It’s a common question asked by employees: “what should I do about my super?” If you are an employer or manager and feel confident of your knowledge of superannuation and investment, it can be tempting to give an answer. However, just about anything helpful you have to say will likely fall within the definition of giving financial product advice, and that could land you in very hot water.
The boundaries
Financial product advice is a recommendation or statement of opinion that:
is intended to influence a person or persons in making a decision in relation to a financial product or class of products; or
could reasonably be regarded as being intended to have such an influence.
The Corporations Act casts a wide net. Financial product advice can include anything you say about:
joining, or making contributions to, a superannuation fund;
making additional contributions to a super fund, including by salary sacrifice;
rolling accumulated superannuation into or out of a fund; and
selecting particular investment or insurance options within a superannuation fund.
The ability to provide advice is generally restricted to holders of an Australian Financial Services Licence or their representatives. Very few employers, or their staff, fall into this category, and giving financial product advice, even inadvertently, could lead to prosecution.
What can you talk about?
You can provide factual information that does not include a recommendation, an opinion, or an intention to influence a person’s decision regarding their super. This allows you to provide information about:
employees’ rights and employer obligations;
how your employees can tell you what superannuation fund or retirement savings account (RSA) they want their superannuation guarantee contributions paid into; or
the employer fund into which you will pay superannuation guarantee contributions if the employee doesn’t nominate a superannuation fund or RSA.
You can also give your employees the Product Disclosure Statement (PDS) of your default superannuation fund. Just don’t provide any explanation of the material it contains or attempt to recommend the default fund.
How can you help?
None of this precludes you from helping your employees. You just need to go about it the right way.
For example, you can refer employees to a licensed or authorised adviser. Just be sure to disclose any benefit you may gain from making such a referral. Or you can ask a superannuation fund provider to make a presentation to your employees. Take care, though, that you don’t give the impression of either endorsing of disapproving of the fund in question.
Being asked for advice is recognition that your employees respect your views and knowledge. It can be flattering and you may well know a great deal about superannuation and investment. However, without the necessary authorisation, you need to steer well clear of financial product advice. And it’s not just you who needs to be aware of these restrictions. You need to ensure that your HR staff and line managers are also aware.
Speak with our business advisors or financial advisors with regards to business and superannuation advice. We can also help to speak with your employees about their current financial needs.
Despite the Australian Tax Office’s education campaign on GST reporting, many small business owners continue to make errors when claiming GST credits in their GST returns or Business Activity Statements.
The vast majority of errors are easily avoidable and relate to the over-claiming of GST credits. Here are the top ten common GST mistakes:
Residential rental property: Incorrectly claiming GST credits on expenses relating to residential rental properties where the entity is registered for GST.
Bank fees: Generally, annual fees, monthly fees and loan establishment fees are input taxed, and therefore, there is no GST to claim. However, GST is charged on credit card merchants’ fees and can be claimed.
Private expenses: GST is not claimable on private expenses such as personal loans, director fees and drawings etc.
Interest: Interest paid on loan or chattel mortgage repayments or credit card payments does not incur GST, and cannot be claimed.
The total cost of a business insurance policy: Insurance policies usually include stamp duty (which is GST-free), however, the rest of the policy is subject to GST. A GST credit cannot be claimed on the stamp duty portion of the policy as no GST is paid.
Government fees: GST is not charged on government fees i.e. council rates, land tax, ASIC filing fees, motor vehicle registration and water rates, and therefore, GST credits cannot be claimed.
GST-free purchases: Incorrectly claiming GST credits on purchases without GST, such as basic food items, exports and certain health services is a common mistake. Remember not all suppliers are registered for GST, so check the tax invoice before claiming a credit.
Entertainment expenses: Claiming the entire GST credits on entertainment expenses where the business has elected to use the 50/50 split method for fringe benefits tax is incorrect. Only 50 per cent of the GST credits can be claimed.
Wages and superannuation payments: Both wages and super do not attract GST and cannot be claimed. Wages are not an expense to be included in G11; they are to be reported in W1 in your BAS. Superannuation is not included in BAS.
Sole traders and partnerships: When claiming expenses that are used for both private and business use, you must apportion the expenditure to exclude private usage.
For help with GST please call our business services accounting team on (02) 4926 2300
Late last year saw the Australian Tax Office (ATO) develop a safe harbour for car fringe benefits.
A safe harbour is a guideline that allows Australian businesses to make use of an efficient way to calculate tax where certain conditions are met.
After collaborating with other industry representatives, the ATO developed a particular safe harbour that simplifies the approach for working out the business use percentage of car fringe benefits for fleets of 20 cars or more.
The new approach reduces the record keeping burden for businesses and allows them to use an ‘average business use percentage’ when using the operating cost method.
Businesses can access the safe harbour and use this new simplified approach if they have:
a fleet of 20 or more ‘tool of trade’ cars, which are not part of salary packaging arrangements and cost less than the luxury car tax limit in the year acquired
a mandatory logbook policy and hold valid logbooks for at least 75 per cent of the cars in the logbook year
Businesses can use the logbooks to calculate the fleet’s average business use percentage to all tool of trade cars held in the fleet in the logbook year and can use that percentage for the following four years.
For help with fringe benefits tax please call our tax accountants on (02) 4926 2300
If 50 really is the new 40, then life has just begun. The kids are gaining independence or may have left home, and the mortgage could be a thing of the past. Bliss. But galloping towards you is… retirement!.
How are you tracking?
According to the Association of Superannuation Funds of Australia (ASFA), a ‘comfortable’ retirement today costs close to $59,000 per year for a couple. If you and your partner are planning to retire at 55, to afford this retirement lifestyle and secure your future, at least into your mid-eighties, you should be looking at having around $1.02 million in super[i]. Over time, inflation will push these figures higher. Leave retirement to age 65 and a couple will need around $79,300 a year[ii] from a nest egg of about $1.08 million[iii].
Find those numbers a bit daunting? Here are some ways to boost your retirement savings.
Increase your pre-tax contributions
You can ask your employer to reduce your take-home pay and make larger contributions to your superannuation fund. If you are self-employed, you can increase your level of tax-deductible contributions. This strategy is commonly known as ‘salary sacrifice’.
If you are earning between $87,000 and $180,000 per year, any income between those limits is taxed at 39%. Salary sacrifice contributions to your superannuation fund are only taxed at 15%. Sacrificing just $1,000 per month to super will, over the course of a year, see you better off by $2,880 on the tax differences alone. Plus, the earnings on those super contributions will be taxed at only 15%, compared to investment earnings outside of super being taxed at your marginal rate.
Don’t overdo it though. If your salary sacrifice plus superannuation fund guarantee contributions add up to more than $35,000 this year, the excess is added to your assessable income and taxed at your marginal tax rate. This point will become even more important when the cap reduces to $25,000 per annum from 1 July 2017.
Retiring slowly
Once you reach your preservation age[iv] you might start a ‘transition to retirement’ (TTR) pension from your superannuation fund. The idea is to allow people to reduce working hours without reducing their income.
Keep your money working
There is a tendency to opt for more secure, but lower-return investments as we approach retirement. However, even at retirement your investment horizon may still be decades. With cash and fixed interest producing some of their lowest returns in history, it may be beneficial to keep a significant portion of your portfolio invested in growth assets.
Insurance and death benefits
With the mortgage paid off or much diminished and a growing investment pool, your insurance needs have probably changed. You may be paying for cover you no longer need, premiums may be quite high due to age, and that money might be better applied to boosting your savings. This is a good time to review your insurance cover to ensure it continues to be a match for your changing circumstances.
It’s also a good idea to check the death benefit nomination with your superannuation fund. By making a binding nomination you can ensure that your death benefit goes to the beneficiaries of your choice, and may mean they receive the money more quickly.
Get a plan!
