to whichever rate
is applicable.
Bona fide redundancy, approved early retirement
scheme and invalidity
Payments for annual leave and long service leave that accrued
after August 17 1993, will be subject to the concessional maximum
tax rate of 30 per cent (plus Medicare levy and surcharge, if
applicable) to the extent that the payment is made under circumstances
of bona fide redundancy, approved early retirement scheme or invalidity.
Q4
– Eligible termination payments
An eligible termination payment (ETP) is a payment made to a taxpayer
in consequence of the termination of his or her employment (e.g.
DFRDB commutation) and excludes payments such as:
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unused leave entitlements;
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pensions or annuity; and
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tax free component of bona fide redundancy payments and approved
early retirement scheme payments.
In 2004-2005 the tax-free limit is $6,194 plus $3,097 per year
of completed service with the ADF.
The amount in excess of the tax-free limit is assessable as an
ETP.
The tax payable on an ETP is dependent upon the age of the member,
the nature of the components making up the ETP, and whether the
ETP exceeds the member’s reasonable benefit limit.
Tax relating to ETPs is a complex area. It is strongly recommended
that members who have received an ETP should refer to pages 23-26
of TaxPack 2005 or seek independent professional advice.
A termination payments surcharge will be payable
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an ETP was paid to members by their employer; and
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the member’s adjusted taxable income exceeds $99,710. Please refer
to TaxPack 2005 pages 23-26 for more information.
The surcharge assessment is sent after the income tax notice of
assessment has been issued.
So while you may have received a refund on your notice of assessment,
you may still have a surcharge liability.
Q9
– Total reportable fringe benefits amounts (p 32)
ADF members who received certain fringe benefits from the ADF
should find that the grossed-up taxable value of the fringe benefits
received are recorded on their payment summary (in the top right-hand
corner).
Defence will keep records of the value of any fringe benefits
provided to its employees, but will only record them on member’s
payment summary for the 2004-2005 financial year if that member’s
total taxable fringe benefits amount exceeds $1,000 for the fringe
benefits tax (FBT) year (April 1 2004 to March 31 2005).
The value of the reportable fringe benefits amount ( the grossed-up
amount of fringe benefits) will not impact upon your taxable income
(or loss).
It is, however, used in conjunction with your taxable income,
to determine your entitlement to, or liability for the following:
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Medicare levy surcharge;
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Superannuation contributions surcharge;
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Termination payments surcharge;
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Deductions for superannuation contributions;
- Superannuation
contributions tax offset;
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Tax offset for superannuation contributions on behalf of your
spouse;
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Higher Education Contribution Scheme (HECS) and Postgraduate Education
Loans Scheme (PELS) repayments.
From 1 st January 2005 new student assistance will be termed HELP
(Higher Education Loan Program) and from 1 January 2006 all outstanding
HECS & PELS debts will be rolled into HELP; and
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Child support obligations (non-reportable fringe benefits may
be considered by the Child Support Agency (CSA) when making an
assessment (contact the CSA on 13 12 72 for further information).
The non-grossed up value of fringe benefits is used in determining
the entitlement to certain income tested government benefits including
the Family Tax Benefit, the Child Care Benefit, and the parental
income test for the Youth Allowance. Go to page 32 of TaxPack
2005 for more information.
What comprises my reportable fringe benefits amount?
FBT statements were sent to members by the DTMO in May, advising
the expected amount to be disclosed on their payment summaries
along with details of what the total comprises.
The aim of issuing the FBT statements in May was to give members
the opportunity to check the reportable fringe benefits amounts
prior to them being reported on the payment summaries.
At the time of the statement mail-out there would have been some
minor processing still incomplete.
In some instances, there may have been variations from the statement
to the final amount that appears on the individual member’s payment
summary.
Where an amount has been incorrectly reported on your statement
or payment summary you should contact DTMO for investigation.
DTMO can be contacted by email to taxation.management@defence.gov.au
or by phone on 1800 806 053.
Benefits provided to ADF personnel in Afghanistan
and Iraq.
Subject to specific conditions, benefits which are directly related
to, or in respect of deployment of ADF personnel to warlike operations
in any of the above countries, are not subject to FBT.
The pay and allowances received while deployed do not appear on
a member’s payment summary.
Q19
– Foreign source income and foreign assets or property (supplement
pp 21-26)
Section 23AG exempt foreign earnings ADF members who have claimed
a section 23AG exemption through their pay account will be required
to report the amount as “exempt foreign employment income” at
Question 19.
It should be noted that the exempt income is used to determine
the average tax rate applicable to other taxable income in Australia.
Please refer to the ATO TaxPack for further information regarding
correctly completing your tax return. Amounts exempt under sections
23AC and 23AD are not reported on the income tax return.
Tax exempt income
Exempt income is not included in your assessable income.
Some common types of exempt income are listed in the TaxPack 2005.
Members should be aware that all expenditure incurred in deriving
exempt income will not be an allowable deduction.
