Sunday, March 2, 2014

Hass and Associates Accounting Tax Preparation New tax test on foreign takeovers

Hass and Associates Accounting Tax Preparation New tax test on foreign takeovers

FOREIGN investors face a new hurdle as Joe Hockey declares he will take their tax affairs into account when considering their Australian deals amid a global crackdown on corporate tax avoidance.

Alarmed at the potential loss of federal revenue, the Treasurer warned that tax arrangements would become a major factor in foreign investment approvals, given their growing impact on the national interest.

Mr Hockey, who has the final say on all big foreign investments, took the new stance as he stepped up the case for global action on the “significant risk” to revenue from profit-shifting by large companies.

The comments to The Australian are an important signal on foreign investment rules, given the Treasurer’s wide discretion to veto transactions and advice from Treasury about the revenue at stake.

“The risk is significant, not just because the digital economy helps to facilitate tax minimisation or tax liability shifting to other jurisdictions,” Mr Hockey said in an interview. “It has an impact on other decision-making. Ultimately, it will have some impact on foreign investment decisions.”

The Abbott government is pushing ahead with curbs on “base erosion and profit-shifting” as chair of the G20 this year, hosting a summit in Sydney last weekend that approved global measures to tackle the problem.

Behind the international agenda is a domestic fear, including within Treasury, that big takeovers would lead to changes in tax arrangements that could wipe out billions of dollars in revenue.

Mr Hockey did not refer to any specific proposal before the Foreign Investment Review Board but sent a clear signal to investors about how he would decide on future deals.

“If you’re advised that an Australian company is a major taxpayer and if it is purchased by someone overseas and therefore its tax liability would be reduced domestically to zero, that feeds into a decision about what is contrary to the national interest,” he said. “You’d lose potentially a substantial lick of revenue. And that does have an impact on the national interest.”

The G20 communique released on Sunday promised global action on the tax leakage by insisting “profits should be taxed where economic activities deriving the profits are performed”.

OECD tax director Pascal Saint-Amans outlined two tranches of changes to be decided in September this year and September next year.

Labor has welcomed the G20 progress but challenged Mr Hockey to live up to the communique, noting the government had abandoned some of former treasurer Wayne Swan’s actions to close tax loopholes.

“Three-quarters of a billion dollars have been dropped because the government wasn’t willing to go hard on multinational profit-shifting,” opposition assistant Treasury spokesman Andrew Leigh said. “So that’s $700 million, around the cost of a new hospital.

“The government is walking away from good moves on multinational profit-shifting and they’re walking back on transparency of multinational tax paid, which has really got to leave you asking the question: how serious are they about making sure that all companies pay their fair share of tax?” KPMG national corporate tax leader David Linke said the G20 agenda was significant for all businesses operating across borders and the biggest concern was avoid countries going it alone in ways that led to double-taxation of companies.

“Generally tax reform takes a decade and here they’re trying to get it done in two years, so the time frame is challenging.”

Treasury has warned the government in recent years about the danger to the tax base from large transactions, particularly when BHP Billiton and Rio Tinto contemplated a merger of their iron ore interests in 2010.

Rio estimated its Australian tax liability at $9 billion last year, and Treasury feared the bulk of that could be lost if the iron ore merger had gone ahead.

Another transaction, the 2009 sale of Myer by private equity owners, triggered a court case when the Australian Taxation Office tried unsuccessfully to collect tax on the $1.5bn repatriated to offshore tax havens.

The policy guiding the FIRB requires the agency - which operates within Treasury - to consider the impact of a takeover on the government’s revenue.

However, foreign investment counsel for King & Wood Mallesons Malcolm Brennan said tax had not been one of the central considerations until now. “It is rare to see tax gaining the heaviest weighting in measuring the national interest impact,” he said. “It is more what is the effect on the community, on jobs, on management and wanting to see Australian involvement maintained rather than the impact on government revenue.”

Mr Hockey’s stance may cause concern for the US, which argued it should not be a national interest consideration when it was negotiating the Australia-US Free Trade Agreement.

Mr Brennan said US multinationals wanting to reorganise subsidiaries in Australia often had to seek FIRB approval, even though there was no change in ownership, because the government wanted to vet tax implications. He said the threshold for US takeovers was raised to more than $1bn under the FTA so that US companies would have greater latitude to reorganise their operations without involving the ATO in foreign investment approval.

Mr Brennan said a growing number of African-based mining companies were listing on the Australian Securities Exchange, despite having no assets in Australia. They pay tax here, but if taken over by a foreign company the tax would disappear.

Mr Hockey has demonstrated a willingness to risk political and industry criticism by rejecting takeover proposals, vetoing a $3.4bn bid for Graincorp by Archer Daniels Midland in November.

While Australia hosts the G20 talks on the tax agenda this year, Mr Hockey was cautious about acting unilaterally to fix the tax leakage, when speaking to The Australian before last weekend’s summit of finance ministers and central bank governors.

“Domestically I think we’ve got to keep working away on it, but I want to see where we get to on a global level first so that we don’t create an inconsistent regime,” he said. “Given we’re in the box seat globally, there’s a great opportunity to get a closer, better understanding of where it’s heading.”
Hass and Associates Accounting Tax Preparation New tax test on foreign takeovers
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Saturday, March 1, 2014

Hass and Associates Accounting Tax Preparation What the New Obamacare Taxes Mean for Your Return

We all knew the Affordable Care Act was going to affect more than the type of medical insurance we can have, and if you are in one of the top two tax brackets, you’re among the lucky ones paying for much of the ACA through two new taxes. The new Medicare tax is an additional 0.9% taken from the paychecks of everyone who earns more than the threshold amount, and the tax on Net Investment Income (NII) takes an extra 3.8% on profits from investments. (The latter is in addition to the higher capital gains tax that upper-income taxpayers are already paying.)

