MG Arthur & Associates AboutTax Blog

Get Your Director ID if you're a Director

2021-11-17T09:00:00+11:00

As part of modernising the Business Registers Program, Australian Business Registry Services have introduced Director ID or Director Identification Number (DIN). This is a mandatory requirement for all directors. It is a 15 digit identifier given to a director and applies forever, even though you may no longer be a director for a company, change your name, or move interstate or overseas.

Why DIN?
To prevent the use of fake director identities, eliminate director involvement in unlawful activities such as illegal phoenix activity and to make it easier for government regulators to trace directors' relationships with companies over time.

Who needs one?
All current and future directors, including alternate directors (acting in the capacity of) will need a DIN. You don't need one if you're a company secretary (but not a director), a sole trader or running a business in a partnership. For a complete list of who needs and who doesn't need a DIN, click here.

Can the Tax Agent apply for a Director ID for their client?
No. The directors must do it themselves, as the Registrar will need to verify their identity.

When to apply?

Status	Appointment Date	Due Date to Comply
Current Directors	On or before 31 October 2021	By 30 November 2022
New Directors	Between 1 November 2021 and 4 April 2022	Within 28 days of appointment
Future Directors	From 5 April 2022	Must have a DIN before your appointment. You may apply for one 12 months before your appointment.

TIP : If you're already a Director prior to 31 October 2021 and become a Director of a new company between 1 November 2021 and 4 April 2022, you will need to get your DIN within 28 days of your new appointment.

How to apply
There are 3 Steps to this process
1. Set up you myGovID with a standard or strong identify strength.
To do this, you will need to download myGovID app and establish your identify. Click here for more information on setting up myGovID.

2. Gather some information that ATO knows about you, for example TFN, residential address held by ATO, information from 2 documents to verify your identity, which includes
• Bank account details – enter the bank account details that ATO holds
• An ATO notice of Assessment – you'll need the date of issue and 'ATO - Our reference number'
• Super account details
• A dividend statement
• A Centrelink payment summary
• A PAYG payment summary

TIP : Residential address must match with ATO records. Contact us to check and update your details with ATO.

3. Complete your application online at abrs.gov.au/directorIDapply (it takes about 5 mins).
Your DIN will not be posted, so print or save the PDF confirmation.

What's next?
a) Provide Director ID to the company secretary and your tax / ASIC Agent to keep on file.
b) You may log on to abrs.gov.au to check or retrieve your Director ID information, view things to do, action in progress and past activity and edit your profile preference.
c) You must update your records on ABRS online within 7 days of change to your personal details. Inform us of the same, so we can also update ASIC.
d) In future, you will also be able to see companies you're linked to. There is currently no historical data available.

What happens if you don't apply for a Director ID?
Noncompliance is a criminal offence and may lead to fines and jail time of up to 12 months. ASIC is responsible for enforcing director ID offences set out in the Corporations Act 2001; which includes
a) Failure to have a director ID when required to do so
b) Failure to apply for a director ID when directed by the Registrar
c) Applying for multiple director IDs
d) Misrepresenting director ID

Should you need any further assistance or clarification on this matter, please don't hesitate to contact us.

Single Touch Payroll Changes from 1 July 2021

2021-06-25T09:00:00+10:00

The ATO has recently published fact sheets in relation to Single Touch Payroll (STP) changes which will take effect on 1 July 2021. Small employers will commence to report STP for closely held payees on a weekly, fortnightly, monthly or quarterly. Quarterly reporting is only allowed if you've met certain criteria.

Current STP Rules (Prior to 1 July 2021)

Changes from 1 July 2021

Who is required to Lodged?
a) Employers with 20 or more employees from 1 July 2018
b) Employers with 19 or fewer employees from 1 July 2019 (unless an exemption is applied to them)

What information is required to be lodged?
a) Salaries and wages
b) PAYG
c) Super liability information

Refer source for tables showing what is reportable.

Who is required to lodge?
a) Micro Employers (with 4 or fewer employees) - eligible for quarterly reporting concession
b) Employers with closely held payees must report through STP

Eligibility for quarterly reporting concession - must meet ALL of the following
a) Be a micro employer on the day you apply (work out how to count your employees)
b) Lodge your activity statements electronically through a registered tax or BAS agent
c) Have a non-computerised payroll. This could include running your payroll manually and keeping records on a spreadsheet or paper
d) All amounts owing to ATO are either not yet due or subject to a payment plan
e) All lodgement obligations are either not yet due or subject to a deferral
f) For applications for a period commencing after 1 July 2021, you must also meet the guidelines for exceptional circumstances.

What is the exceptional circumstances?
a) Seasonal or intermittent workers – for micro employers who generally have either no or between one and four employees for most of the year and then increase their workforce for less than three months of a financial year
b) No or unreliable internet connection – we would consider the following
i) an inability to connect to the internet
ii) a connection that consistently requires multiple attempts
iii) consistent dropouts or disconnections
iv) exceedingly slow data transfer

Employers can apply for this concession through the online deferral tool from 1 July 2021

What information is required to be lodged?
a) Salaries and wages
b) PAYG
c) Super liability information
d) Occupation
e) Itemise gross wage into allowances
f) Bonuses
g) Overtime
h) Leaves
i) and more

Frequently asked questions

1. How to lodge STP, does my current accounting software allow us to do it?

STP can be only lodged with STP-enabled software. Most of the accounting software has this function, however this option is only available if your current subscription has payroll function. Our team will be in touch with you in early July 2021 to review your subscription and advise you if any changes are required for your subscriptions.

2. When do we lodge the STP?

You are required to report a pay event to the ATO on or before the pay day. The pay day is either the payment date stipulated in the electronic transaction to your financial institution or, if you did not specify a date for payment, the date you intend to make the payment into your employee's bank account.

3. How do we fix an error in the payslips?

Once STP is filed, the software won't allow you to delete that payslip. You are required to process another payslip as an amendment to fix the error. As per ATO, corrected STP needs to be lodged within 14 days of the need for a correction being identified or in the next regular pay event where the affected employee has continuity of employment.

4. Is there penalty for non-compliance or late lodgement?
Yes !!!!

2020 Tax Time Special - Home Office Expense Claim

2020-07-20T09:00:00+10:00

In preparation for tax time 2020, undoubtedly you would be excited about claiming all your home office expenses for the months you were required to work from home. To assist you with your preparations, we have put together a simple guide, per below;

Tax Tips!

It is important that you maintain a diary of 4 weeks for both pre Covid and during Covid periods (separately) to be able to justify your claim. The diary could be in form of an excel file log showing hours worked with a short description of work done over a continued period of 4 weeks. You can use roster records (showing work from home) as an alternative, if provided to you by work.

Remember, you need to pass the 3 tests to be able to claim an expense as work related:

The incurred test - You need to have spent money and not be reimbursed.
The nexus test - The amount spent should be directly related to your work and not be ancillary.
The substantiation test - You need to maintain records to substantiate your expenses.

For further information on work related expenses please click the below helpful links from the ATO:

Working from home

Support for individuals and employees working from home

Additionally, please feel free to download your copy of our extensive checklists here in preparation for your appointment.

The Three 'I's of Professionalism

2020-07-03T09:00:00+10:00

A barber and an accountant

After having used services of a very professional and proficient barber Anthony, for years, I thought I will try and save some money. After all spending $25 pp for haircuts for a 9 year old and a 5 year old sounded more of a splurge. Anthony is well trained, experienced and highly knowledgeable, his salon ambience is good, service even better!

Added to my motivation was to support an upcoming small business run by migrants.