The following is a list of more common exempt income amounts you
may have received from the ADF: ¦ Living Out Allowance;
- Living
Out Away from Home Allowances;
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Education Assistance Overseas Allowance;
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Scholarship Allowance;
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Education Allowance;
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Child Education Allowance;
- Re-engagement
Bounty;
- Disturbance
Allowance;
- Transfer
Allowance;
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Deployment Allowance; or
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Rations and quarters supplied without charge.
Overseas Allowances – members posted overseas will be regarded
as living away from their usual place of residence, and will be
required to complete a statement to enable the ADF to claim a
reduction in fringe benefits tax payable by Defence to the ATO.
Part-time
members of Defence Force Reserves or Emergency Reserve Forces
Pay and allowances for part-time Ready Reserve, Reserve Service
or Emergency Reserve Forces are also exempt.
This exemption does not apply where the member of the Reserves
has been called up for full-time service or has volunteered for
such service. Cash prizes under the Military Skills Awards program
to members of the Army Reserve are also exempt (Taxation Ruling
IT 2474).
It is important to note that workers’ compensation payments received
for lost civilian or Reserve Force income are not tax exempt and
should be included in the member’s assessable income. Refer to
ATO Interpretative Decisions ID 2003/260 and ID 2004/213.
Warlike service
An exemption applies to the pay and allowances earned by ADF members
who serve in a defined operational area. Members deployed to a
defined warlike operation will be advised separately of the tax
implications as part of their deployment administration.
Pay related to recreation leave accrued while serving in an operational
area is also tax exempt. Rent, interest, dividends, capital gains
or any other type of investment income that the ADF member may
earn while on deployment will be subject to taxation.
The exemption from tax will apply only to salary and allowances
paid to the ADF member while on eligible duty.
Exemption for reimbursed expenses
An exemption from income tax applies to certain payments or allowances
received by members for reimbursement of expenses. For example:
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Home Purchases or Sale Expense Allowance;
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Reimbursement of expenses for pet relocation;
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Temporary accommodation allowance; and
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Rental allowance.
Note that these benefits may be subject to fringe benefits tax
reporting requirements.
Non-taxable income Examples of income that is generally non-taxable:
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Quiz and sport prizes received on an amateur basis;
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Proceeds of a non-business hobby or pastime;
- Housekeeping
money from a spouse;
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Refund of DFRDB contributions, which have not been claimed as
a tax deduction before (note: MSBS contributions were never tax
deductible);
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Medical and dental services provided or paid for by the ADF; or
- Benefits
received through frequent flyer schemes or other consumer loyalty
programs, which arise as a result of employer-paid expenditure.
These are nonassessable as they arise from a personal relationship
between the taxpayer and the third party provider.
Note that Defence guidelines specify that frequentflyer points
of this nature can only be used for certain aspects of work-related
travel.
Members in receipt of such points should ensure they are familiar
with their proper use.
Deductible expenses
An expense may be deductible where it was incurred for the purpose
of producing assessable income.
If the expense is of a capital, private or domestic nature, the
expense will not be deductible. An expense that has been, or will
be paid or reimbursed by the ADF, cannot be claimed as a deduction.
If an expense is incurred for work and private purposes, only
the work-related portion of the expense may be claimed. If you
are claiming a deduction for a work-related expense for which
you received an allowance, include the amount of the allowance
at Question 2.
For more details on applicable deductible expenses, refer to Taxation
Ruling TR 95/17, “Income Tax: Employee work related deductions
of employees of the Australian Defence Forces”.
Goods and Services Tax related expenditure If any deductible work-related
expenses incurred by ADF members include an amount of GST, this
tax is considered to be part of the total expense and is therefore
an allowable deduction.
The ATO provides specific information for ADF members relating
to work-related deductions questions D1 to D5 in the ATO Occupational
Summary Australian Defence Force members 2004-05 (NAT 2321-6.2004).
This publication can be obtained from the ATO’s Publications Distributions
Service on 1300 720 092 or from the ATO web site www.ato.gov.au.
Q-D1
– Work related car expenses (pp 42-48)
A deduction for car transport costs is allowable if a member uses
his or her car when the member travels directly to the place of
his or her second job from his or her work as an ADF member.
Private use
A deduction is not allowed for the cost of travel by an ADF member
between home and his or her normal place of work, as it is considered
a private expense.
This includes travel to and from an ADF base by members choosing
to live off base, or forced to do so due to lack of on-base accommodation,
and travel from the place of residence on base to where normal
duties are performed for those members residing in accommodation
located on base.
The private nature of the travel expenses is not altered by the
fact that members may perform incidental tasks en route.
Travel between home and work, where home is a base
of operations and work commences at home
It would be unusual for an ADF member to commence work before
leaving home. However, where the member’s home is the base of
operations for work and work is commenced at home, deductions
for transport expenses may be allowed.
On these occasions the member would be considered to be travelling
on work as distinct from travelling to work from his or her home.
Set out below is a list of factors that may indicate that a member
is travelling on work:
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The member undertakes tasks at home that cannot be done at the
work site;
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The performance of the duties of the job commences before leaving
home.