Superannuation fund provides many opportunities for boosting your retirement wealth. However, it is a complex area and strategies that benefit some people may harm others. Good advice is absolutely essential, and the sooner you sit down with a licensed financial advisor, the better your chances of having more when you reach the finishing line.
[i] Sum required to fund an annual income of $59,000 for 30 years at a return of 4% pa after inflation, fees and tax, disregarding any age pension.
[ii] Value of $59,000 today in 10 years at 3% inflation.
[iii] Sum required to fund an annual income of $79,300 for 20 years at a return of 4% pa after inflation, fees and tax, disregarding any age pension.
[iv] Depending on your date of birth, your preservation age will be between 55 and 60. It is the age at which you can access your superannuation fund under certain conditions.
Typically your forties is a time of established careers, teenage kids and a mortgage that is no longer daunting. There are still plenty of demands on the budget, but by this age there’s a good chance there’s some spare cash that can be put to good use. As you pass the halfway mark of your working life, it’s time to give retirement planning a bit more attention.
How much?
A 45-year-old today will reach ‘retirement age’ in 22 years. Taking inflation into account a couple will, by then, need an income of around $113,000 per year if they want to enjoy a ‘comfortable’ retirement.[i] With the government expecting us to be self-sufficient in our old age, the nest egg required to fund that lifestyle could be close to $2 million[ii]. So, what can you do to have $2 million waiting for you in two short decades’ time?
A beneficial salary sacrifice
At this age, a popular strategy for boosting retirement savings is ‘salary sacrifice’ in which you take a cut in take-home pay in exchange for additional pre-tax contributions to your super fund. If you are self-employed, you can increase your tax-deductible contributions, within the concessional limit, to gain the same benefit.
Salary sacrificing provides a double benefit. Not only are you adding more money to your retirement balance, these contributions and their earnings are taxed at only 15%. If you earn between $87,000 and $180,000 per year that money would otherwise be taxed at 39%. Salary Sacrifice $1,000 per month over the course of a year and you’ll be $2,880 better off just from the tax benefits alone.
It’s important to remember that if combined salary sacrifice and superannuation guarantee contributions exceed $30,000 in a given year the amount above this limit will be added to your assessable income and taxed at your marginal tax rate. And be aware that this cap will be reduced to $25,000 per annum from 1 July 2017 so be prepared to review your potential contributions for 2017/18.
What about the mortgage?
Paying the mortgage down quickly has long been a sound wealth-building strategy for many. Current low interest rates and the tax benefits of salary sacrifice, combined with a good long-term investment return, means that putting your money into super produces the better outcome in most cases.
One caveat – if you think you might need to access that money before retiring don’t put it into super. Pay down the mortgage and redraw should you need to.
Let the government contribute
Low-income earners can pick up an easy, government-sponsored, 50% return on their investment just by making an after-tax contribution to their super fund. Not surprisingly, there are limits[iii], but if you can contribute $1,000 of your own money to super you could receive up to $500 as a co-contribution.
Another strategy that may help some couples is contribution splitting. This is where a portion of one partner’s superannuation contributions are rolled over to the partner on a lower income. Your financial advisor will be able to help you decide if this strategy would benefit you.
Protect what you can’t afford to lose
With debts and dependents, adequate life insurance cover is crucial. Holding cover through superannuation fund may provide benefits such as lower premiums, a tax deduction to the super fund and reduced strain on cash flow. Make sure the sum insured is sufficient for your needs as default cover amounts are usually well short of what’s required.
Also look at insurance options outside super fund. They may provide you with greater flexibility, such as level premiums, which might be better value in the long run.
Finally, review your superannuation death benefit nominations to ensure they remain relevant. You can make binding nominations that may see your dependents receive their benefit more quickly than waiting for probate to take its course.
Seek professional advice
The forties is an important decade for wealth creation with many things to consider, so ask your licensed financial advisor to help you make sure the next 20 years are the best for your super.
Call our team on (02) 4926 2300 or email us today for an appointment.
[i] Value of $59,000 today – the income calculated to provide a couple with a “comfortable” level of income as calculated by The Association of Superannuation Funds of Australia (ASFA) (June 2016) – in 22 years at 3% inflation.
[ii] Sum required to fund an annual income of $113,000 for 30 years at a return of 4% pa after inflation, fees and tax, disregarding any age pension.
[iii] The super co-contribution high income threshold for 2016-17 is $51,021.
If you are in your thirties, chances are life revolves around children and a mortgage. As much as we love our kids, the fact is they cost quite a lot. As for the mortgage, this is the age during which repayments are generally at their highest, relative to income. And on top of that, one parent is often not working, or working only part time. Even if children aren’t a factor, career building is paramount during this decade.
Are you really expected to think about super fund at a time like this?
Well, yes, there are a few things you need to pay attention to.
Short-term plans
As careers start to hit their strides, the thirties can be a time for earning a good income. If children are not yet in the picture, but are part of the future plan, then it’s an excellent idea to squirrel away and invest any spare cash to prepare for a drop in family income when Junior arrives. Just remember that any savings you want to access before retirement should not be invested in superannuation.
Long-term comfort
Don’t be alarmed, but by the time a 35-year-old couple today reaches retirement age in 32 years’ time, the effects of inflation could mean that they will need an income of about $152,000 per year to enjoy a ‘comfortable’ retirement[i]. To support that level of income for up to 30 years in retirement they will want to have built a combined nest egg of about $2.7 million![ii]
If you are on a 30% or higher marginal tax rate, willing to stash some cash for the long term, and would like to reduce your tax bill, then consider making salary sacrifice (pre-tax) contributions to super fund. For most people super contributions and earnings are taxed at 15%, so savings will grow faster in super fund than outside it. For example, if you’re earning $100,000 per annum, making a contribution of $10,000 from salary to super fund will save you paying $3,900 in income tax for that year – and increase your super balance by $8,500.
Growing the nest egg
Even if you can’t make additional contributions right now there is one thing you can do to help achieve a comfortable retirement: ensure your super fund is invested in an appropriate portfolio. With decades to go until retirement, a portfolio with a higher proportion of shares, property and other growth assets is likely to out-perform one that is dominated by cash and fixed interest investments. But be mindful: the higher the return, the higher the associated risk.
Another option for lower income earners to explore is the co-contribution. If you are eligible, and if you can afford to contribute up to $1,000 to your super fund, you could receive up to $500 from the government. Or to keep your partner’s super humming along while she or he is earning a low income, you can make a spouse contribution on their behalf and gain a tax offset of up to $540.
Let your super pay for insurance
For any young family, financial protection is crucial. The loss of or disablement of either parent would be disastrous. In most cases both parents should be covered by life and disability insurance.
If this insurance is taken out through your superannuation fund the premiums are paid out of your accumulated super balance. While this means that your ultimate retirement benefit will be a bit less than if you took out insurance directly, it doesn’t impact on the current family budget. However, don’t just accept the amount of cover that many funds automatically provide. It may not be adequate for your needs.
Whether it’s super, insurance, establishing investments or building your career, there’s a lot to think about when you’re thirty-something. It’s an ideal age to start some serious financial planning, so talk to a licensed financial advisor about putting a plan into place so you can have everything now – and in 30 years’ time.
Call our team today on (02) 4926 2300 to meet with a financial advisor.
[i] Value of $59,000 today – the income required to provide a couple with a “comfortable” level of income as calculated by The Association of Superannuation Funds of Australia (ASFA) (June 2016) – in 32 years at 3% inflation.
[ii] Sum required to fund an annual income of $152,000 for 30 years at a return of 4% pa after inflation, fees and tax, disregarding any age pension.
Superannuation is for the oldies, right? In some ways that’s true, but even in your twenties there are good reasons to take a bit more interest in your super. The average 25-year-old has around $10,000 in super, but the decisions you make now, even with relatively small sums of money, could earn you hundreds of thousands of extra dollars over your working life.