A few minutes into the haircut of the two boys at the new place, there seemed to be a small problem. The 9 year old had hair standing up at the back of his head, and for the 5 year old, there seemed to be a funny gap right above his forehead. Upon approaching the barbers, they meekly said, they had no idea of what was happening, and tried to blame it on the hair style the boys had asked for. I gently told them that the boys have been having the same style for years, and never before had we faced this problem.

It took me a visit to my old barber to technically understand what had really happened. It appears, both my boys have something called 'a double cowlick', a condition where if cut too short, hair either stands right up, or leaves a balding gap.

A rare, and otherwise harmless situation, it takes a professionally trained barber to recognise and manage the specific requirements of a set of hair, something an amateur may lack in.

It didn't take me long to equate this experience to my own profession. As in any profession, we have some tax accountants who have gained a bit of experiential knowledge but lack structured education and training. Then there are others who are unable to or unwilling to invest their time and money in continuous professional development and training. When a small business or mom and dad situation raises a tricky tax situation or a possibility of an advantageous tax planning, it is the structured education and ongoing training that sets you apart. There could be savings through strategic tax planning, restructuring, reduced capital gains or fast track business deductions. Similarly, unknown tax hits from errors like untimely trust distributions or director loans can be avoided.

Clients who prefer to save a few bucks thus miss out on these opportunities or end up with unwanted tax bills.

In my words, a professional accountant (and generally any professional) is someone who passes the test of the three 'I's:

Intelligence, gained through structured education and ongoing training
Integrity, to do the right thing by the client ahead of his own personal gain
Intuition, to be able to understand what a situation demands intuitively and come up with a simple solution?

I don't have anything against those who cut prices to win business, nor against those who tend to seek price over quality. All I say is:

Don't be casual, lest you might be a casualty.

With present times of far reaching impact of Covid-19 on businesses and complicated new rules around Jobkeeper and other incentives, there is no better to time to test if your accountant passes the test of the three I's.

It is also a time to be understanding, patient, and appreciative for the extra yards your accountants are going through, to make it work for you.

Our Economy : A House of Cards

2020-03-29T09:00:00+11:00

In just the last few days and weeks, businesses have been closing down, workers are being stood down and people are queuing miles long outside Centrelink. Looks like our economy is falling apart like a house of cards!

Hindsight is a great weapon. If only we all had this advantage.

To see our government so taken aback by the impact Covid-19 shutdowns are having on our economy, lead us to ponder if they saw any of this coming, and if they were prepared for this!

Consider this. The hugely talked about cash flow support for small and medium businesses to support them in keeping people employed;

Rewards employers who had employed people in Jan to March period, a period when there was no COVID impact.
Limit it to only SMEs with turnover of less than $50m. Hence all large businesses and chains of retail stores were automatically out.
Doesn't give them hard cash in their bank to be able to pay wages in future! Instead puts this money into their ATO debt account. Who is being saved from going belly up? The business or the tax office?

As a result of this misplaced policy, on one side large number of businesses have no money to pay wages and on the other hand a number of other businesses which are not impacted by COVID are enjoying free money! Why reward the toilet paper makers or grocery stores who are already milking this crisis?

If only a little financial common sense could prevail.

It's not that we didn't know what was happening in the financial markets across the globe? A step by step analysis would help.

What do we want to prevent? A large scale of unemployment.
What do we not want to see? A long line at Centrelink for financial support.
How do we do it? Incentivise employers, who are unable to continue functioning, pay some base wages so employees can pay their basic living costs.
And how do we do it? Well UK and other countries are already doing it. Subsidise say 80% of the wage bill of employees a business can't afford to keep. Make the business still pay 20%, so that they have some skin in the game.
A blanket subsidy? No, that would be a huge drain on our exchequer.
- For employees who would otherwise loose their job, subsidise 80% of their wage capped at $1000 per fortnight. Exclude owner-employees and their associates from this leg of the incentive.
- For employees who would continue to be employed, subsidise 20% of their wage capped at $200 per fortnight. Include owner-employees in this part. This measure is to just bring a level of equity, so that businesses who are trying to do the right thing don't feel cheated.
And can we make it better? Sure can. May be exclude businesses from having to pay super, so they can use cash to keep more people in jobs. May be make part or all of this subsidy tax free, so that we are not just rotating cash in and out of the treasury.
Which businesses would qualify? Simply ALL! After all, businesses which are not impacted are only going to get a small subsidy.

If you do it right, and minimise the scope of exploitation, most businesses will do the right thing. There will be fewer stood downs, largely reduced stress of living costs, businesses trying harder to survive rather than choosing the easy way of closing down, and the government under much less pressure to do something!

But what about the huge cost of mortgage and rent, both residential and commercial.

Let's take a step back. Our Prime Minister has been vocal about saying that in this period of financial crisis all our balance sheets will suffer, be it mom and dad household, small to big businesses or indeed the governments. He possibly missed out one key economic player, our banks! Banks are being asked to defer mortgage payments, but they are going to accrue interest for the deferred period, and charge interest on interest. I thus fail to understand what sacrifices are they making to help our community get through this catastrophe?

Better would have been to 'hibernate' the economy, as Scott Morrison keeps alluding to. Again some suggestion to do the trick.

Legalise a 75% drop in rents, interest and mortgage payments.
Allow those who cannot pay even 25% mortgage to request deferral but at a cost of this going on to their credit files. After all, these are the spenders - not the rainy day savers. They need to take some responsibility for making the choices they did.
This will impact negatively our retirees who live off rental income. Increase their Centrelink support equal to say 80% of loss of rent.

So what does it take, to take the right decision? As always, strong political Will.

When the going gets tough, the tough needs to get going!

Tax Gap: Beginning of the End of Tax Claims, Is It?

2019-08-06T09:00:00+10:00

In a recent high profile speech at The Tax Institute's National Convention, Tax Commissioner Chris Jordan said, quite proudly:

'"For the first time in almost 25 years, the average work-related claim decreased, falling on average by about $130 over the past two years … The estimated revenue gain for that same period will be around $600 million,'" (ref: The Australian, March 14, 2019)

Jordan further claimed credit for the Australian Tax Office's crackdown on investment property claims, claiming that 9 out of 10 audits result in an adjustment in favour of the tax collector. Going further, he then pointed fingers at small businesses for dodging taxes, saying that:

"the ATO would soon release an estimate of the 'tax gap' – the difference between the amount of tax collected and the amount the ATO thinks should be collected – that would be 'much larger in percentage terms than in other market segments at between 10 per cent and 15 per cent.'"

I was there, listening to him live, and couldn't help but notice the pride with which he claimed credit for the ATO's efforts in garnering more tax. This led me to remember a somewhat controversial report released by the ATO in July 2018, infamously known as 'the tax gap'.

In summary, what the ATO is saying is that since 868 taxpayers had an average upwards adjustment of $210 each, and that every taxpayer in Australia would have had this average adjustment, thus giving a loss of revenue to the government of $8.7 billion. Much bigger than the multinational tax gap of $1.8 billion.

Crazy… did I hear someone say?

While not agreeing with the statistical conclusion that the ATO seems to have made, I can't help but agree – in part – to the efforts they have made in reigning in a small albeit substantial portion of taxpayers and tax agents who seem to have taken the lenience in the system for a ride for far too long. Like any economic cycle, the correction was long overdue and is ably supported by professionals like me wanting to do the right thing.