The obligation should involve more than just being on stand-by/on
call duty at home;
- The
member is required to commence the task at home and the responsibility
for completing it is not discharged until the member attends at
the work site;
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The home takes on the characteristics of being a base of operations
on occasions, since work has to be commenced there; or
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The member does not choose to perform part of the work in two
separate places; the two places of work are an obligation arising
from the nature of the job.
Travel to sporting activities
To qualify for a deduction for travelling to a sporting
activity, the ADF member must be on duty while participating in
the sporting activity and the member is required to participate
in the activity as part of his or her normal income earning activities
(for example as an official ADF representative in inter-Service
or combined Service competitions).
Travel between home and the sporting event is not deductible,
even where the above requirements are met.
Methods for car expense deductions
There are four methods which, depending on the work-related
distance travelled, may be able to be used to calculate claims
for the cost of such travel expenses:
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cents per kilometre (for total work-related travel of less than
5000 kilometres per annum);
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12 per cent of original value (for total work-related travel of
more than 5000 kilometres per annum);
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one third of actual expenses (for total work-related travel of
more than 5000 kilometres per annum); and
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logbook method (for any distance travelled). Each of the four
methods has different rules and requires different documentation
to be kept to substantiate the claim.
Pages 42-48 of TaxPack 2005 have more detail on how to calculate
a claim under each of the four methods and discusses the different
substantiation requirements.
The cents per kilometre deduction method has new rates, which
are applicable for the 2004-2005 income year.
Q-D2
– Work related travel expenses (pp 49-50)
Work-related travel costs for vehicles other than cars should
be included at this question.
Examples include motorcycles, utility trucks or vans with a carrying
capacity of more than one tonne, and any other vehicles with a
carrying capacity of nine or more occupants.
Other work-related travel expenses, such as airfares, bus, train,
tram and taxi fares, bridge and road tolls, parking and car hire
fees, and car related expenses for cars not owned by the taxpayer,
should also be included at this question.
In addition, members may be able to claim travel expenses such
as meals, accommodation and incidental expenses incurred while
travelling for work, for example, going to an overnight work conference,
where the expenses are not reimbursed or a travel allowance is
not paid.
Generally, if your travel did not involve an overnight stay, you
cannot claim meal expenses, even if you were paid a travel allowance.
In response to enquiries from members regarding travel allowances
receipts and substantiation, a summary of the main issues is below.
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Taxpayers on work related overseas travel are required to keep
receipts of their accommodation expenses.
A travel diary recording all activities is also required to be
kept by members in these circumstances.
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Food, drink and incidental expenses incurred on workrelated overseas
travel that are within the monetary limits set out by the Taxation
Commissioner, are not required to be substantiated.
Amounts over the limit are required to be substantiated for the
total expense, not just the amount of the excess. Schedule 2 of
TD 2004/19 contains the ATO guidelines.
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Travel within Australia (local) is not subject to substantiation
rules, provided the amount of the allowance paid and the total
amount claimed is within the amounts set out in Schedule 1 of
TD2004/19. Amounts over the limit are required to be substantiated
for the total expense, not just the amount of the excess. ¦ Allowances
paid in excess of ATO limits should appear on an employee’s payment
summary. Expenses in connection with the allowance should be claimed
in the tax return as a deduction. When they are under the limits
set out, no substantiation is required.
Q-D3
– Work-related uniform or protective clothing (pp 51-52)
Work Uniform
Expenses incurred for compulsory military uniforms are deductible.
Uniform includes such items as military white, blue or khaki shirts,
matching trousers, regulation jackets and jumpers, ties, gloves,
hats or caps with rank or other embellishments, camouflage clothing,
official mess uniform, service shoes, socks, stockings and service
handbags or clutch bags.
However, a uniform does not include civilian, ordinary or conventional
items such as running shoes, t-shirts, underwear or accessories.
More information about work uniforms can be found in Taxation
Determination TD 1999/62, and Taxation Ruling 97/12.
You cannot claim expenses incurred for non compulsory work uniforms
unless your employer has registered the design with Ausindustry.
All compulsory Defence uniforms are registered with Ausindustry.
Items of conventional clothing, specifically modified to meet
the requirements of a compulsory work uniform, may be deductible,
where the clothing forms part of a distinctive compulsory uniform.
Distinctive as to identify the wearer as a Defence employee.
It is not enough that employees be required to wear clothing of
a particular colour, type or style.
Protective clothing
Expenses incurred for protective clothing used for work
related purposes are deductible.
Protective clothing protects the taxpayer from injury at work,
or his or her everyday clothes from being damaged at work.
Examples of protective clothing include:
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Fire resistant clothing
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Safety glasses
- Sunscreen
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Sunprotection clothing, such as sunhats, sunglasses etc
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Steel capped boots
- Overalls
-
Breathing masks
-
Safety helmets
-
Wet weather gear when used to protect against illness or injury
where you work.
-
The cost of protective sports footwear worn by members such as
physical training instructors and those in special combat squads
who derive their income by performing a range of regular strenuous
physical activity is deductible. More information about protective
items can be found in Taxation Ruling TR 2003/16.
Heavy-duty conventional clothing such as jeans, drill trousers
and drill shorts are not considered protective.
The cost of these items are a private expense and thus not an
allowable deduction.