Are you getting any?
Earn more than $450 in any given month (excluding overtime, bonuses and some allowances)? Then every three months your employer should be paying 9.5% of that into your super fund. Usually you can choose your fund; if you don’t, it gets paid into a super fund of your employer’s choice. But that doesn’t mean you don’t get a say in how it’s invested.
If you don’t know if your superannuation is being paid, or the fund it’s being paid into, ask your employer. If you think you’re missing out, search ‘unpaid super’ on the tax office website (ato.gov.au) to see what you can do. This is your money.
Where have you got it?
Had more than one job? If you have a lot of little superannuation accounts the money can disappear in a puff of fees and insurance premiums. Simple fix – combine your superannuation into one account.
What about insurance?
Having insurance within your super fund may keep costs lower than having it outside of super. Having insurance is certainly something to consider further down the track, however having insurance when you’re young and healthy means that you are less likely to be precluded from getting cover if there’s a future change in your health. Speak to our insurance specialists to see what’s right for you.
Is it working for YOU?
Your money is going to be stuck in superannuation for a long time, so you want it to be working hard for you. Most funds offer a range of investment choices and some will do better than others.
Imagine your income and super contributions follow a particular pattern over the next 42 years[i]. Your super fund earns 5% per year, and when you retire it is worth $1,037,154. Now change just one thing – you choose an investment option that earns 8% each year. Now your balance could grow to over $2,000,000! That’s nearly a million bucks extra, just for ticking a different box on your super fund application form!
There’s a bit more to it. An investment choice that produces higher returns over the long term is likely to bounce up and down in value. Some years it may even go backwards in value. However, “safer” investment options usually produce the lowest long-term returns.
What do you want?
Buying a new car. Travelling, Having fun. Let’s face it, there are lots more exciting things to do with your money than sticking it into superannuation. The choice is yours but think about this:
If Mum and Dad retired this year, they would need a minimum of around $58,700 per year to enjoy themselves[ii]. If that doesn’t sound like much now, by the time YOU retire inflation could have pushed that annual amount to around $203,000[iii]. That means you will need to have at least $3.4 million[iv] in savings! Sure you’ve got 40-plus years but that’s still a lot of money to save up! It can be done if you start early enough – and you don’t need to miss out on enjoying life now.
Fact: you’re going to live much longer than your parents and grandparents. Can you imagine living another 30 years without earning an income? A sound investment plan designed to make your superannuation work hard while you’re employed will be the difference between enjoying those decades and scraping by on a measly pension.
Starting early and adding a bit extra when you can makes a big difference. Let’s work on another 40 years before you can retire. If you start now by making an extra pre-tax contribution of just 1% of your annual income to super, ($350 from a $35,000 salary – and the government could add to that with a co-contribution[v]) at an 8% investment return could add an extra $149,000 to your retirement fund. If you wait 20 years before starting to make that extra contribution, you’ll only get a boost of $49,000. $100,000 less! Continuing this small extra contribution as your salary increases will turbo boost your super fund balance. Imagine your retirement party?!
So, still find super boring? That’s okay; you’re not alone. But instead of finding the time to organise all this yourself, contact a licensed financial advisor who will review your current super, any insurance required, the investment choices and prepare a strategy to get your super into shape – then you can get back to enjoying life
[i] Starting salary $50,000 pa increasing at 4% pa over 42 years. Super contributions fixed at 9.5% of salary and taxed at 15%. Investment returns before inflation but after tax and fees.
[ii] Income required to provide a couple with a “comfortable” level of income as calculated by The Association of Superannuation Funds of Australia (ASFA) (August 2015)
[iii] Value of $58,700 today in 42 years at 3% inflation.
[iv] Sum required to fund an annual income of $200,000 for 30 years at a return of 4% pa after inflation, fees and tax, disregarding any age pension.
[v] The government makes a co-contribution to super for low income earners under $35,454pa (2015/16).
It’s Christmas Eve, and I find myself feeling grateful for all that I have, however over the Christmas period it’s also time to think about those less fortunate than ourselves. Giving to charity this Christmas is a great way to give to those less fortunate plus you can also receive some extra tax perks.
Charitable donations are tax deductible donations which only adds to the incentive to be generous this holiday season.
Here are some tips for maximising your tax breaks on charitable donations:
The charity must be registered
Make sure the charity you donate to has been endorsed by the ATO as a deductible gift recipient (DGR) organisation. It is important to note that not all charities are endorsed as a DGR.
The gift must truly be a gift
The donation must be a gift, not an exchange for something material. This means if you have received items in return that provide you with some personal benefit, such as raffle tickets, you cannot claim the deduction as a gift or donation.
Check relevant gift conditions
The ATO considers a gift as a voluntary transfer of money or property, including financial assets such as shares. For some DGRs, the income tax law adds extra conditions affecting the types of tax deductible donations gifts they can receive. If you are considering a sizeable donation, discuss the tax implications with your accountant.
Have a wonderful Christmas and a happy and healthy New Year.
It is common for employers to close down over the traditionally slow Christmas shutdown and New Year period.
During this Christmas shutdown period, employers need to be aware of their obligations, particularly in regards to annual leave. Generally, full-time and part-time employees need to be paid their usual wages unless their award or agreement says otherwise.
Most modern awards and enterprise agreements will set out the rules and requirements about notifying staff and what should happen during the Christmas shutdown. While a provision regarding annual close-down is not prescribed in every modern award; most shutdowns are subject to a period of notice (typically four weeks) to be given to staff.
If the award or agreement says you can tell your employees to take leave then employers are allowed to give directions for leave. However, if the award or agreement does not contain instructions about Christmas shutdown or directions to take leave, employers cannot force employees to use their leave.
For employees who are not covered by an award or agreement; employers can direct them to take annual leave if the direction is reasonable.
With the Christmas season just around the corner, employers would be wise to take precautions when planning the work Christmas party to avoid any legal repercussions.
The festive season brings with it an increase in the likelihood of a workplace claim arising from inappropriate conduct such as sexual harassment, drug and alcohol use, as well as health and safety issues.
Employers must be wary of these implications when hosting end-of-year celebrations since they are considered an employer-sponsored event. Consequently, employers may be held liable for any misconduct, injury, discrimination or harassment that an employee is subject to at a work-related event.
Before the event, it is important for employers to communicate their business’s code of conduct. Consider sending an email to all employees prior to the event to remind them of their responsibilities and that normal disciplinary procedures will apply.
Employers must ensure they provide a duty of care by OH&S standards to all employees. Employers would be best advised to have a discussion with the venue about their OH&S policies and evacuation plans.
To ensure employees travel home safely, organise travel arrangements to and from the event, such as a mini bus or taxi. Assigning a responsible person to act as supervisor for the event can help protect the safety and wellbeing of all employees. It is advisable to set a specific start and finish time and to clarify that any ‘after-party’ events are not employer-endorsed.
Employers may be held responsible for alcohol fuelled behaviour; a responsible service of alcohol should be provided by qualified personnel. Be sure to supply food and include low alcohol and non-alcoholic drink options and ensure minors are not supplied with alcohol.
The holiday season provides the perfect opportunity to connect with customers and leverage off the seasonal shopping period.
For many businesses, the upcoming Christmas season presents a peak in sales. Businesses that fail to maximise the holiday shopping season can miss out on a huge revenue opportunity and risk losing customers to competition.
It pays to adjust your marketing based on seasonal sales opportunities. A marketing campaign that capitalises on the upcoming season provides businesses with the opportunity to position themselves as an adaptive and quick-to-react business.