At the same time, what shakes my confidence in the system is the ATO's obvious failure to acknowledge that:

A sample of 868 is too miniscule to make any kind of conclusions.
If you test a tax return two years hence, admittedly taxpayers would have lost some receipts and some would have faded. This doesn't mean that their original claim was illegitimate.
If you change your approach overnight from 'reasonable understanding' to hardlined 'no receipt – no claim', it will catch honest taxpayers on the wrong foot. Considering the mountain of paperwork ATO auditors are now asking for (in one instance, an ATO auditor asked for investment property loan statements right from start till date – a period of 7 years), many taxpayers will just forego their genuine claim.

I fondly remember my early years in this profession, in the early 2000's, when a tax auditor would accept a claim if it was fair and reasonable. Clearly, this approach is changing.

It goes without saying that an assumption that 9 out of 10 taxpayers' audits require correction as if 9 out of 10 taxpayers are tax dodgers) creates an environment of fear and mistrust.

At the same convention, in the concluding remarks, the Former Inspector-General of Taxation, Ali Noroozi, stated that it is critical for the ATO, the tax profession, and the taxpayers to work in an environment of trust, adding that considering the might that the ATO carries, and the changes it can bring just single-handedly, this initiative needs to begin from the doors of the ATO.

I live to see the day when this will be a reality.

Where to from here?

I guess what we want to know is, where to from here? With the ATO unlikely to relent from its approach, it's time to tighten your belt and be ready for the taxman for every dollar you claim. Some quick tips:

Ensure you have valid log book or diary evidence for your motor vehicle expense claims.
Ensure you have proper records of your tax claims, including receipts. Credit card or bank statements, while having been accepted in the past, are likely to be rarely accepted in future if at all.
Talk to your tax adviser regarding claims, and listen to them when they say it is not claimable. Just because your mate is claiming some expense, it doesn't mean it is legit.
Be careful with expenses you claim against your business income and investment property. The law could be tricky – and extremely painful if you fall on the wrong side.
Refinancing loans could result in your loss of tax deductions in part or in full. Ensure you run your refinance strategy with your tax adviser and don't purely rely just on your mortgage adviser.

I thus fear that this might be the beginning of the end of the great Aussie 'happy go lucky' tax time!

As I always conclude:

Don't be casual,
Lest you might be the casualty!

Capital Gains Tax – One Problem – Three Solutions

2018-06-22T09:00:00+10:00

Have you sold an investment property or a parcel of shares this financial year? Are you losing sleep, worried about a big Capital Gains Tax (CGT) bill this tax time? There could still be some solutions , as long as you act well in time!

Taking an example: if you sold an investment property for $900k in FY18, which you bought for say $500k a few years ago, your gross capital gain is $400k. Assuming you are eligible for 50% Long Term CGT discount, your taxable capital gain is $200k. Split this between husband and wife owners, each of you are liable to pay your marginal tax rate on your share of $100k of this gain. This could be as high as $47k each, if you are in the top tax bracket.

So what can you do about it?

1. Contribute to super.

Untill 30.06.2017 tax deductible contribution to super could only be possible through salary sacrifice (unless you were running your own business, this added to the complexity and hence the limitation). From 01.07.2017 any one can contribute to their super, and claim it in tax. Hence you can possibly contribute a part of your capital gains into super, and thus reduce the taxable gain. It is important to note;

Your total pre-tax contribution, including employer contribution and salary sacrifice amounts, should not exceed the annual cap of $25,000. Thus in above example, if you were at an annual salary of $80k (assuming $8k employer super contribution), you could contribute appx $17k into super, and thus reduce your share of 100k taxable capital gain to $83k.
You need to advise your superfund that it is a personal pre-tax concessional contribution and that you will be lodging a 'Notice of intention to claim in tax' form prior to your tax return lodgment. An acknowledgement of this notice is critical for you to be able to claim your contribution in tax.
Super contribution falls under financial planning advice, so please contact your superfund or your financial planner before you make this choice.

Tip!
The above strategy is not limited to just capital gains. If you have received a one off bonus, or have high income and high tax bills,
you can use the above strategy to reduce your taxable income and hence get a substantial tax refund.

2. Consider SBCGT concessions.

Unknown to many taxpayers and their accountants, if you sell a business asset, you may be able to avail, what is called 'Small Business Capital Gains Tax Concessions' (SBCGT). These concessions are not limited to just business assets like goodwill and franchising rights, but also land and building used for running your business. Even properties partly used for business can qualify, as long as you confirm with the area of use and period of use provisions. These generous concessions include;

15 year exemption – if you have owned business asset for more than 15 years.
Active asset exemption – additional 50% CGT discount on top of the normal long term CGT discount.
Retirement exemption – for contributing up to $500k into super, saving for your retirement.
Rollover exemption – for using sale proceeds for purchase of further business assets.

Tip!
Over the years, millions of dollars of taxable capital gains have been reduced to NIL using this legitimate and extremely efficient concession.
If you have a scenario where you think you could be eligible, do not hesitate to contact us.

3. Consider selling some of your loss assets to counter capital gains.

If you own some shares, currencies or other stocks, which have gone considerably low in value, or have just vanished off the stock market, this might be the time to sell them off, book a loss, and thus reduce your taxable capital gain. If you can't find the share listed on the stock market, you could use services of companies like delisted.com.au to sell these shares for a small fee, and book capital loss. Please note, just because your shares are no longer listed, or the company is under liquidation, you cannot book capital losses till you receive a confirmation letter from the directors or liquidators.

Tip!
Be careful. If you try to sell loss making shares in one financial year, and soon after buy them back in the next financial year, ATO could treat this as a tax avoidance scheme.

Conclusion: If you need any help in managing your burgeoning capital gains tax situation or taxation in general, click here to get in touch with us.

Single Touch Payroll

2018-06-20T09:00:00+10:00

What is Single Touch Payroll (STP)?

In simple terms, ATO would like to know your employees' wages, PAYG and super guarantee which you process on a pay day. It starts from 1 July 2018 for employers with 20 or more employees. STP will be extended to include employers with 19 or less employees from 1 July 2019. This is subject to legislation being passed in parliament.

Why does the Government promote STP?

Recent estimate shows that there is a shortfall in super guarantee payments of around $2.5 billion per year.
Apart from this, there are large number of employers who default on paying their PAYG withholding liability on time, and many go on a never ending payment plan spiral.
ATO currently has only a limited visibility on whether employers are meeting their super guarantee obligations.
With STP in operation, ATO would get live information on what wages you have paid, PAYG, and super you are required to pay as an employer. Matching this with superannuation clearing house data and IAS / BAS lodgments, ATO expects to manage this area of debt collection more effectively.

Tip!
ATO has recently released an amnesty for employers who may not have paid their correct super obligations in the past. Click here to know more about it. If errors have happened in the past, it is strongly recommended that you make use of this amnesty and come clean.

"Advantages" with STP as reported by the ATO.

Your wages information will be pre-filled automatically into your electronic BAS form.
You will not be required to provide payment summaries (group certificates) to your employees or lodge them with the ATO.
Employees will have real data on how much they have earned through MyGov account, and how much super should have been paid for them.
Data will be shared through other Government agencies (OSR, Centerlink, etc.) to identify those who may be cheating the system.

Issues employers need to be aware of?

You would need to invest in an accounting software which provides STP facility.
If you accidentally enter wrong payslips, they will also be reported to the ATO upon submission.
Your accountants will now have to reconcile what your bank says (in terms of wages paid) and what ATO says (in terms of what wages, PAYG, and super you should have paid) to not only correct your accounting records, but also your records with the ATO.

So what do you and your accountants need to do now?

Step 1. Count your employees.

Since STP in currently applicable only to employers with more than 20 employees from 1 July 2018, you need to know whether you are in or out!

How to count your employees?