Deductions are allowable for the cost of laundering and dry cleaning
of uniforms and protective clothing. Members should refer to page
52 of TaxPack 2005 for details on claiming home laundering.
Q-D4
– Work related self-education expenses (pp 53-55)
A deduction is allowable for the cost of selfeducation expenses
if there is a direct connection between the self-education and
the member’s current income-earning activities.
A deduction is not allowable if the education is designed to enable
the member to get employment, to obtain new employment or to open
up a new income-earning activity.
The cost of formal education courses provided by professional
associations should be shown at question D5, not here.
Similarly, the cost of attending seminars education workshops
or conferences that are work related but not related to your education
should be shown at D5.
Self-education expenses are defined to be expenses other than
the HECS/PELS/HELP, necessarily incurred by a taxpayer in connection
with a course of education provided by a school, college, university
or other place of education and undertaken by a taxpayer to gain
further qualifications.
However, it should be noted that where a student is paying full
fees through PELS (now FEE-HELP), the cost of the course may still
be deductible, it is only the repayments of the PELS debt that
is specifically nondeductible. For FEE-HELP, a non deductible
20 per cent loan fee will be charged.
For detailed explanation of the deductibility of self-education
expenses, refer to Taxation Ruling TR 98/9 and for a further explanation
on the deductibility of PELS, refer to the PELS and tax deductibility
section of the ATO website.
Q-D5
– Other work related expenses (pp 56-57)
Following is a list of some tax deductible expenses commonly incurred
by ADF members.
-
Mess subscription: members can claim the portion of compulsory
Mess subscription that is work related only (the portion of the
subscription that relates to Mess administration).
-
Expenses of keeping fit: members can claim expenses related
to their fitness if they are required to maintain a very high
level of fitness that is well above the ADF general fitness standards
and earn their income by performing a range of duties designed
to maintain that level of fitness.This would apply to physical
training instructors and those members in the special action forces.
-
Annual subscriptions to the ArFFA, the RDFWA and the United Services
Institute (USI).
-
Bank fees, Government duties or debits tax charged on accounts
used solely for income producing purposes such as investment accounts,
are deductible.
Amounts withdrawn from general purpose accounts, where these funds
are used for deductible work related purposes are also deductible,
provided the expense can be sufficiently isolated and identified.
A deduction is not allowable for any other bank fees as a work
related expense (Taxation Ruling TR 95/17).
-
The cost of a briefcase or kitbag where this item is used in connection
with employment and the cost is less than or equal to $300. In
other cases, the amount may be depreciated.
- Subscriptions
to trade, business or professional associations whose principal
activities specifically relate to an ADF member’s work duties
(Taxation Ruling TR 2000/7).
-
Capital allowances (previously known as depreciation):
ADF members are advised to refer to the ATO’s booklet Guide To
Depreciating Assets (NAT 1996-6.2004) in determining what can
be depreciated. You can claim a deduction (capital allowance)
for the decline in value of equipment used for work.
If the equipment is also used for private purposes, you cannot
claim a deduction for the estimated proportion of private use.
You cannot claim a deduction if the equipment is supplied by your
employer or any other person. The amount of your deduction depends
on the effective life of the equipment.
See question D5 of TaxPack 2005.
-
There is an option to aggregate depreciable equipment into a group
(known as a low-value pool). Equipment costing between $300 and
$1000 and equipment written down to less than $1000 is eligible
for pooling. Depreciation is calculated using the diminishing
value method.
A deduction for the decline in value of equipment is worked out
by multiplying the total depreciated value of all assets in the
pool by 37.5 per cent.
Assets acquired during the year are depreciated at a rate of 18.75
per cent for the full year, regardless of when in the year they
were acquired.
For more information on claiming a deduction for a low-value pool,
read question D6 in TaxPack 2005 and claim at item D6 on your
tax return. Where an item costs $300 or less, it is not required
to be depreciated and an immediate deduction is generally available.
-
Books: The cost of books forming part of a professional
library may be allowable provided the content of the books is
directly relevant to the duties performed.
Note that the capital allowance provisions apply (see capital
allowances above).
-
Computers and computer software: a deduction is allowed
for capital allowances for new or secondhand computers and computer
software purchased by ADF members where the computer and software
are used to carry out the duties of an ADF position.
If the computer or software is also used for private purposes
an apportionment between business and private use is necessary
(see capital allowances above).
If the computer or software is used for both private and work-related
purposes, substantiation of the work-related portion will be required
in the form of a log book or diary.
- Special
Watches: members
can claim repair costs and capital allowances for the cost of
special watches with special characteristics such as stopwatches
used for work related purposes (see capital allowances above).
However, a capital allowance may not be claimed where the watch
is provided to the member by the ADF.
-
Extra Regimental Duties:
expenses associated with extra regimental duties, which form part
of assessable income earning, are deductible providing they are
not private or capital in nature. ¦
-
Home office:
expenses for a private study used solely for work purposes may
be deductible. Expenditure incurred for heating, cooling and lighting
the room are deductible. Refer to pages 56 to 57 of TaxPack 2005
and to Practice Statement PS LA 2001/6 – Home Office Expenses
and Taxation Ruling TR 93/30 for more information.