When crafting your holiday marketing campaign, it is not a good idea to leave planning and execution to the last minute. Here are five ways to boost sales and awareness this holiday season:
Pick the right opportunities
Ensure your marketing campaign meets the needs of your target market. Understanding your target market and their purchasing behaviour will help to hone into the festivities that may appeal to them and allows you to design your marketing campaign based around their wants and needs. Advertise ahead of the holidays
Advertise ahead of the holidays
Consider offering special discounts, increasing your availability for appointments (if you are a service based business), and introducing early bird offers to attract customers who like to shop ahead. Promoting your holiday season sale early helps to prime customers to choose your business as a default shopping destination before your competitors get a chance.
Integrate with social media
Successful holiday season campaigns integrate social media to increase reach and engagement. A strong social media strategy will help brands increase their social subscribers while encouraging customers to purchase. Consider enticing customers to subscribe with special offers such as free shipping or percentage discounts.
Reuse, recycle
As marketing efforts can be relatively expensive, consider reusing past marketing campaigns that were successful. Past campaigns may be recycled if they are still relevant or only need a few minor amendments. When developing a seasonal marketing campaign avoid time-specific references so the content can be used again.
Include a call-to-action
Seasonal campaigns will often have a deadline due to the nature of the campaign and therefore require a call-to-action. Encourage customers to contact your business via email, telephone or social media in your campaign and include deadlines for any special offers to create a sense of urgency. If uptake on promotions is not as expected you may extend offers for additional time.
While it can be quite fun celebrating the year’s achievements at the annual Christmas party, it pays to be aware of the tax implications of these celebrations.
Christmas parties can attract a Fringe Benefits Tax (FBT), a tax that applies where an employer provides a benefit to an employee other than their regular wage or salary.
A number of benefits are exempt from FBT, including the work Christmas party, providing they follow certain rules. The ATO allows employers a $300 threshold per employee for Christmas parties.
In addition to hosting a Christmas party, employers can also provide employees with gifts that cost less than $300 per employee. Therefore, employers can avoid a Fringe Benefits Tax bill providing they host a party that costs less than $300 per employee and also give each employee a Christmas gift worth no more than $300.
The most tax effective option is to hold your Christmas party on the business premises on a working day for current employees only. Expenses such as food and drink are exempt from Fringe Benefits Tax for employees, therefore, no tax deduction or GST credit can be claimed.
Employers should be aware that Fringe Benefits Tax can arise if a spouse or associate of a current employee attends. If the combined cost for the employees and associates is $300 or more per employee, Fringe Benefits Tax will be applicable on the associate’s portion of food and drink.
There are no FBT implications for clients attending the party, however, there is no income tax deduction or GST claimable.
For employers who choose to host the Christmas party off the business premises they will be FBT exempt providing the combined cost of employees and associates is less than $300 per employee. Any costs that are exempt from FBT cannot be claimed as an income tax deduction and no GST credit can be claimed.
Fringe Benefits Tax will apply if the combined cost of employees and associates who attend the party is over $300, however, an income tax deduction and GST credit can be claimed on that portion.
Alternatively, businesses can choose to simplify their FBT paperwork with the 50/50 method or the 12-week register method.
The 50/50 split method allows for 50 per cent of costs associated with entertainment to be subject to FBT and, therefore, tax deductible and the other 50 per cent non-deductible regardless of whether it was provided to an employee, associate or spouse.
The 12-week register method involves tracking the taxable value of each individual fringe benefit for a continuous period of 12 weeks
For queries about Fringe Benefits Tax call your friendly accountant at Leenane Templeton on (02) 4926 2300 or go to our contact page.
Virtual currencies, or cyber currencies, are both a medium of exchange and a store of value, just like traditional money. However, unlike banknotes or coins cyber currencies exist only as digital data stored in computers.
Trading in virtual currencies requires membership in an online community connected by appropriate software, with the value usually being determined by a computer algorithm or simple supply and demand.
Virtual currencies are not considered legal tender in most countries, however some, including Australia, do allow purchases using this alternative money.
What is Bitcoin?
Virtual currencies appeared in the 1990s with names like Digicash, Flooz and Beenz, but most failed for various reasons. Bitcoin originated in 2008 and with the present value of Bitcoin at approximately $6.6 billion, it is currently the most popular and widely used.
An understanding of Bitcoin provides a guide to the common features of virtual currency systems.
Bitcoins are produced by computers known as ‘miners’ that are programmed to solve complex mathematical algorithms. Successful miners (the people running these computers) are rewarded by being given a block of 25 Bitcoins. The complex system of algorithms awards one block of coins approximately every 10 minutes. A total of 21 million Bitcoins are to be created with more than 15.4 million currently in circulation.
Individuals store their Bitcoins using computer programs called ‘wallets’ which can reside on a computer, mobile phone or remote online server. Individual Bitcoins are divided into 100 million subunits called Satoshi.
Transactions occur with an order being sent electronically from one wallet to pay Bitcoins directly to another wallet. These transactions are verified by comparing the private encryption key of the payer with the corresponding public key. All transactions are stored on ‘ledgers’ – other computers dispersed throughout the internet.
Are they useful?
Cyber currencies can be used to purchase the full spectrum of goods and services, from books to houses. Well-known merchants accepting Bitcoin include Amazon, PayPal, Ebay and even Subway.
The Grayscale Bitcoin Investment Trust is a managed fund investing exclusively in Bitcoins. The millionaire Winklevoss twins are also proving the investment value of virtual currencies, having established an exchange in New York, trading US dollars for Bitcoin and vice versa.
Risks and Rewards
Virtual currencies offer numerous advantages over legal tender. For example, as personal details are not linked to a payment in Bitcoin, it can protect against identity theft. Also, there are no fees associated with buying or selling using Bitcoin.
But there are some risks.
A lost bank PIN can be replaced, but losing your Bitcoin private key or deleting your wallet without a backup means you can permanently lose all Bitcoins associated with that key or wallet. This happened to one user in the UK who left his private key on a hard drive which was accidentally thrown out and ended up as landfill. Over the years he has watched the value of those lost “coins” appreciate to millions of pounds.
Virtual currencies aren’t for everyone, but they do have an interesting story.
Establishing your business’ terms and conditions may seem like an onerous task among the neverending to-do lists, but getting it right is essential for healthy cash flow.
Terms and conditions form the basis for the trading relationship on which a business sells goods and services to customers and from which they buy goods and services from suppliers. Specific terms
and conditions can be the difference from chasing up late payments to ensuring your business gets paid first.
Well-drafted terms and conditions will protect a business and provide clarity as to what should happen in any given situation. Terms and conditions can also prevent
disputes and save time and money on collecting debts.
While there is no legal requirement to include terms and conditions on invoices, it is highly recommended to establish written terms and conditions in case things
go wrong with one party. The terms and conditions you decide to incorporate will vary depending on your business’ needs but generally should include the following:
Goods and services
A clear definition of the goods and/or services that will be provided. Including a section for definitions of the words you use throughout your terms and conditions
will prevent any misunderstandings or misinterpretation.
Price and payment terms
The price should be defined and must state whether GST (or other taxes) are included or not. The payment terms should outline when the payment is due and if the price
is payable in cash on delivery or on preagreed terms.
Warranties or guarantees
Include any warranty that will be provided. The warranty period and limitations underthe warranty need to be clearly explained. If you offer any guarantees, be sure to
include them and remember guarantees should be provided before any goods and services are provided.
Delivery
A timeline for the delivery of goods should be detailed. Ensure to include the method of delivery and any associated costs for delivery.
Credit
If credit is provided, include the credit terms, credit limit and any penalty or default terms. It is important to request permission to conduct a reference check
to check the creditworthiness of the other party before providing credit. Remember offering credit increases your chances of receiving a late payment, or not being
paid at all, so consider upfront payment or payment on delivery for customers with large payments.
Risk
Specify what will happen if either party does not deliver or pay on time. The terms should also state what notice is required to get out of an agreement or if one party
wants to end the relationship.