Critical test date is 1 April 2018. Count the number of employees who were active on your payroll system (per head basis, regardless of whether they work full time, part time or on a casual basis).
If your count is 20 or more, then you will be known as a "substantial employer". You are thus 'in', however at this stage you are not required to report your count to ATO.
Once an employer becomes a substantial employer, it must continue to report using STP even it has fewer than 20 employees, unless the Commissioner grants an exemption. This is to say, once you are 'in', you are 'in for good'.

Tip!
For the purpose of headcount, a wholly owned group is counted as a single employer. Hence if there are two or more businesses owned by the same owners, they would be counted as one.

Checklist- counting employees on 1 April

Worker's Status	Include in headcount?
Full time employees	Yes
Part time employees	Yes
Casual employees who are on the payroll on 1 April and worked any time during March	Yes
Casual employees who did not work in March	No
Any employees who ceased work before 1 April	No
An employee who is absent or on leave (whether paid or unpaid), including maternity leave	Yes
Staff provided by a third party labour hire organization	No
Contractors that are common law employees	Yes
Independent contractors that are not common law employees	No
Employees based overseas	Yes
Seasonal employees (i.e employees engaged short term to meet a regular peak workload, such as fruit pickers)	Yes

Step 2 - If you are 'in', arrange an STP approved accounting software.

Xero	As per Xero's blog posted on early May, STP will be ready by 31 December 2018. Clients who are currently on Xero will need to apply for a deferral with tax office "Single Touch payroll-employer deferral request (NAT 74985)". ATO reference number for Xero - 49 410 109
MYOB Essentials	Ready for STP. You can choose to start on 1 July 2018 or choose to extend the start date by using ATO reference number - 44 155 840
MYOB Account Right (Cloud MYOB)	Ready for STP. You will need to be on the latest version. You can choose to start on 1 July 2018 or choose to extend the start date by using ATO reference number - 44 155 840
MYOB Account Right V19	Will not be compliant. Users need to move on to the cloud version
Other providers	Please contact them for updates

What's next?

While MYOB seems to have taken a leap into STP, looks like most other software providers do not have the gateway set up to be compliant with STP. ATO has advised that if your software is not compliant, you will need to apply for a deferral with the ATO's "Single Touch payroll-employer deferral request (NAT 74985)". We will be contacting our clients who we believe might be required to do so.

Feel free to click here for a short power point from ATO on STP. If you need assistance please contact our office to provide you details on the process of your payroll form 1 July 2018.

Financial Planning Greed, Inept Regulators and the Trusted Accountant

2018-05-03T09:00:00+10:00

Image Source: CEX.IO Blog

I must first acknowledge a host of planners and insurance advisors, who work with integrity and in the best interest of their clients. Unfortunately, they are few and far apart.

Over the years, I have faced an ongoing ethical dilemma;

On one hand I see my clients lose hard earned money through shoddy financial planning advise;

and on the other, I get told by the regulators, I am not licensed to comment about it.

Last two weeks of Royal Commission hearing into banks and AMP have exposed serious flaws in the financial planning sector, including dodgy advice and fee rip-offs.

"To have one bank go rogue is a scandal. When they all go rogue, it's a failure of regulation", says Jeff Morris in SMH of 28.08.2018.

Interestingly, as the revelations on greed and self-indulgence in financial planning industry have increased over the years, so has the regulations on accountants to 'not to do' anything about it. I wonder what is the cause of this inherent greed and inept control?

Perhaps, my mind says, it is the way the financial planning industry is remunerated and rewarded. Just imagine, if an accountant was paid by tax office a percentage of the tax its clients paid, where would his interests lie? Perhaps the answer lies in strict enforcement of 'fee for service' rules recently enacted. Rebating all commissions to clients should be a rule, not an option.

Perhaps, as John Collett says in his article in SMH of 25.04.2018, the answer lies in licensing individual planners and breaking the hold of corporate institutions. A few million dollars of penalties and a few heads sacked is not going to cut it! As in law, accounting, and medicine, individual planners should be the principal licensees, and have the risk of losing their livelihood if people under them do not perform up to stack. It appears, 'who cares' best describes the present attitude in this industry.

Perhaps we should not only empower, but also encourage the trusted accountant to have an opinion and share it with the authorities when he sees something unscrupulous. After all, he sits in the shoes of a family member, just like a family doctor.

Perhaps, the answer lies in mom and dad investors to 'be in the court' and not 'in the audience'. It's easy to blame and much harder to do something about it. As they say; there's no gain without pain.

I go back to the saying on my boardroom wall;

Don't be casual
Lest you might be the CASUALTY!

Ball Tampering in the game of TAX

2018-04-09T09:00:00+10:00

Often, in my profession, I get asked 'How would they know?'

My immediate response is, 'The question is not how will they know. The question is, what if they know?'.

As this ball tampering saga unfolds with drastic implications on those who were involved and flow through implications on those who weren't (family, team, coach, the list goes on..), it is a staggering reminder to us on how life unfolds 'when you get caught out breaking the rules'.

No less in the game of tax, as in the game of cricket, do we have a number of cameras looking at us from all angles, using smart eyes and technology to check if we are playing our game by the rules. ATO has been quite vocal in using increasingly large sources of information with extremely smart super computers to 'catch us out'.

Table : Information ATO receives from third-party sources (source www.ato.gov.au)
Third-party data sources	Information provided
Banks, financial institutions and investment bodies	Investment income
Employers	Payments to employees and contractors
State and territory motor vehicle registering bodies	Motor vehicles sold, transferred or newly registered
State and territory title offices and revenue agencies	Sales and other transfers of real property
Government bodies	Pensions, benefits, rebates, taxable grants and other payments
Australian Transaction Reports and Analysis Centre (AUSTRAC) and our international treaty partners	Foreign source income
Online selling platforms	Quantity and value of online sales
Sharing economy facilitators	Payments to participants
Financial institutions providing merchant facilities and administrators of specialised payment systems	Electronic payments processed for business including total credit and debit card payments received
Stock exchanges and share registries	Share transactions
Businesses in the building and construction industry	Payments made for building and construction services
Health insurers	Confirmation of health insurance cover and premiums paid

Think of a place they couldn't have reached, and you would probably find it listed in the table above. Think of the ripples it would create, 'if they know', and most likely you would find saying to yourself 'it's just not worth it'. While we baulk at our cricketers for doing the wrong things, we need to ensure we don't do the same in the game of tax.

It's important to distinguish between tax minimisation and tax avoidance. Metaphorically speaking, it's ok to reverse swing the ball, or to throw a googlie. It is however against the rules to use a bit of a sand paper on the ball, to make that happen.

A placard above the white board in my meeting room says;

Don't be casual
Lest you might be the casualty!

Small business tax debt not such a small problem anymore

2017-06-15T09:00:00+10:00

ATO has announced that, from the 1^st of July 2017 it will start reporting unpaid and overdue business tax debts to Credit Reference Bureau. What this means is, if your business has a tax debt of over $10,000, that is over 90 days old, and you have not effectively engaged with ATO to manage it, your business might lose its credit rating for the next five years.

You will need to worry if:

You have an ABN

The debt amount is over $10,000 and over 90 days old

The debt is not in dispute

There isn't any established payment plan with the ATO or

The payment plan with ATO has defaulted

ATO assures it will notify the business before referring the tax debt to a credit bureau, and only after it has exhausted all ways of recovering this debt.

If you are concerned, please give the ATO a call before your tax bill is due, or alternatively give us a call so we can assist you to arrange a payment plan with ATO.

Source: www.ato.gov.au

Welcome to Tax Time 2016

2016-07-19T09:00:00+10:00

Welcome to Tax time 2016. To better prepare you for this tax time, please click here to download our tax time checklists.