What's more, because the threshold amounts for both the additional Medicare tax and the NII tax are not going to increase based upon inflation, like the Alternative Minimum Tax, more taxpayers will find themselves subject to these new taxes as time goes by and incomes rise.
The additional 0.9% Medicare tax applies once your income from a job (“wages”) exceeds a certain amount:

“A lot of people didn’t fully understand the new tax laws,” says Karen Goodfriend, a CPA and Personal Financial Specialist (PFS) who works in Los Altos, Calif. “It’s complicated. There are new taxes and new thresholds."
As more and more Americans are completing their 2013 tax returns, they are waking up to just how big a bite these taxes can have.

The additional 3.8% Net Investment Income tax applies if: a) you have net investment income, and 2) your modified adjusted gross income exceeds the following thresholds. Note that with the exception of “qualifying widow(er) with dependent child,” these are the same dollar amounts as above.

Note: the thresholds for both new taxes are not indexed to increase with inflation.
Reducing the impact of the additional Medicare tax is difficult unless you're your own boss. One advantage of being self-employed is that you can often control the timing of your income. If you’re able to push income into the following year, you might be able to keep your wages from exceeding the threshold for your filing status. If you work for someone else, then the best you can hope is that your company gives you some flexibility to delay receipt of your bonus until Jan. 1.

By law, your employer must automatically withhold the extra Medicare tax when your income exceeds the threshold. The problem is that if you and your spouse both work outside the home and neither of you individually earns more than the threshold, you will still be liable for this tax if your joint income is more than $250,000. If you haven’t had this taken out of your paychecks, you’ll need to write a check for this amount when you file your tax return. Additionally, you might be subject to a penalty for underpaying your taxes for the previous year. To avoid this, the American Institute of CPAs recommends you increase your payroll withholding or make quarterly estimated tax payments.

Max Out Your Retirement Contributions
Since money you contribute to your employer-sponsored retirement plan is deductible, you might be wondering if this is a way to reduce your wages so they are below the level where the additional 0.9% Medicare tax kicks in. Nice try. Medicare and Social Security taxes are calculated before your retirement plan contributions are taken into account.

But that’s no reason to slack off on your 401(k). Contributions to company-sponsored plans as well as traditional IRAs will still reduce your taxable income. And, that will impact whether you are subject to the Net Investment Income tax.

“The sooner you make a contribution to a tax-deferred retirement account, the better. Not only does this reduce your taxable income, it helps build retirement income,” says John Sweeney, executive vice president at Fidelity Investments. If you have a 401(k), 403(b) or 457 plan through work, in addition to the maximum amount you can contribute is $17,500. However, if you are age 50 or older, the maximum is $23,000 thanks to the $5,500 “catch-up contribution.”

The most you can contribute to a traditional or Roth IRA is $5,500, plus another $1,000 if you qualify for a catch-up contribution.

Last Hope (for 2013)
At this point, says Sweeney, ”you can’t do a lot to affect your 2013 return other than make an IRA contribution.” But instead of waiting until this time next year to come up with the money for your 2014 IRA contribution, he suggests you get started now. “Put a couple of hundred bucks a month in [your IRA].” Virtually every mutual fund company has a free, automatic investing plan and will deduct whatever amount you specify from your bank account on a certain date each month.

The benefit of this approach, called “dollar cost averaging,” is two-fold: not only do you reap whatever gains the markets deliver throughout this year, you also start to live on less income. “You figure out how to make small adjustments so you are saving 10-15% of your income,” says Sweeney. He maintains that if you can learn to live on 85% to 90% of what you earn, “you’ll be better off in the long run. By the time you’re retired, your spending level will be adjusted lower and you’ll have a nice nest egg.”

Got HSA?
If your employer gives you the choice of contributing to a Health Savings Account, this can also help reduce your taxable income. Think of an HSA as an IRA for medical expenses. It reduces your current tax bill because contributions are deductible and it reduces your future taxes because withdrawals are tax-free, provided they are used for qualified medical expenses.  If you are still working and can afford it, Sweeney recommends not using your HSA account to cover smaller medical expenses such as prescriptions and co-pays. The less you withdraw from your HSA today, the more money you’ll potentially have in the future. Medical expenses tend to increase as you age. When you’re retired and no longer getting a paycheck, he says your HSA represents “a pool of money that has grown tax-free.”

Think of the Kids (or Grandkids)
While it won’t have any impact on the amount of income that is currently subject to tax, Goodfriend encourages clients--many of whom come from the wealthy Silicon Valley area--to consider a 529-college savings plan.  The money invested inside these accounts grows tax free if it’s used for qualified expenses and as she points out, “you minimize the income that can be subject to investment income tax” in the future.

Give It Away- Smartly
If you are charitably inclined, don’t write a check! Instead, donate appreciated property to the charity instead of selling it yourself. This prevents you from being pushed into a higher tax bracket and potentially over the threshold for the investment income tax. And, since a charity does not pay tax when it sells securities, it receives all of the proceeds--not just the after-tax amount.

Ms. Buckner is a Retirement and Financial Planning Specialist and an instructor in Franklin Templeton Investments' global Academy. The views expressed in this article are only those of Ms. Buckner or the individual commentator identified therein, and are not necessarily the views of Franklin Templeton Investments, which has not reviewed, and is not responsible for, the content.
Hass and Associates Accounting Tax Preparation What the New Obamacare Taxes Mean for Your Return
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