Retention of title clause
A retention of title (ROT) clause means that the seller can retain the ownership of goods already supplied until they have been paid for by the other party. Suppliers
must ensure to register their interest in accordance with the Personal Property Security Act to remain enforceable.
For more information, contact us at Leenane Templeton on 02 4926 2300 or email success@leenanetempleton.com.au
Some small businesses make simple mistakes; others just don’t provide the right information. Make sure your business is not caught out by filling out your business activity statement correctly.
Here are five easy lodgement tips to help businesses save time and get their business activity statement right the first time around:
Lodge all your outstanding activity statements. The tax office cannot process refunds until all of a business’s lodgments are up-to-date.
Make sure the ATO has your business’s latest financial institution details. Without this information, the office cannot issue any of the business’s refunds.
Leave your paper statements behind and begin lodging online. If your business is already lodging online, don’t send a paper copy to the ATO, as this can cause delays in processing.
Double check all the amounts you’ve filled in i.e. make sure the right amounts are under the right labels; you’ve transferred amounts correctly to the summary section and all your
additions are correct.
Fill in the contact number and name of the person who completed the Business Activity Statement. Doing so helps the ATO check any small details quickly and easily over the phone. Also, don’t forget to update
your authorised contacts list. If there are any problems, the office will need to speak to an authorised contact.
To determine the business-use percentage, taxpayers need a logbook and odometer readings for the logbook period (which is a minimum, continuous 12 week period).
For more information contact us at Leenane Templeton on 02 4926 2300 or email success@leenanetempleton.com.au
Looking to start a business? Speak with Leenane Templeton first.
The Fair Work Commission has increased the high income threshold for unfair dismissals from $136,700 to $138,900 per annum, with effect from 1 July 2016.
Under the Fair Work Act 2009, employee who exceed earnings above the high income threshold are not entitled to make an unfair dismissal claim against their
employer, unless they are covered by an award or enterprise agreement.
The Fair Work Act 2009 deems an employee’s annual rate of earnings as employee wages, any amounts applied or dealt with on the employee’s behalf, such as
salary sacrificing, and the agreed value of any non-monetary benefits i.e. a car, mobile phone, laptop, etc.
Reimbursements, superannuation contributions and payments which cannot be determined in advance, such as overtime and bonuses, are not considered when
calculating the high income threshold.
Employees are eligible to claim for unfair dismissal if they have completed the minimum employment period of:
12 months – where the employer employs fewer than 15 people, or
6 months – where the employer employs more than 15 people.
When considering an employee’s dismissal, employers need to be aware of the new high income threshold and whether a modern award or enterprise agreement applies
to an employee. Small business owners must comply with the Small Business Fair Dismissal Code to ensure they have grounds to object an unfair dismissal
application, in the case where a matter goes to a hearing.
For more information contact us at Leenane Templeton on 4926 2300 or email success@leenanetempleton.com.au
The ATO is working with insurance companies to assess artworks and collectables owned by taxpayers and identify the owners of these kinds of assets.
There has been an increasing concern by the ATO that assets such as collectables are not being properly accounted for. Since these assets may be subject to capital gains tax (CGT) on disposal, taxpayers should be properly accounting for their assets and aware of any capital gains tax applicable.
Collectables are items that individuals use or keep mainly for the personal use or enjoyment by them or their associates and include items such as paintings, sculptures, drawings, engravings or photographs, reproductions of these items or property of a similar description or use, jewellery, antiques and coins.
A collectable also includes an interest in any of the items listed above, a debt that arises from any of those items or an option or right to acquire any of those items.
Capital gains or losses made from a collectable can be ignored provided the collectable was acquired for $500 or less; the interest in the collectable acquired was for $500 or less before 16 December 1995, or the interest in the collectable it had a market value of $500 or less when acquired.
Capital losses from collectables can be used only to reduce capital gains (including future capital gains) from collectables. There is no time limit on how long a net capital loss from the disposal of a collectable can be carried forward.
The ATO’s attention is not limited to capital gains tax and new rules have been introduced in relation to the recording and storage of collectables held by self managed super funds.
From 1 July 2016 new rules regarding any collectable and/or artwork owned by an SMSF state:
collectables cannot be stored at an SMSF trustee’s residence
an SMSF trustee or a related party is not permitted to lease or use any of the collectables
the collectable must be insured by its own separate policy
the storage decisions by the trustees must be documented and minuted
if the collectable is to be sold to an SMSF trustee or related party, then a valuation by a qualified independent valuer may be required to determine the market value.
For more information contact us at Leenane Templeton on 02 4926 2300 or email success@leenanetempleton.com.au
Individuals can claim tax deductions when giving gifts or donations to organisations that have the status of deductible gift recipients (DGR).
To be eligible to claim a tax deduction for a gift, the ATO stipulates that it must meet the following four conditions:
the gift must “truly be a gift”; that is, a voluntary transfer of money or property where the giver receives no material benefit or advantage
the gift must be made to a deductible gift recipient (DGR)
the gift must be money or property
the gift must comply with any relevant conditions.
For some deductible gift recipients, the income tax law adds extra conditions affecting the types of deductible gifts they can receive.
What you can claim
The amount an individual can claim for a gift or donation depends on the type of gift given. For gifts of money, individuals can claim the total amount of the gift, as long as it is $2 or more.
Different rules exist for gifts of property, and the amount of the tax deduction depends on the value and type of property.
Tax deductions for the majority of gifts can be claimed in the tax return for the income year when the gift is made. However, individuals can also spread the tax deduction over five income years under certain circumstances.
What you can’t claim
Individuals cannot claim a tax deduction for gifts or donation items that provide some personal benefit, such as raffle tickets, the cost of attending fundraising dinners (unless certain conditions are met), membership fees, payments to school building funds, payments where there is an understanding with the giver and recipient that the payments will be used to provide a substantial benefit for the giver.
For more information contact us at Leenane Templeton on 02 4926 2300 or email success@leenanetempleton.com.au
We have pleasure in enclosing a summary of the significant announcements from the Government’s Federal Budget 2016.
There are a great deal of changes in this budget. Like in recent years these proposed changes have presented numerous opportunities. We look forward to working with you to take advantage of any relevant opportunities to your specific circumstances. Please call our team to discuss how these changes apply to your individual circumstances.
2016/17 Federal Budget Highlights
The Federal Treasurer, Mr Scott Morrison, handed down his first Budget (the government’s third) at 7.30pm on 3 May 2016. The Federal Budget sets out the government’s economic plan to ensure Australia continues to successfully transition from the mining investment boom to a stronger, more diversified new economy. It does this by:
introducing a 10-year enterprise tax plan,
fixing problems in the tax system, and
ensuring that the government lives within its means.
Here are the tax, superannuation and social security highlights.
SMALL BUSINESS
Increased turnover threshold for small business income tax concessions
The small business entity turnover threshold will be increased from $2m to $10m from 1 July 2016. The increased threshold means businesses with an annual turnover of less than $10m will be able to access existing small business income tax concessions including the:
lower small business corporate tax rate (which will be reduced to 27.5% from the 2016/17 income year)
simplified depreciation rules under Subdiv 328-D of the Income Tax Assessment Act 1997 (ITAA 1997), including the instant asset write off threshold of $20,000 available until 30 June 2017
simplified trading stock rules under Subdiv 328-E of ITAA 1997
option to account for GST on a cash basis and pay GST instalments as calculated by the ATO
simplified method of paying PAYG instalments calculated by the ATO, and
other tax concessions such as the extension of the FBT exemption for work-related portable electronic devices available from 1 April 2016 and the immediate deduction of professional expenses under s 40-880 of ITAA 1997.