Meanwhile, below are 2 messages from ATO on the areas of audit that they will focus on this tax time.

ATO Focus on Work Related Deductions

The ATO has announced that it will focus on work-related deductions claims that are higher than expected, in particular, car expense claims for transporting bulky tools, an deductions for travel, internet and mobile phone, and self-education.

The ATO said that this year, for the first time ever, it will check taxpayers' deductions in real-time as they complete their online return. IT will take a closer look at any unusual deductions and contact employers to validate these claims.

The ATO has also reminded that there has been a change in the rules for calculating car expenses this year and taxpayers need to use a logbook or the cents per kilometer method to support their claims. It is encouraging taxpayers to use the myDeduction tool in the ATO mobile app which allows taxpayers to record work-related deductions on the go, and uploads directly into their next tax return just like the pre-filled information.

ATO Focus on Rental Property Deductions

The ATO has announced that it will focus on excessive interest expense claims and incorrect apportionment of rental income and expenses between rental property owners. It will also look at holiday homes that are not genuinely available for rent and incorrect claims for newly purchased rental properties.

The ATO has reminded taxpayers when claiming deductions for their rental property to include all the rental income and make sure that their property was genuinely available for rent when the expenses was incurred. The payers must also make sure the apportion any deductions to take any private use into account, and must have records for the claims they make.

Act Now, before this budget changes everything, again!

2016-04-14T09:00:00+10:00

At best, we can call it a calculated risk, at worst a rumour.

Based on what PM Malcolm Turnbull and Treasurer Scott Morrison seem to be saying in public media, and based on what experts in the industry seem to be indicating, this year's budget could be a watershed in Superannuation Tax changes.

We share with you some of the changes that might happen, and suggest action plan so you can take advantage of the current generous concessions, before it is too late.

Some Changes that might happen

Salary Sacrifice (concessional) limits for super contribution could be reduced

Age Category	Current	Might reduce to
under 50 yrs	$30,000 py	$20,000 py
50 yrs & over	$35,000 py	$25,000 py

In order to take advantage of tax deductible salary sacrifice (or pre-tax contribution), ensure you top up your employer / pre-tax super contribution before budget night.

Post tax (non-concessional) limits for super contribution may be reduced.

Age Category	Current	Might reduce to
under 65yrs	$540,000 py (bring forward)	$150,000 py (bring forward might be scrapped)
65 yrs & over	$180,000 py	$150,000 py

This action might be aimed at scrapping 'withdrawal and re-contribution strategy'.

Taxpayers have used this strategy over the years to steadily convert their taxed component in super into tax free component. This substantially reduces tax on death benefits paid to adult children.

Contact your advisor to see if you could do a withdrawal and re-contribution strategy before budget night.

Transition to retirement income stream (TRIS) benefit may be limited.

Currently, you can start TRIS to withdraw tax free pension, and get tax benefit via salary sacrifice into super, provided you are above 60yrs of age.

Entry to TRIS may be restricted to eligible taxpayers who reduce their working hours to under 30 hours a week (move from full time to part time roles)

This strategy has been used by many taxpayers in their golden age (above 60 years of age) to reduce their tax on salary or business income, yet ensuring their cash flow is not impacted.

Contact your advisor to see if you could start your TRIS before budget night. In most probability, TRIS started before budget night would not be impacted by any possible changes to this policy area.

If you would like assistance with working out the best possible strategy for your personal scenario, please do not hesitate to contact us.

Budget 2015 Updates & Tax Tips for Individual Taxpayers

2015-07-06T09:00:00+10:00

This article aims to give you a quick update on Budget 2015 changes and some tax tips for tax time 2015.

NEWSPOINT

Tax Rates

Taxable Income	Tax Rates 2014-15	Tax Rates 2015-16
0 - $18,2000	Nil	Nil
$18, 201 - $37, 000	19% #	19% #
$37, 001 - $80, 000	32.5% #	32.5% #
$80, 001 - $180, 000	37%	37%
$180,001 and over	47% *	47% *

* Includes 2% temporary budget levy applicable for 3 years from 1st July 2014.
# Low Income Tax Offset ("LITO") of $445 applies for taxable income up till $37,000, reducing by 1.5 cents in the dollar, for every dollar of taxable income over $37,000 such that it cuts out at $66,667. The effect is that no tax is payable up to an income of $20,892.

Medicare levy low income thresholds 2014-15
Basic Medicare levy of 2% applies to taxpayers earning above threshold as per below.

Type	Income Threshold for 2014-15
Individuals	$20, 896
Families	$35, 261

BUDGET UPDATE 2015 - FOR INDIVIDUAL TAXPAYERS

Work related car expenses
From 1 July 2015, taxpayers will only have two methods available to calculate and claim their work-related car expenses – the (max 5000kms) cents per kilometre method and log book method.

Changes to the cents per kilometre method
The Government will remove the sliding scale and replace it with a flat rate of 66 cents per kilometre for all claims regardless of the engine size or type.

Ordinary Engine Capacity	FY 2014-15	FY 2015-16
1600 cc or less	65 cents/km	66 cents/km
1601 to 2600 cc	76 cents/km	66 cents/km
Over 2600 cc	77 cents/km	66 cents/km

Tip! Most high end car claimers, claiming 12% of cost price or 1/3^rd of actual cost method will loose out. Further, taxpayers using cents per killometer method will also loose out with reduced claim rate! Remember, to substantiate your car claim, you need to;

Maintain a 13 week logbook every 4 years and maintain all expense receipts (for Log Book Method)
Maintain a diary for 4 weeks each year. You don't need to keep actual expense receipts. (for Cents per kilometre method)

Changes to residency rules for temporary working holiday makers
Currently, a person working on temporary working holiday visa in Australia may be treated as a resident for tax purposes and thus claim low tax thresholds. The government will change the tax residency rules from 1 July 2016 to ensure anyone on working holiday visa will be treated as a non resident for tax purposes and thus pay a minimum of 32.5% tax from first dollar of income.

5% tax rebate for Individuals in business
From 1^st July 2015, a 5% discount will be provided to individuals who receive business income from unincorporated entities (partnerships or sole traders). The discount will be paid in the form of a tax offset, capped at $1,000 per individual per income year.

Changes in regulations relating to Parental Leave payment
At present, individuals are able to access government assistance in the form of Paid Parental Leave, in addition to any employer-provided parental leave entitlements.

However, from 1 July 2016, government will remove the ability for individuals to double dip by taking payments from both their employer and government. The government will ensure that all primary carers would have access to parental leave payments that are atleast equal to the maximum PLP benefit which is 18 weeks at present

FBT – Capping Threshold for Salary Sacrificed meal entertainment and entertainment facility leasing expenses (EFLEs)

Certain employers (benevolet instituition & charities) can provide concessionally taxed fringe benefits to their employees ;

FBT rebatable employers – capped at $30,000 (increased to $31, 177 for 2016 and 2017 FBT years)
Public benevolent institution and health promotion charities - capped at $30,000 (increased to $31, 177 for 2016 and 2017 FBT years)
Public and non-profit hospital, and ambulance services – capped at $17,000 (increased to $17, 667 for 2016 and 2017 FBT years)

Certain benefits are currently excluded from these caps eg. meal entertainment-related benefits and EFLEs.From 1 April 2016, there will be a separate single grossed-up cap of $5000 for salary sacrificed meal entertainment and EFLEs, per FBT year, per employee. Further to this, all meal entertainment benefits will become reportable.

Zone Tax Offset (ZTO) restricted

A taxpayer is eligible for the ZTO if they reside or work in a specified remote area for more than 183 days in an income year. This concessional tax offset is currently available to individuals who reside in specific remote areas where the cost of living is higher due to isolation or harsh environmental factors.