Additional deductions may apply where a portion of a member’s
residence is considered a place of business for income tax purposes.
Only where a taxpayer’s home is classified as a place of business
may a deduction be claimed for a percentage of occupancy costs
(such as rates, rent and insurance).
There are, however, strict criteria for classification and a portion
of the residence will be liable for capital gains tax on sale
of the home.
If a claim for a home office deduction is being considered, we
recommend members consult their tax adviser or the ATO.
- Postage
and stationery expenses incurred which are work related.
-
Insurance of tools and equipment used for income producing purposes.
-
Parking fees and tolls, provided the travel was work related and
you are not reimbursed. ¦ Work-related conference and seminar
expenses.
-
Costs related to part-day travel allowance: this is an allowance
received by employees for work-related travel where an overnight
stay is not involved.
Such allowance is assessable income. Any claim for work-related
expenses incurred for part-day travel allowance is deductible
and is subject to the normal substantiation requirements.
The cost of meals in this situation is not a workrelated expense.
-
Rifles, ammunition and cleaning equipment:
a deduction is allowed for the cost of additional and/ or more
sophisticated equipment that is used for work purposes, which
is not supplied or replaced by the ADF.
Note that the capital allowance provisions may apply.
-
Outdoor worker’s sun protection expenses: Outdoor workers
such as ADF personnel who are required to work in the sun for
all or part of the day and consequently buy sunscreen lotions,
sunhats and sunglasses to use at work can now claim these sun
protection products as work expenses.
Claim for these items at Question D5.
-
Telephones, mobile phones, pagers, and other telecommunications
equipment: a deduction is not allowable if the ADF supplies
these items to members. In the case where these items are member-
owned, a deduction is allowable for the rental cost to the extent
of the work related use.
A deduction is allowable for the cost of workrelated calls and
for the proportion of telephone rental costs if an ADF member
can demonstrate that he or she is on-call, or required to telephone
his or her employer on a regular basis.
Some form of log book or diary will be required to substantiate
any such claim.
A deduction is not allowed for the cost of installing or connecting
a telephone, mobile phone, pager or other telecommunications equipment.
A deduction may also be allowable for the decline in value of
mobile phones, pagers and other telecommunication equipment under
the capital allowance provisions (see capital allowances).
A deduction is not allowable for the cost of obtaining a silent
telephone number.
Q-D10
– Cost of managing tax affairs (p 67)
Please refer to page 67 of TaxPack 2005 for details on how to
claim expenses relating to managing your own tax affairs or your
legal obligations relating to another person’s tax affairs.
A deduction is also available for expenses relating to a claim
for family tax benefit lodged through the tax system.
Non-deductible expenses
Expenses of a capital, private or domestic nature, and
those not incurred in gaining assessable income, are not allowable
deductions.
This is the case even if the expenses have been incurred at the
direction of a member’s Unit Commander.
In addition, no deductions can be claimed on expenditure which
is incurred in the derivation of exempt income.
Examples of nondeductible expenses include:
-
Reimbursements:
where an employer or any other person reimburses you for expenses
you have actually incurred, you cannot claim the expense as a
deduction.
Any amounts you receive for car expenses calculated by reference
to the distance travelled by the car is generally not a reimbursement
and you must show that amount of the reimbursement or allowance
as income at Question 2.
A deduction may be available in these circumstances. See question
D1 for guidance.
-
Charges for compulsory or non-compulsory attendance at Mess functions.
- Child-minding
expenses (a portion of these may be deductible where they relate
to self education expenses.
Refer Question D4, TaxPack 2005, for more information).
-
Meals, entertainment, personal and family living expenses.
-
Purchase, laundry, dry cleaning and maintenance of civilian or
ordinary clothing worn to work.
-
Normal cost of travel, including parking fees and tolls, between
home and the base is a non-deductible expense (whether an allowance
is paid or not).
This principle is not altered by doing small work related tasks
en route.
-
Fines for breaches of ADF or civilian law.
-
Rates and taxes on non-income producing property.
-
Haircuts and grooming costs.
-
Membership fees for sporting and social clubs.
-
Personal superannuation contributions.
-
Purchase of or repairs to ordinary watches.
-
Weight reduction expenses.
- Glasses,
make up, shaving equipment, hair products, clips, bobby pins,
or underclothing.
-
Newspapers.
- Relocation
expenses.
Q-T4
– Superannuation annuity and pension (pp 93)
Pension income at Question 7 may be eligible for a tax offset
equal to 15 per cent of all or part of your taxable pension or
annuity income.
To work out the tax offset you will need to know:
-
whether it qualifies for a tax offset and if so what proportion
of the payment qualifies.
Information on this can be obtained from the fund itself.
- what
the rebateable proportion is. For assistance
phone
the Superannuation Infoline on 13 10 20.
Additional information can be found on page 93 of Taxpack 2005.
Superannuation Co-contribution
The Federal Government will match eligible personal superannuation
contributions made from aftertax income with a super co-contribution
payment.