The increased $10m threshold will not be applicable for accessing the small business capital gains tax concessions. These concessions will remain available only for small businesses with a turnover of less than $2m or that satisfy the maximum net asset value test. The unincorporated small business tax discount (which will be increased to 8% from 1 July 2016) will however be accessible to small businesses with a turnover of less than $5m.
Source: Budget Paper No 2, p 40; Assistant Treasurer’s media release, 3 May 2016.
Unincorporated small business tax discount increased
The unincorporated small business tax discount will be increased in phases over 10 years from the current 5% to 16%. First increasing to 8% on 1 July 2016, the discount will be available to individual taxpayers with business income from an unincorporated business that has an aggregated annual turnover of less than $5m (also an increase from the current small business turnover threshold of less than $2m).
The tax discount will be increased in phases as follows:
The existing cap of $1,000 per individual for each income year will be retained.
The gradual increase is intended to coincide with the staggered cuts in the corporate tax rate to 25%.
Source: Budget Paper No 2, p 40.
GST reporting requirements simplified for small businesses
From 1 July 2017, all small businesses with less than $10m turnover will more easily be able to classify transactions, and prepare and lodge their business activity statements.
A trial of the new simpler reporting arrangements will commence on 1 July 2016.
Source: Assistant Treasurer’s media release “Easing the tax burden and making life easier for hard working small businesses”, 3 May 2016.
OTHER ENTERPRISES
Staggered cuts to the company tax rate
The company tax rate will be progressively reduced to 25% over 10 years.
From the 2016/17 income year, the company tax rate for businesses with an annual aggregated turnover of less than $10m will be reduced to 27.5%. This threshold to access the 27.5% tax rate will be progressively increased to ultimately have all companies at that rate in the 2023/24 income year. The thresholds for the 27.5% rate will be as follows:
Franking credits will be able to be distributed in line with the rate of tax paid by the company making the distribution.
Source: Budget Paper No 2, p 41.
Targeted amendments to Div 7A
Targeted amendments will be made to improve the operation and administration of integrity rules for closely-held, private groups (in Div 7A of the Income Tax Assessment Act 1936) from 1 July 2018.
The amendments will include:
a self-correction mechanism for inadvertent breaches of Div 7A
appropriate safe-harbour rules to provide certainty
simplified Div 7A loan arrangements, and
a number of technical adjustments to improve the operation of Div 7A and provide greater certainty.
The amendments draw on a number of recommendations from the Board of Taxation’s post-implementation review of Div 7A.
Source: Budget Paper No 2, p 42.
Expanding tax incentives for early-stage investors
In the Mid-Year Economic and Fiscal Outlook 2015/16 the government announced tax incentives applying for the 2016/17 and later income years to promote investment in early stage innovative companies, including:
a 20% non-refundable tax offset capped at $200,000 per investor per year, and
a capital gains tax exemption, provided investments are held for at least three years and less than 10 years.
The concessions were announced to apply to investments in companies that were incorporated during the last three income years and that are undertaking an “eligible business”, the scope of which was to be determined by the government in consultation with industry. In addition, the company could not be listed on any stock exchange and must have expenditure of less than $1m and income of less than $200,000 in the previous income year.
The government has announced that following consultation with stakeholders, the measures will be amended so that they better target investment in innovative companies that face difficulty attracting the capital and business expertise needed to succeed.
The amendments include:
reducing the holding period from three years to 12 months for investors to access the CGT exemption
a time limit on incorporation and criteria for determining if a company is an innovation company under the definition of “eligible business”
requiring that the investor and innovation company are non-affiliates, and
limiting the investment amount for non-sophisticated investors to qualify for the tax offset to $50,000 or less per income year.
Source: Budget Paper No 2, p 21.
Funding arrangements for venture capital investment expanded
Funding arrangements to attract more venture capital investment will be expanded to improve access to capital and make the regimes more user-friendly.
The government has amended the Mid-Year Economic and Fiscal Outlook 2015/16 measure “National Innovation and Science Agenda — new arrangement for venture capital investment” to:
add a transitional arrangement that allows conditionally registered funds that become unconditionally registered after 7 December 2015 to access the tax offset if the criteria are met
relax the requirement for very small entities to provide an auditors’ statement of assets
extend the increase in fund size from $100m to $200m for new early-stage venture capital limited partnerships (ESVCLPs) to also apply to existing ESVCLPs, and
ensure that the venture capital tax concessions are available for FinTech, banking and insurance related activities.
Source: Budget Paper No 2, p 22.
New collective investment vehicles introduced
A new tax and regulatory framework will be introduced for two new types of collective investment vehicles (CIVs).
A corporate CIV will be introduced for income years starting on or after 1 July 2017 and a limited partnership CIV will be introduced for income years starting on or after 1 July 2018.
The new CIVs will be required to meet similar eligibility criteria as managed investment trusts, such as being widely held and engaging in primarily passive investment. Investors in these new CIVs will generally be taxed as if they had invested directly.
This measure is intended to allow fund managers to offer investment products using vehicles that are commonly in use overseas.
Source: Budget Paper No 2, p 39.
Changes to tax treatment for asset backed financing
The tax treatment of asset backed financing arrangements such as deferred payment arrangements and hire purchase arrangements will be clarified to ensure they are treated in the same way as financing arrangements based on interest bearing loans or investments.
This measure will apply from 1 July 2018.
Source: Budget Paper No 2, p 38.
INDIVIDUALS & FAMILIES
Personal income tax relief
The threshold at which the 37% marginal tax rate for individuals commences will increase from taxable incomes of $80,000 to $87,000 from 1 July 2016.
This measure reduces the marginal income tax rate on taxable incomes between $80,000 and $87,000 from 37% to 32.5% from the 2016/17 income year. It should prevent approximately 500,000 taxpayers facing the 37% marginal income tax rate in the 2016/17 income year. It should also ensure that the average full-time wage earner will not move into the 37% tax bracket in the next three years.
Source: Budget Paper No 2, p 42.
Medicare levy and surcharge — low-income thresholds to increase
The low-income thresholds for the Medicare levy and surcharge will increase from the 2015/16 income year. The changes are in the Tax and Superannuation Laws Amendment (Medicare Levy and Medicare Levy Surcharge) Bill 2016.
Medicare levy
The increases take into account movements in the consumer price index (CPI) so that low-income earners generally continue to be exempted from the Medicare levy.
The threshold for singles will increase to $21,335 (up from $20,896 for the 2014/15 year). For couples with no children, the threshold will increase to $36,001 (up from $35,261 for the 2014/15 year).
For single seniors and pensioners, the threshold will be increased to $33,738 (up from $33,044 for the 2014/15 year). For senior and pensioner couples with no children, the threshold will be increased to $46,966 (up from $46,000 for the 2014/15 year).
The child-student component of the income threshold for all families increases to $3,306 (up from $3,238 for the 2014/15 year).
Key aspects of the changes to the Medicare levy are summarised in the following table.
Medicare levy surcharge
The Bill also amends the A New Tax System (Medicare Levy Surcharge — Fringe Benefits) Act 1999 from the 2015/16 income year. It increases the Medicare levy surcharge low-income threshold in line with movements in the CPI for:
the surcharge payable on taxable income for a person who is married (or both married and a beneficiary of a trust) to $21,335 (up from $20,896 for the 2014/15 year), and
the surcharge on reportable fringe benefits to $21,335 (up from $20,896 in the 2014/15 year).
Source: Budget Paper No 2, p 23; Tax and Superannuation Laws Amendment (Medicare Levy and Medicare Levy Surcharge) Bill 2016.
Pausing of Medicare levy surcharge and private health insurance rebate thresholds
The pause in the indexation of the income thresholds for the Medicare levy surcharge and the private health insurance rebate will continue for a further three years. This will achieve efficiencies of $744.2m over three years from 1 July 2018.
Source: Budget Paper No 2, p 113.