The ZTO will be amended to exclude fly-in-fly-out (FIFO) and drive-in-drive-out (DIDO) workers whose normal residence is not actually in the eligible zones. This measure is effective from 1 July 2015.

Tax tips for TAX TIME 2015

1. Collect all your tax deductible receipts
Claiming all your work-related deduction entitlements may save you considerable tax. To do so, make sure that you have all the necessary receipts or credit card statements. Typical work-related expenses include employment-related landlines, mobile phone and internet usage, computer repairs, union fees and professional subscriptions. Click here for more details.

2. Are you working from home?
When part of your home has been set aside primarily or exclusively for work, a home office deduction may be allowed. Typical home office costs includes heating, cooling, lighting and even depreciation of your office equipment. You have to keep a four week diary to calculate hours worked from home. ATO allows 34 cents per hour of deduction without need for keeping receipts. Alternatively you can claim based on area of usage.

3. Do you have Rental Investment Property?
Landlords can claim immediate deductions for a range of expenses such as interest on investment loans, land tax, council and water rates, strata charges, repairs and maintenance, property agent fees, gardening/mowing, insurance, pest control, advertising, travel expenses to inspect your property, lease fee etc. Landlords can also claim depreciation on any capital assets and capital works. Click here for more details.

4. Have you sold any shares or properties during FY 2014-15?
Review your best capital gains tax position if you have sold a property or shares for profit this year. If you have lost on shares or CFDs, ask us to review if it's capital loss or if it can be claimed as ordinary loss. Read more for details on how CGT could apply in your circumstances. Special CGT concessions may apply for your old principal residence subsequently rented out!

5. Do you have Salary packaged car, laptops and other work related items?
Efficient use of salary packaging, can reduce tax for some personal items. It is imperative to work out tax benefits before you get into these arrangements. Refer to specific question on salary packaging here.

6. Have you spend money towards self-education expenses?
If you have incurred any expenses towards self-education expenses and your study is directly related to work, then these expenses may be tax deductible. Typical self-education expenses include, amongst others, course fees, textbooks, stationery, student union fees and the depreciation of assets such as computers and printers. Any new line of education though is considered 'too soon' to be deductible.

7. Is your internet based sales activity a hobby or business?
ATO will be now contacting individuals and businesses identified as running online business and not reporting income in their tax return. ATO will collect data from financial institutions for individual who have sold goods or services to the value of $20,000 or more. ATO will match data collected against income reported in individual's tax return and if any mismatch occurs, ATO may take necessary actions against the tax payer.

8. Watch out for ATO's focus on rental property expense claims.

ATO has advised that it will continue to closely screen rental property expense claims and increase its compliance focus relating to:

claiming deductions for properties not actually available for rent or partially available for rent – e.g. holiday homes.
claiming deductions before properties are actually rented or available for rent – e.g. period between your vacating your principal residence and getting a tenant in.

Refer to rental property guide for more details or contact us for assessment of your particular circumstances

9. Watch Out ! ATO introduces New Data Matching Programs
ATO will collect information from third parties like banks, shares registries, employers, merchants, states and territories and other government department and will compare this information against information disclosed on individual tax returns. This will enable ATO to identify individuals who have not provided correct information regarding their income and losses.

Tip! In first year of contractor reporting (introduced in FY2012-13), ATO was able to identify contractors under reporting their income and generated additional taxes of $2.3b. Data matching continues to become more and more sophisticated and accurate and is able to target tax evaders faster and more effectively!

10. Main residence 6 month rule for CGT exemption:
There are two key concessions when you convert your main residence into rental property – the 6 month rule (where both properties could be tax exempt) and the 6 year rule (where you could choose either property, but not both, to be tax exempt). ATO has identified that 6 months main residence rule is being incorrectly applied by tax payers who acquire new properties which becomes their main residence and still owns their existing properties for a period of time but claims both property as main residence for the common period till the existing property is not sold.

SuperStream - what, how and when....

2015-06-16T09:00:00+10:00

This article aims to bring together some key information to help you, our clients and readers, to understand your obligations under the new SuperStream regime.

What is SuperStream?

SuperStream is a government reform to provide a single channel for employers to make super contributions to all funds. It applies to all employers making super contributions.

It claims to be simple, faster, have less errors, consistent, a reliable electronic way of managing data and payments for superannuation and saves time and cost in the long run when paying multiple super funds for employees.

TIP! This also means that ATO will have real time data about super paid by employers to employees. Delayed payments or non payments would thus be picked up easily resulting in possible ATO audits!

How does SuperStream affect employer super contribution?

Employers must make superannuation contribution by submitting payments and data electronically (to a superfund) in accordance with the standard.
All superannuation funds (including SMSFs) must receive contributions from employers electronically in accordance with the Standard.

Note: The new Standard does not apply to employers who contributes to a SMSF to which the employer is related.

When does SuperStream starts?

Employers	Applicable from	Must comply by
Small Employer with 19 or fewer employees	1 July 2015	30 June 2016
Medium to Large Employers with 20 or more employees	1 July 2014	30 June 2015

TIP! If you have 7 full time employees and 15 casual workers on 1 July 2014, you would be classified as a Medium sized employer as you have a total of 22 employees. Therefore, your SuperStream obligations have started from 1 July 2014 and you have till 30 June 2015 to meet all the requirements.

What is your obligation?

EMPLOYERS

There are 2 main obligation that employers will need to comply with ;

The requirement to make superannuation contribution payments electronically.
The requirement to make superannuation contribution message electronically.

Payment Standard

Registration Message

Payment Standard stipulates the payment methods must be used by employers and superannuation entities when making or receiving contribution.

Following are the electronic payment methods that can be used;

a) The Bulk Electronic Clearing System Direct Entry System (BECS DE) maintained by the Australian Payment Clearing Association

b) BPAY

c) Alternative electronic payment method which complies with the Standard

Contribution Message Implementation Guide states the payment message must consist of a minimum set of data about each contribution, which is sent by the employer when the contribution is made, including the following ;

a) Employer details;

b) Employee details, i.e. the superannuation fund's members details – eg the employee's name, residential address, TFN and telephone number;

c) Contribution types and amounts and

d) Payment details, including a unique payment reference number

Click here to view the 'Data and Payment Standards – Payment Methods' and the the 'Data and Payment Standards – Contributions Message Implementation Guide (Contribution MIG)' relating to the above.

TRUSTEE of a SMSF

In order for SMSF trustees to meet their obligation in respect of contributions messages, an SMSF member's employer would need to be provided with the following information ;

a) The SMSF's Australian Business Number (ABN) which is used as an identifier to ensure the data messages reach the correct fund

b) Bank account details

c) An electronic service delivery address (ESA) for the receipt of the contribution data message, in order to receive data messages associated with employer contributions in the SuperStream format.

TIP! In short, all you need to do is, get an ESA and provide the same, along with above details to employer of your members.

TIP! To assist SMSF trustees in obtaining an electronic service address, the ATO has published a register of messaging providers. You may also want to check with your current bank if they provide an ESA

TIP! Contributions sent to an SMSF from a related party employer are exempt and can be made using existing processes, including cheques or direct bank transfers.

What happens if employers don't comply?

Trustees of superannuation funds (including SMSFs) and employers are required to comply with the Standard to the extent that is applies to them. Failure to comply may results in an administrative penalty being imposed on the trustee of an SMSF or an employer. Not to mention, lack of information flow to ATO may result in unnecessary ATO audits.