The super co-contribution is paid dollar-for-dollar by the Government,
up to a maximum of $1,500 for taxpayers with assessable incomes
(plus reportable fringe benefits) of $28,000 or less.
This threshold is reduced by five cents for every dollar the taxpayer’s
assessable income (plus reportable fringe benefits) exceeds $28,000,
phasing out completely at $58,000.
The contribution is paid into a nominated superannuation fund
after submission of the income tax return and advised by letter.
Contributors to DFRDB, MSBS or to a retirement savings account
(RSA) may be eligible for the super co-contribution.
The ATO will work out your super co-contribution from information
provided in your tax return and by your superannuation fund.
Refer to page 11 of TaxPack 2005 for more information on the super
co-contribution.
Q-T5
– rebate on private health insurance premiums (pp 94-95)
The private health insurance rebate is currently 30 per cent of
the premium paid to a registered health fund for appropriate health
private insurance cover.
This rebate is not affected by the taxpayer’s income.
There are a variety of ways the rebate may be claimed – as a reduction
in private health insurance premiums paid to the health fund,
a cheque from Medicare, or as a rebate in the taxpayer’s income
tax return at the end of the year.
If part or all of the entitlement to the rebate has already been
received, either through the taxpayer’s health fund or from Medicare,
the taxpayer is not eligible to claim that part of the rebate
in his or her income tax return.
Eligibility for Rebate
Payments made on the taxpayer’s behalf by his or her employer,
for example, as part of a salary package, are eligible for the
rebate.
The employee, not the employer, can claim the rebate. ADF members,
who are a prescribed person under the Medicare Levy Act 1986,
are exempt from paying the Medicare Levy.
However, members are still able to claim the 30 per cent rebate
for premium payments made for private health cover.
If you have a spouse or dependants, your level of private health
insurance will also be relevant for determining your Medicare
levy surcharge liability.
Q-T6
– Baby bonus (pp 96-97)
What
is it?
The baby bonus is a Commonwealth government initiative assisting
families when they have an infant. Subject to income limitations,
you receive back over a five-year period, the income tax you paid
in a nominated year (called the base year), which is either the
year you became responsible for the child or the year prior to
the birth.
The amount you receive in later years is subject to income earned
in the years after you become responsible for the child and the
amount of tax paid in the base year. Instructions on claiming
the baby bonus are detailed at pages 96-97 of TaxPack 2005.
Who is it for?
If you had a baby or you gained legal responsibility of a child
aged under five (for example, through adoption), after June 30
2001– whether or not you already have other children – you could
receive the baby bonus.
The baby bonus is paid whether or not you currently get any other
family benefits.
There is no upper limit on taxable income when getting the baby
bonus.
How much will you get?
How much baby bonus you get each year depends on your taxable
income in the nominated base year and your taxable income for
the next five years.
If your taxable income for the base year was $25,000 or less,
you will be entitled to an annual amount of $500, although this
will be less in the first year, calculated from the baby’s date
of birth (or the date you gained legal responsibility).
If your taxable income was higher, you will receive a higher amount
each year, subject to your taxable income in the years after you
became responsible for the baby.
For how long will you get the bonus?
It depends on your own taxable income each year, but you could
claim the baby bonus for one child at the end of each income year
until your child turns five.
How do you make a claim?
You cannot claim the baby bonus at this question. How you can
claim the baby bonus for this year depends on whether you are
required to lodge a tax return this year.
If you are required to lodge a tax return for 2004-2005, you need
to obtain the 2005 baby bonus instructions and claim (ATO form
number NAT 6580- 6.2005), complete the claim and lodge it with
your tax return.
If you are not required to lodge a tax return for 2004-2005, you
can lodge your baby bonus on its own by:
-
using e-tax and completing and lodge your claim over the Internet;
-
Using the 2005 claim form and posting your claim to the ATO; or
- Going
to a registered tax agent.
Lodge your claim at the end of the income year – any time after
June 30 2005.
From July 1 2004, baby bonus was replaced by a maternity payment
administered by Centrelink. Those who have already claimed under
the baby bonus scheme can continue to claim until the child turns
five.
Q-T7
– Superannuation contributions on behalf of your spouse (Supplement
p s43)
A tax offset of up to $540 may be available where you have made
non-deductible superannuation contributions on behalf of your
spouse and:
-
you and your spouse were Australian residents when the contibutions
were made;
- you
and your spouse were not living separately and apart on a permanent
basis at the time the contributions were made; and
-
the sum of your spouse’s assessable income and total reportable
fringe benefits was less than $13,800. The amount of the tax offset
is 18 per cent of the lesser of:
-
$3000, reduced by $1 for every $1 that the sum of your spouse’s
assessable income and fringe benefits exceeded $10,800; or
-
the total of your contributions for your spouse for the year.
Refer to page s43 of TaxPack 2005 Supplement for more information
on super contributions on behalf of your spouse.
Q-T8
– Zone or overseas forces (Supplement pp s44-50)
Zone tax offset
ADF members living or serving in certain parts of Australia are
entitled to a zone tax offset.
The tax offset is granted because of the isolation and cost of
living in those areas. Zone A and Zone B are eligible.