Income tax exemptions for ADF personnel deployed overseas
The government will provide a full income tax exemption for Australian Defence Force (ADF) personnel deployed on Operation PALATE II in Afghanistan. This income tax exemption has effect from 1 January 2016, and will remain in effect until 31 December 2016.
The government will also update the coordinates for Operation MANITOU in international waters, with effect from 14 May 2015, and Operation OKRA in the Middle East, with effect from 9 September 2015, to reflect the actual areas covered by the operations.
Source: Budget Paper No 2, p 20.
List of deductible gift recipients updated
Since the Mid-Year Economic and Fiscal Outlook 2015/16, the following organisations have been approved as specifically-listed deductible gift recipients (DGRs) from the following dates:
Australian Science Innovations Incorporated from 1 January 2016
The Ethics Centre Incorporated from 24 February 2016, and
Cambridge Australia Scholarships Limited from 1 July 2016 to 30 June 2021.
In addition, from Royal Assent the following organisations have been approved as specifically-listed DGRs provided the gifts are made for education or research in medical knowledge or science:
The Australasian College of Dermatologists
College of Intensive Care Medicine of Australia and New Zealand, and
The Royal Australian and New Zealand College of Ophthalmologists.
Taxpayers may claim an income tax deduction for gifts to these organisations of $2 or more.
Source: Budget Paper No 2, p 23–24.
SUPERANNUATION
Div 293 tax income threshold reduced
The Div 293 threshold (the point at which high income earners pay addition contributions tax) will be lowered from $300,000 to $250,000 from 1 July 2017. The annual cap on concessional superannuation contributions will also be reduced to $25,000 (currently $30,000 under age 50; $35,000 for ages 50 and over).
Reducing the Div 293 tax income threshold will limit the effective tax concessions provided to high income individuals. Capping concessional contributions at $25,000 per year will still allow individuals to accumulate significant amounts of tax advantaged concessional superannuation.
The lower Div 293 income threshold will also apply to members of defined benefits schemes and constitutionally protected funds currently covered by the tax. Existing exemptions (such as state higher level office holders and commonwealth judges) for Div 293 tax will be maintained.
From 1 July 2017, the government will include notional (estimated) and actual employer contributions in the concessional contributions cap for members of unfunded defined benefits schemes and constitutionally protected funds. Members of these funds will have opportunities to salary sacrifice commensurate with members of accumulation funds. For individuals who were members of a funded defined benefits scheme as at 12 May 2009, the existing grandfathering arrangements will continue.
Source: Budget Paper No 2, p 28–29.
Tax exemption on earnings supporting income streams removed
The tax exemption on earnings of assets supporting Transition to Retirement Income Streams (TRISs) will be removed from 1 July 2017 (ie income streams of individuals over preservation age but not retired).
A rule that allows individuals to treat certain superannuation income stream payments as lump sums for tax purposes will also be removed.
These changes will ensure that TRISs remain fit for purpose, are not accessed primarily for their tax advantage, and still meet the objective of supporting people who want to remain in the workforce.
Source: Budget Paper No 2, p 30.
Lifetime cap for non-concessional superannuation contributions
A lifetime non-concessional contributions cap of $500,000 will be introduced. To ensure maximum effectiveness, the lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007, from which time the ATO has reliable contributions records, and will commence at 7.30 pm (AEST) on 3 May 2016.
The lifetime non-concessional cap will replace the existing annual caps which allow annual non-concessional contributions of up to $180,000 per year (or $540,000 every three years for individuals aged under 65).
Contributions made before commencement cannot result in an excess. However, excess contributions made after commencement will need to be removed or be subject to penalty tax.
After-tax contributions made into defined benefits accounts and constitutionally protected funds will be included in an individual’s lifetime non-concessional cap. If a member of a defined benefits fund exceeds their lifetime cap, ongoing contributions to the defined benefits account can continue but the member will be required to remove, on an annual basis, an equivalent amount (including proxy earnings) from any accumulation account they hold. The amount that could be removed from any accumulation accounts will be limited to the amount of non-concessional contributions made into those accounts since 1 July 2007. Contributions made to a defined benefits account will not be required to be removed. The government will consult to ensure broadly commensurate and equitable treatment of individuals for whom no amount of post 1 July 2007 non-concessional contributions are available to be removed.
The measure which will be available to all Australians up to age 74 will provide support for the majority of Australians who make non-concessional contributions well below $500,000 and flexibility around when they choose to contribute to their superannuation.
Source: Budget Paper No 2, p 27.
Harmonising contribution rules for people aged 65 to 74
The current restrictions on people aged 65 to 74 from making superannuation contributions for their retirement will be removed from 1 July 2017. People under the age of 75 will no longer have to satisfy a work test and will be able to receive contributions from their spouse.
Currently, there are minimum work requirements for Australians aged 65 to 74 who want to make voluntary superannuation contributions. Restrictions also apply to the bring-forward of non-concessional contributions. In addition, spouses aged over 70 cannot receive contributions.
The government will remove these restrictions and instead apply the same contribution acceptance rules for all individuals aged up to 75 from 1 July 2017. The measure will allow people aged 65 to 74 to increase their retirement savings, especially from sources that may not have been available to them before retirement, including from downsizing their home.
Individuals with a superannuation balance less than $500,000 will be allowed to make additional concessional contributions where they have not reached their concessional contributions cap in previous years, with effect from 1 July 2017. Amounts are carried forward on a rolling basis for a period of five consecutive years, and only unused amounts accrued from 1 July 2017 can be carried forward.
The measure will allow people with lower contributions, interrupted work patterns or irregular capacity to make contributions, eg women or carers, to make “catch-up” payments to boost their superannuation savings. It will also apply to members of defined benefit schemes, with consultation undertaken to minimise additional compliance impact for these schemes.
Source: Budget Paper No 2, p 24.
Restrictions on personal superannuation contribution deductions eased
From 1 July 2017 all individuals up to age 75 will be allowed to claim an income tax deduction for personal superannuation contributions.
This effectively allows all individuals, regardless of their employment circumstances, to make concessional superannuation contributions up to the concessional cap. Individuals who are partially self-employed and partially wage and salary earners, and individuals whose employers do not offer salary sacrifice arrangements will benefit from these changed arrangements.
Individuals that are members of certain prescribed funds would not be entitled to deduct contributions to those schemes.
Prescribed funds will include all untaxed funds, all commonwealth defined benefits schemes, and any state, territory or corporate defined benefits schemes that choose to be prescribed.
Source: Budget Paper No 2, p 30.
Low income superannuation tax offset introduced
A low income superannuation tax offset (LISTO) will be introduced to reduce tax on superannuation contributions for low income earners from 1 July 2017.
The LISTO will provide a non-refundable tax offset to superannuation funds, based on the tax paid on concessional contributions made on behalf of low income earners, up to a cap of $500. The LISTO will apply to members with adjusted taxable income up to $37,000 that have had a concessional contribution made on their behalf.
The measure will effectively avoid the situation in which low income earners would pay more tax on savings placed into superannuation than on income earned outside of superannuation.
Source: Budget Paper No 2, p 28.
Low income spouse tax offset threshold increased
The income threshold for the receiving spouse (whether married or de facto) of the low income spouse tax offset will be increased from $10,800 to $37,000 from 1 July 2017.
The measure will improve the superannuation balances of low income spouses by extending the current spouse tax offset to assist more families to support each other in accumulating superannuation. The low income spouse tax offset provides up to $540 per annum for the contributing spouse and builds on the government’s co-contribution and superannuation splitting policies to boost retirement savings, particularly for women.
Source: Budget Paper No 2, p 25.
Superannuation transfer balance cap introduced
A balance cap of $1.6m on the total amount of accumulated superannuation an individual can transfer into the tax-free retirement phase will be introduced from 1 July 2017. Subsequent earnings on these balances will not be restricted. This will limit the extent to which the tax-free benefits of retirement phase accounts can be used by high wealth individuals.