Employer Action	Related SMSF	Unrelated SMSF	Bank / Industry Fund (eg. Hesta, AMP, etc)
Superannuation guarantee contribution	This contribution does not need to comply with SuperStream	Must comply	Must comply
Salary sacrificed superannuation contribution	This contribution does not need to comply with SuperStream	Must comply	Must comply
Contribution by cheque	Allowed	Not allowed	Not allowed
In specie contributions	Allowed	Not allowed	Not allowed
Electronic contribution messaging	This contribution does not need to comply with SuperStream	Must comply	Must comply

So what do you need to worry about?

If you are making super payments by cheque, you need to make a change to a Superstream compliant method asap.
If you are already using electronic payment method to large retail or industry funds (e.g. AMP, BT, Hesta, Australian super etc)., you are already compliant. You don't need to do anything further.
If you are using your payroll system to electronically and automatically transfer super payments, you need to ensure your payroll system is SuperStream compliant. Contact your payroll software provider.
If you are paying super to an unrelated SMSF you need to request the relevant employee for an ESA and use that for making super contributions.
What if your recipient super fund is not ready for super stream or their systems fail on the due date (online systems not working etc)? The law provides you to then use the traditional methods of payments like cheques and paper lodgments. However you need to ensure you have records to confirm system failure. Do not delay super payment in any circumstance.

Tip! If you are already spending hours paying super each quarter and feel further burdened by this change, consider using a Superannuation Clearing House. ATO provides free service for small employers. Click here to find out.

Budget 2015 - Key Updates for Small Business : Eligibility, Strategies & Pitfalls

2015-05-21T00:00:00+10:00

THE $20,000 TAX DEDUCTION FOR CAPITAL ITEMS

You can fast track deduction of plant and equipment purchased from your business income, maximum up to $20,000 per item.

Eligibility

Pass the 'Small Business Entity (SBE) test' i.e.
- You need to be running a business (very critical).
- Your current year or prior year turnover (grouped with entities connected with you) should be less than $2,000,000.
Purchase (and hold ready for use) an eligible item of Plant or Equipment of less than $20,000 (net of GST) between 7.30pm (AEST) on Tuesday 12 May 2015 and 30^th June 2017.

Strategies & Pitfalls

Both new and second hand items are allowed. Purchases from related entities are also allowed.
Item(s) should be purchased and installed ready for use within the above period of eligibility.
Item should be a plant or equipment and be used for business purposes. Private use items would not qualify, nor would renovations and fit-outs.
Each item should be less than $20,000. Items in groups can be counted separately (e.g. set of furniture items or set of office chairs). One single item can not be broken into multiple items to be eligible (e.g. on large single item equipment invoiced into non separable components).
If opening balance of the SBE pool items is less than $20,000, the whole pool can be claimed as 100% deductible.
Non business entities including investment companies and bucket companies do not qualify. The claiming entity should be in business.
Personal Services Entities (PSEs) which do not pass Personal Services Business test (PSB) do not qualify since they are not taken to be running a business. Similarly contractors need to pass PSB tests to qualify.
If you are a sole trader, you can claim only up to the portion of business use. However, full value of the item should be less than $20,000. Thus a motor vehicle costing $30,000 and used 50% for business can not be claimed to the extent of $15,000 in one go. Normal 15% depreciation on $15,000 would apply.

THE 28.5% CORPORATE TAX
Your corporate tax rate on business income reduces from 30% to 28.5%
Eligibility

Pass the 'Small Business Entity (SBE) test i.e.
- You need to be running a business (very critical).
- Your current year or prior year turnover (grouped with entities connected with you) should be less than $2,000,000.
You are a Pty Ltd Corporate entity.
Applies from Financial Year 2015/16.

Strategies & Pitfalls

Non business entities including investment companies and bucket companies do not qualify. The claiming entity should be in business.
A non corporate entity (sole traders, partnership or trusts) do not qualify.
An otherwise investment company which also runs a business (of say providing management services) could qualify provided the entity passes PSI-PSB test.
While the tax rate reduces to 28.5%, Franking Credit Rate continues at 30%.

THE 5% BUSINESS TAX REBATE CAPPED AT $1000
Your tax on business income is rebated by 5% with a cap of $1,000

Eligibility

Pass the 'Small Business Entity (SBE) test' i.e.
- You need to be running a business (very critical)
- Your current year or prior year turnover (grouped with entities connected with you) should be less than $2,000,000
Be a sole trader or an individual running a business through partnership.
Applies from Financial Year 2015/16

Strategies & Pitfalls

Contractors need to pass PSI – PSB test to qualify. If you do not pass the test, you are not taken to be running a business.
Rebate equals to 5% of your business tax liability limited to $1000.

IMMEDIATE DEDUCTION - BLACK HOLE COSTS
Start-ups will be able to claim an immediate deduction for professional expenses associated with starting a business

Eligibility

You are setting up a new business.
You satisfy SBE test in first year of operations.
You incur professional costs associated with starting the business (including accounting and legal fee to set up a business structure).
Applies from Financial Year 2015/16.

Strategies & Pitfalls

You will be able to claim these costs in first year of your business operations instead of 5 years.

FBT - MULTIPLE ITEMS OF SIMILAR USE
You can now provide multiple portable electronic devices to your employees (including directors) without additional Fringe Benefit Tax.

Eligibility

Pass the 'Small Business Entity (SBE) test' i.e.
You need to be running a business (very critical).
Your current year or prior year turnover (grouped with entities connected with you) should be less than $2,000,000.
Applies from FBT year starting from 1^st April 2016.

Strategies & Pitfalls

Your business can now provide multiple electronic devices of similar use without incurring FBT Tax.
The additional items (e.g. mobiles, laptops and notepads) can have similar use, as long as they are predominantly used for business.
FBT Tax can otherwise be as high as 96% of the item purchased.

Superannuation - Know your numbers

2015-04-07T00:00:00+10:00

Superannuation is a way to save for our retirement and that it has some tax savings! However, some tricky questions like, how much can you contribute into your super, when can you access your super money, what do you need to know as an employer, etc could leave anyone scratching his head. Yes, you guessed it right – there are lots of numbers that are involved with super and only to make it a little more complicated the numbers change with the moods of the federal budgets.

This article aims to bring together some key information in a simple question & answer format to help you, our clients and readers, plan your Super.

FOR EMPLOYERS

When do you contribute?

As an employer, you will have to pay super for each employee who is 18 years or older and is paid $450 or more (before tax) a month. It's not necessary that the employee be working full-time, super is also payable for part-time and casual employee.

Tip !The definition of employee is very wide. It often includes contractors you engage on ABN predominantly for labor. It is critical to assess them correctly. Failure to include them could result in interest and penalties

What is the super rate and how is it calculated?

For the financial year 2015, super is payable at the rate of 9.5% of ordinary time earnings (OTE) of an employee. This rate shall remain constant up to 2021.

TIP! There is a wide definition for 'ordinary time earning' (OTE) including allowances and bonuses. It does not include overtime though. Click here for a list of what's in and what's out!

When do you pay the super?

An Employer is required to pay super into their employees' complying superannuation funds every quarter by :

Quarter 1 July to 30 Sept - Due date 28 Oct
Quarter 1 Oct to 31 Dec - Due date 28 Jan
Quarter 1 Jan to 31 March - Due date 28 April
Quarter 1 April to 30 June - Due date 28 July

What happens if you don't contribute by the due date?

Failure to deposit the amount by due dates would require you to lodge a Super Guarantee Charge (SGC) statement. In the SGC, you are required to pay the shortfall super (calculated on total Salary and not just OTE) along with interest and administration fees. What's more, employer also misses out a tax deduction for the late super contributed!