Also, certain areas within those two zones are described as special
areas and residents of those areas are entitled to a higher tax
offset.
A listing of localities within Zone A and Zone B and the special
areas within those zones can be obtained from the ATO by viewing
the ATO internet site or ringing the ATO Personal Tax infoline.
A brief listing of selected localities within these zones and
special areas can also be found at pages 49 to 50 of the TaxPack
2005 Supplement.
To be eligible for the tax offset, the member must have resided
or served in the area for more than 183 days of the 2004-2005
income year, or for more than 183 days during the period July
1 2004 to June 30 2005, including at least one day in the 2004-2005
income year and where no tax offset was claimed in your 2004 tax
return.
Members who lived in a zone for less than 183 days in 2004-2005
may still be eligible for tax offset if:
-
the member lived in a zone area for one half or less of the 2004-05
income year and for one half or less of the 2003-04 income year
and the total of the two periods is more than 183 days; or
-
the member lived in a zone area for onehalf or less of the 2004-2005
income year and for one-half or less of any of the previous four
income years (except the 2003-2004 year) and the total of the
two periods is more than 183 days.
-
In both of the two exceptions above, the member couldn’t claim
the first year, as he or she was there less than 183 days.
The factors which the ATO considers in deciding if someone has
resided in a zone area are set out in Taxation Ruling TR 94/27.
These include:
-
the intended and actual length of the taxpayer’s stay in the relevant
area; and
-
whether the taxpayer maintains a place of abode inside the relevant
area.
Having a usual place of residence in a zone area may constitute
residing in a zone area even though the member did not physically
reside there for more than half the year. For more information
on the relevant tax offsets please refer to pages s44-51 of TaxPack
2005 Supplement.
Overseas forces tax offset
Section 79B of the Income Tax Assessment Act 1936 (ITAA 1936)provides
that taxpayers who served in a specified overseas locality (for
more than half a year) as a member of the ADF and were allotted
for duty on the specified non-warlike operation, are entitled
to claim a tax offset.
Service in a locality for less than half the income year attracts
a portion of the tax offset. Please note that the relevant service
period should not relate to earnings that are specifically exempt
from tax under section 23AD of the ITAA 1936 (which deals with
warlike operations).
After July 1 2001, the offset excludes any period of service for
which an exemption from income tax applies under section 23AG
of the ITAA 1936 (see the relevant Tax Supplement for more information).
All amounts that are exempt from tax under section 23AG (generally
non-warlike) are required to be included in your tax return (See
page 21 of TaxPack 2005 Supplement Question 19, Label N) to correctly
determine your tax liability.
The following localities, listed in Taxation Ruling TR 97/2, qualify
under the ITAA 1936 for Overseas forces tax offset in the 2004-2005
tax year.
Note that not all these localities may have had ADF personnel
deployed in them during 2004-2005.
-
Malaysia and its contiguous waters for a distance of 100 nautical
miles seaward.
-
The areas in Syria, the Arab Republic of Egypt, Jordan, Lebanon
and Israel, including including territories occupied by Israel,
in which Australians are serving with the United Nations Truce
Supervision Organisation.
-
The waters of the Arabian Gulf, the Gulf of Oman and the Northern
Arabian Sea , the Gulf of Aden and the Red Sea bounded to the
south and east by coordinates, 25° 00’ N – 61° 50’ E, 20° 00’
N – 61° 50’ E, 11° 50’ N – 51° 17’ E.
-
The Sinai.
-
Cambodia.
-
Mozambique.
-
Area of operations comprising the boundaries of Iraq, Kuwait and
Saudi Arabia.
-
The sea area comprising the Persian Gulf, the Gulf of Oman and
the northern Arabian Sea bounded by 20° 00’ N – 61° 50’ E, together
with the ports contiguous to that sea area and the airfields and
military facilities adjacent to those ports.
-
Area comprising the political boundaries and airspace of the Federal
Republic of Yugoslavia (including the province of Kosovo), Albania
and the former Yugoslav Republic of Macedonia.
-
Area of East Timor and the territorial sea of Indonesia adjacent
to East Timor.
-
Total land area, territorial waters and superjacent airspace within
the internationally recognised boundaries of Israel, Jordan, Syria,
Lebanon and Egypt.
-
Areas comprising the Soloman Islands and its territorial seas.
-
Area comprising Ethiopia and Eritrea.
-
Area comprising Sierra Leone.
If, during the same income year, ADF members reside or serve in
a zone area of Australia and in a specified overseas locality,
both periods are taken into account in determining eligibility
for the offset.
As stated above, periods where the member earned exempt income
do not count for overseas forces or zone tax offset.
If members qualify for both a zone offset and an overseas forces
offset, they may only claim for one of them. Members should claim
the higher of the two offset amounts.
See pages 44-50 of TaxPack 2005 Supplement for information about
how you can do this.
Q-M1
– Medicare levy reduction or exemption (pp 101-104)
The Medicare levy for 2004-2005 is 1.5 per cent of taxable income
and will apply as follows:
-
Single ADF members without dependants are exempt from the Medicare
levy.
-
Married ADF members with a working spouse, who is not an ADF member,
and no children.