Where an individual accumulates amounts in excess of $1.6m, they will be able to maintain this excess amount in an accumulation phase account (where earnings will be taxed at the concessional rate of 15%). Members already in the retirement phase with balances above $1.6m will be required to reduce their retirement balance to $1.6m by 1 July 2017. Excess balances for these members may be converted to superannuation accumulation phase accounts.
A tax on amounts that are transferred in excess of the $1.6m cap (including earnings on these excess transferred amounts) will be applied, similar to the tax treatment that applies to excess non-concessional contributions.
The amount of cap space remaining for a member seeking to make more than one transfer into a retirement phase account will be determined by apportionment. Commensurate treatment for members of defined benefits schemes will be achieved through changes to the tax arrangements for pension amounts over $100,000 from 1 July 2017. Consultation will be undertaken on the implementation of this measure for members of both accumulation and defined benefits schemes.
Source: Budget Paper No 2, p 25–26.
Anti-detriment death benefit provision removed
The anti-detriment provision in respect of death benefits from superannuation will be removed from 1 July 2017.
The anti-detriment provision can effectively result in a refund of a member’s lifetime superannuation contributions tax payments into an estate, where the beneficiary is the dependant of the member (spouse, former spouse or child). Currently, this provision is inconsistently applied by superannuation funds.
Removing the anti-detriment provision will better align the treatment of lump sum death benefits across all superannuation funds and the treatment of bequests outside of superannuation. Lump sum death benefits to dependants will remain tax free.
Source: Budget Paper No 2, p 29.
GST AND OTHER INDIRECT TAXES
GST extended to low value goods imported by consumers
GST will be extended to low value goods imported by consumers from 1 July 2017.
The intent of this measure is that low value goods imported by consumers will face the same tax regime as goods that are sourced domestically.
Overseas suppliers that have an Australian turnover of $75,000 or more will be required to register for, collect and remit GST for low value goods supplied to consumers in Australia, using a vendor registration model.
These arrangements will be reviewed after two years to ensure they are operating as intended and take account of any international developments.
This change will require the unanimous agreement of the states and territories prior to the enactment of legislation. This follows the in-principle agreement made on 21 August 2015 by the Council on Federal Financial Relations Tax Reform Workshop.
Source: Budget Paper No 2, p 19.
Discussion paper on GST treatment of digital currencies released
The government has released a discussion paper seeking public submissions on options to address the “double taxation” of digital currencies under the GST regime. According to the Treasurer, the paper moves the government a step closer to delivering an important change that will ensure that consumers are no longer “double taxed” when using digital currencies such as Bitcoin to buy goods and services already subject to GST.
Source: Treasurer’s media release “Embracing our FinTech future”, 3 May 2016.
Tobacco excise to increase
Tobacco excise and excise-equivalent customs duties will be subject to four annual increases of 12.5% from 2017 until 2020. The increases will take place on 1 September each year and will be in addition to existing indexation to average weekly ordinary time earnings. These four annual increases will take Australia’s excise on a cigarette to almost 69% of the average price of a cigarette (assuming there are no other changes to cigarette prices over this period). This is close to the World Health Organisation recommendation of 70% of the price of a cigarette.
In addition, the duty-free tobacco allowance will be limited to 25 cigarettes (or equivalent) from 1 July 2017. This is down from the current allowance of 50 cigarettes.
Amendments will also be made to the Customs Act 1901 and the Excise Act 1901 to provide enforcement officers with access to tiered offences and appropriate penalties. This will increase the range of enforcement options available for illicit tobacco offences.
Source: Budget Paper No 2, p 16.
TAX ADMINISTRATION
Tax Avoidance Taskforce
The government will provide the ATO with $679m over four years to establish a Tax Avoidance Taskforce, which is intended to enhance the ATO’s current compliance activities targeting large multinationals, private groups and high-wealth individuals, and extend them to 30 June 2020. The Taskforce will be led directly by the Commissioner of Taxation, Chris Jordan.
The Taskforce will work closely with partner agencies including the Australian Crime Commission, the Australian Federal Police and AUSTRAC. New legislation will be introduced that will allow the ATO to improve information sharing and analysis with the Australian Securities and Investments Commission. Part of the work of the Taskforce will be testing the law through litigation where there is deliberate tax avoidance.
It is intended that the Commissioner will provide regular progress reports to the government on the work of the Taskforce, with the first report to be provided before the end of 2016.
External experts will be appointed to play a role in support of the Taskforce, including a panel of eminent former judges which will review proposed settlements with the ATO to ensure they are fair and appropriate.
The Taskforce is expected to recover $3.7b in tax liabilities over four years, and it is intended that the work of the Taskforce will also deter taxpayers from attempting to avoid their tax obligations.
Source: Budget Paper No 2, p 33.
Protection for tax whistleblowers
Under the new arrangements, individuals will receive improved protection if they disclose information to the ATO relating to tax avoidance behaviour and other tax issues. The types of individuals that will be protected include:
employees of taxpayers
former employees of taxpayers, and
advisers to taxpayers.
Whistleblowers will have their identities protected and will be protected from victimisation, criminal prosecution and civil action for disclosing information to the ATO.
The measure forms part of the government’s Tax Integrity Package, and will apply from 1 July 2018.
Source: Budget Paper No 2, p 32.
Companies encouraged to adopt Tax Transparency Code
In the 2015/16 Federal Budget, the government announced a voluntary Tax Transparency Code. The Board of Taxation released a discussion paper on the Code in December 2015, and recommended that businesses with aggregated TTC Australian turnover of at least A$100m but less than A$500m should adopt Part A of the Code, which covers:
a reconciliation of accounting profit to tax expense and to income tax paid or income tax payable
identification of material temporary and non-temporary differences, and
accounting effective company tax rates for Australian and global operations (pursuant to the Australian Accounting Standards Board (AASB) guidance).
It was recommended that large businesses (ie businesses with aggregated TTC Australian turnover of A$500m or more) adopt Parts A and B of the TTC. Part B of the TTC covers:
the business’ approach to tax strategy and governance
a tax contribution summary for corporate taxes paid, and
information about international related party dealings, financing and tax concessions.
In this Federal Budget (2016/17) the Government announced that it is committed to encouraging greater tax transparency within the corporate sector, especially by multinational corporations, and encourages all companies to adopt the TTC from the 2016 financial year onwards.
Source: Budget 2016-17 Glossy: Making our tax system more sustainable.
Federal Budget Highlights 2016 – 2017
Brought to you by Newcastle Accountants – Leenane Templeton
The start of the new year provides small businesses with the perfect opportunity to improve their credit management and cash flow conversion cycle.
Cash flow was one of the biggest causes of small business failures last year, with around 90 per cent of enterprise insolvencies due to businesses putting their tax debts last to supplement their working capital.
Managing cash flow is more than just good practice for business; it is key to survival. Here are five tips for improving your credit management and cash flow in 2016:
Implement a clear credit policy
Routinely review your business’s credit policy to ensure it remains appropriate for the business’s risk profile.
Document your terms of trade
Terms of trade need to be documented and include aspects like prepayments, deposits, guarantees, security and payment terms.
Understand your customers
Routinely carry out credit checks for new and existing customers to identify any issues that can influence credit terms and limits.
Develop a clear debt recovery process
A business’s process for collections should be clearly mapped out, understood and strictly followed by all staff. Businesses who are disciplined in their collections process are more likely to see this kind of behaviour in clients who will follow the same practice after seeing the importance of paying on time.
Make provisions for bad debts
Good credit management is about safeguarding profitability. Provisions for bad debts should be made in the budgeting process to minimise the risk of impacting on profitability.
For more tips on cash flow, contact us at Leenane Templeton on 02 4926 2300
