What's new in the 2006 tax return

With the end of this financial year quickly approaching, there have been a few changes made for the 2006 tax year. These modifications include the 30% child care tax rebate, the changes in superannuation contributions splitting, changes in capital gains tax and property, capital returns, share buybacks and the medical expenses offset, one of which may affect you.

30% child care tax rebate

The new 30% child care tax rebate helps families with the cost of approved child care. The rebate covers 30% of out-of-pocket expenses for approved child care up to $4,000 per child.

The rebate, which is indexed each year, is a tax offset, reducing a person’s tax liability in the year it is claimed.

The rebate is not means tested and can be claimed on the 2005-06 income tax return, if a person has:

• used approved child care in the 2004-05 income year
• received Child Care Benefit, and
• passed the Child Care Benefit work/training/study test.

People wishing to make a claim can confirm their Child Care Benefit entitlement and child care fee information by visiting the Family Assistance Office website www.familyassist.gov.au.

Superannuation contributions splitting

If a person makes a personal contribution to their own super fund and splits part of that contribution to their spouse’s super account, it is important to remember they cannot claim the superannuation spouse contributions tax offset for this contribution.

However, if they make a contribution directly to their spouse’s account they may be able to claim a tax offset, provided the spouse’s assessable annual income plus reportable fringe benefits is less than $13,800.

Capital gains tax and property

Changes have been made so that certain costs relating to property which were not previously included in the cost base and the reduced cost base must now be included.

These include:

• certain incidental costs of buying and selling property,
• costs of owning property in addition to non-capital costs like interest and maintenance, and
• costs of preserving the value of property and not just to increase its value.

These changes only affect property disposed of on or after 1 July 2005, however relevant costs incurred before that date must be included in the cost base and reduced cost base.

Capital returns

In the 2005-06 tax year, more than 850,000 individuals and self managed superannuation funds have received capital returns on listed company shares.

As a result of these capital returns, these shareholders will have to adjust the cost base of their shares and some may make capital gains which must be declared in their 2006 tax return.

Share buybacks

During the 2005-06 tax year, listed companies in Australia have also bought back more than 150 million shares worth in excess of $3.5 billion.

Shareholders who have participated in these buy-backs need to calculate any capital gain or loss for inclusion in their 2006 tax return. Dividends paid as part of the buy-back must also be declared in their return.

Medical expenses offset

There have been changes to the law which affect what you can claim against the medical expenses tax offset for the 2005-06 tax year.

Payments for cosmetic procedures which do not qualify for a Medicare refund and cosmetic dental expenses do not qualify for the offset.

Cosmetic procedures are those undertaken with the aim of changing a person’s appearance such as:

botox injections to reduce or eliminate wrinkles, and
surgery to change the shape of a person’s nose or other body part for which there is no medical imperative.

Cosmetic dental procedures which do not qualify for the offset include:

• jewel or other decorative inserts in teeth, and
• teeth bleaching procedures to remove cigarette or coffee stains with the sole aim of simply making the teeth whiter.

Medical and dental procedures which do qualify for the offset include:

• surgery to the nose to correct breathing difficulties
• laser vision corrective surgery
• reconstructive surgery following the removal of a cancer
• braces fitted to rectify crowded or missing teeth, a misaligned jaw or bite, and
• a gold filling to repair tooth decay.