If the spouse earns sufficient income and the spouse pays the
full levy, the ADF member can claim an exemption from the standard
Medicare levy of 1.5 per cent. If not. the member is subject to
half of the Medicare levy of 1.5
per cent.
-
For members with children and a working spouse, if the spouse
is liable for the levy and contributes to the maintenance of the
children, the ADF member is exempt from the Medicare levy.
But if the spouse did not contribute to the upkeep of a child,
the ADF member will be liable for a half Medicare levy in respect
of that child. Where the spouse lives with the children, the ATO
will accept they contribute to the maintenance of the child.
-
Members with children or a non-working spouse (who is not liable
to pay the Medicare levy) are subject to a half Medicare levy.
-
Married ADF couples without children continue to be exempt from
the Medicare levy.
-
In the case of married ADF couples with children, if both members
contribute to the maintenance of their children, only one member
is liable for the half levy.
The other member is exempt from the Medicare levy. The couple
decides who will be subject to the half Medicare levy. To qualify,
the couple must enter into a “family agreement” stating the child
is a dependant of the members. The agreement form is contained
in TaxPack 2005 and must be retained for five years.
Failure to complete and retain the agreement results in both spouses
being liable to pay the full Medicare levy. Where only one member
is maintaining the child, the election is not available.
The member maintaining the child will be liable for the half Medicare
levy.
- A
dependant of an ADF member, who is entitled to free medical treatment
while overseas because they are related to or associated with
the ADF member is exempt from the Medicare levy.
But if the dependant remains in Australia then they are not entitled
to the exemption and the member would have to pay the half Medicare
levy.
A limited Medicare levy exemption is available for members of
the Reserves rendering part-time service.
With regard to continuous training, an exemption is granted for
the number of days involved. For home training, the following
applies:
- Where
a member attends a home training parade for a period of six hours
or more in one day, the member is entitled to one day’s exemption.
- Where
a member attends a home training parade for a period of less than
six hours, the member is entitled to a portion of one day’s exemption,
three hours attendance equates to a half day’s exemption.
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Your
tax obligations Your tax obligations
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INDIVIDUAL taxpayers are required to lodge an income tax
return if assessable income from any source was received
during the year ended June 30 2005 (refer to page 2 of TaxPack
2005).
When preparing the 2005 income tax return, ADF members should
review TaxPack 2005 and TaxPack 2005 Supplement carefully
and follow the appropriate instructions in order to complete
their return correctly.
Retention of records
It is important to note that as a taxpayer, you are required
by law to keep certain tax records for a period of five
years in the event that the particular income tax year needs
to be revisited for review or the ATO requires certain information
at some later date.
For capital items on which you claim a capital allowance,
you must keep records for the entire period over which you
claim a capital allowance. Records must be kept for a further
five years from the date of the last claim on the item.
Supporting documents and records of all the purchase costs
of items such as shares or an investment property, should
be kept for use in the calculation of capital gains or loss
when the asset is sold.
All records should be kept for five years from the year
the sale was reported in your tax return.
TaxPack lodgement or E-Tax
ADF members should lodge their returns at the nearest branch
of the ATO on or before October 31 2005.
Page 113 of TaxPack 2005 has further details showing where
returns should be lodged. If a registered tax agent completes
and lodges the return, different lodgement deadlines apply.
ADF members may use the ATO’s secure electronic tax return
preparation and lodgement software, e-tax 2005, instead
of TaxPack 2005 to prepare and lodge their income tax returns.
This Internet software program will take members through
an on-screen interview, complete their tax returns and provide
an estimate of any tax payable or refund applicable.
Tax returns lodged via e-tax will generally be processed
within 14 days. More information on e-tax can be found on
the ATO’s website at e-tax essentials.
ADF members lodging their own returns may apply to the ATO
for an extension of time if they are unable to lodge their
returns by the due date.
Reasons for the failure to lodge the return by the due date
should be sent in writing to the branch of the ATO where
you last lodged.
An extension will not necessarily be granted if the reasons
provided are not considered adequate. Penalties may be imposed
for late lodgement.
ADF members on an overseas deployment may be able to obtain
an extension to lodge their return where their circumstances
make this necessary.
The ADF member is required to sign the return and any relevant
declarations. An income tax return is not considered lodged
until it is correctly completed and received by the ATO.
If members lose their original payment summary, they should
contact Defence Force Pay Accounting Centre (DEFPAC) direct
to obtain a copy and other documentation that will need
to be supplied to the ATO.
If members consider there is an error in, or an omission
from, their payment summary, they should contact DEFPAC
and request a pro-forma to be issued to correct the information.
If a member considers that the reportable fringe benefits
amount on their payment summary is incorrectly reported,
they should contact DTMO in the first instance.
The members must state in their email to DTMO their name,
service number, amount on the payment summary, and detailed
reasons why they consider the amount is incorrect.
DTMO will investigate the query and inform DEFPAC of any
corrections so that they can issue a revised payment summary
to the member.
DTMO and DEFPAC aim to have a turnaround time of 15 working
days.
Therefore your cooperation and provision of timely detailed
explanation will assist in expediting the process. |
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