Tip! And that's not where it stops, directors of a company could be held personally liable for a penalty equal to the unpaid super if SGC remains unreported beyond 3 months from due date.

What is reportable employer super contributions (RESC)?

Employers are required to report additional super contribution made for their employees on their Annual PAYG Payment Summary Statements (Group Certificates). This includes salary sacrificed super and insurance contributions. RESC are used by Centrelink to identify indirect benefits and minimize social support benefits.

What documentation do you need to keep?

Lastly, as an Employer you must keep the following records for 5 year that show:

the amount of super you paid for each employee and how it was calculated
that you have offered your eligible employees a choice of super fund (penalties apply for failure to offer super choice)
how you calculated any reportable employer super contributions.

FOR INDIVIDUALS

Apart from your employer's contribution, you can contribute extra to your super at any time to increase your retirement savings. However, there are limits on how much you can contribute before you pay extra tax. Different limits (known as caps) apply depend on the type of contributions made into your super fund.

What are Concessional (before-tax) contributions?

Concessional contributions are contributions made into your super fund from your income before any tax is paid on them.This can include;

compulsory super payments made by your employer
salary sacrifice contributions
costs your employer pays on your behalf, such as super administration fees and insurance premiums
personal contributions, such as super payments you make if you're self-employed – if an income tax deduction is allowed
if you decide to split your before-tax contributions and give some to your spouse, these contributions still count towards your concessional cap.

For Financial Year 2014-15	Concessional Contributions Cap
Younger than 50 year on 30 June 2015	$30,000
50 years or older on 30 June 2015	$35,000

Concessional contributions made upto to the above cap are taxed at 15% in your Superfund.

TIP! As an employee you can contribute towards your concessional caps by salary sacrificing. As self employed you can do the same by directly contributing to your super (provided you pass the 10% employment test)

What is Excess Contribution Tax?

Up to 30.6.2013, any concessional contribution over the cap could be taxed at highest marginal tax rate of 45%. From 1.7.2013, excess concessional contribution can now be taxed at your personal marginal tax rate.

What are Non-concessional (after-tax) contributions?

Non-concessional contributions are generally contributions you make into your super fund from income on which tax has already been paid.

They include:

personal contributions you make from your after-tax pay that you are not allowed to claim as an income tax deduction
contributions which exceeded your before-tax cap
contributions in excess of your capital gains tax (CGT) cap amount
contributions your spouse makes to your fund on your behalf.

For Financial Year 2014-15	Non Concessional Contributions Cap
Contributions in any one year	$180, 000
Brought forward (over 3 years period)	$ 540, 000

What is Excess Non Concessional Contribution Tax?

Currently, any excess non concessional contribution, over and above the above caps, could result in additional tax of 49% thereby taking your total tax on these funds to 98%. Legislation is in parliament to reverse this provision and instead allow for excess non concessional contributions to be withdrawn from super.

What is the new Rich Man's Tax?
Starting 1 July 2012, the then Labor Government decided that for individual earning more than /style00K a year, 15% tax on their super was too little! So they decided that all rich people (with adjusted income greater than /style00K a year) will pay 30% tax on their pre-tax super contribution. This is the new Division 293 tax, fondly called by us as Rich man's Tax. Because of this new tax regime, individuals earning more than /style00K a year will not be able to avail concessional tax rate of 15%!! This reduces their tax savings on super contributions to 19% (49% - 30%).

How to minimise costs in your super?

Many taxpayers hold multiple superfund accounts, usually as a result of their changing jobs. Each superfund charges fees and charges thereby hurting your super savings. Although not an easy exercise, it is highly advisable to combine your multiple super accounts to any one account of your choice, thereby reducing costs and increasing retirement savings.

Tip! Don't lose your super money! You can transfer super online from one fund to another, by simply using your my.gov.au login.

FOR SELF MANAGED SUPERFUNDS (SMSFs)

Yes! You can manage your own super funds but there are very stringent super provided you conform to super and legal laws that an SMSF has to comply with. Will this suit you, benefit you, challenge you? For more details visit our FAQ.

How is your SMSF Taxed?

Tax on Contributions – 15%
Tax on income – Non Pension Phase – 15%, Pension Phase – 0%
Tax on Capital Gains – Non Pension Phase – 10%, Pension Phase – 0%

Tip! Various strategies such as Super Gearing, TRIS + Salary Sacrifice, Pension drawdown + Recontribution Strageties, etc. can be used in your SMSF to considerably reduce your overall tax bill.

What are the rules governing Accepting Contributions?

As trustee of your SMSF, you can accept following types of contribution;

Employer contributions
Personal contributions (pre or post tax) subject to Contributions Caps
Roll-overs

Tip! SMSFs are now required to set up SMSF SuperStream for accepting contributions from unrelated employers. You can access a list SMSF messaging providers here.

What investment options are available in SMSFs?

As trustee of your SMSF you are required to choose appropriate investments;

Short to Long term with focus on retirement benefits.
Can include direct shares and property investments.
Can include property purchase through borrowings.
Can include overseas assets (property, shares, term deposits).

Tip! You can use your SMSF to invest overseas. Stringent rules and regulations apply. Read more on SMSF investment in India in our newsletter.

What are the rules governing Paying Benefits?

In other words, how and when can you access your super balance. Most super balances are preserved till a 'condition of release' is met. Some of the most common ones are;

Reaching age of 65.
Reaching preservation age and starting Transition to Retirement Pension (TRIS)
Reaching preservation age and retiring permanently
Accessing funds from Unrestricted Non Preserved Benefits.
Special Medical Condition
Death or Terminal Illness
Severe Financial Hardship or Compassionate Grounds

Tips! By using some of the pension strategies with other strategies, you could reduce our over all tax and increase income in hand. Similarly, you could use a pension + re-contribution strategy to reduce death duty. However, illegal early access of your super could result in heavy taxes & fines.

What is the new New Penalty Regime?

SMSF trustees can now be held personally responsible for delays and defaults in their duties. See below details of a new penalty regime for SMSFs

Breach Part	Penalty Units	Amounts
Failure to appoint an investment manager in writing when one is appointed	5	$850
Failure to provide the Tax Office with information on the approved form within the prescribed period upon establishing a fund	5	$850
Failure to complete a form with requested information provided by the Tax Office as part of its statistical program	5	$850
Failure to comply with Tax Office education directive	10	$1,700
Failure to have financial statements prepared, signed and retained for at least five years	10	$1,700
Failure to keep trustee minutes for at least 10 years	10	$1,700
Failure to keep records of change of trustees for at least 10 years	10	$1,700
Failure to sign trustee declaration within 21 days of appointment and keeping for at least 10 years	10	$1,700
Failure to keep member reports for 10 years	10	$1,700
Failure to notify the Tax Office of a change of SMSF status e.g. fund ceasing to be an SMSF	20	$3,400
Failure to comply with operating standards	20	$3,400
Lending or providing financial assistance to fund members or relatives	60	$10,200
Borrowing, except as permitted e.g. limited recourse borrowing arrangement	60	$10,200
Contravention of in-house asset rules	60	$10,200
Failure to notify Tax Office of an event that has significant adverse effects on the fund's financial position	60	$10,200

With hosts of opportunities and minefield of pitfalls, it is best to tread carefully and ensure you are on the right side of law. As Superannuation Specialists we can help you understand and manage your Tax and SIS Law compliance. For more details, click here or book an appointment with us.

Division 7A - What's the fuss about?

2015-03-17T00:00:00+11:00

Largely misunderstood by most taxpayers and some tax professionals, this part of Income Tax Assessment Act 1936 covers just one section, broken down into innumerable subsections and continues to gives us sleepless nights. This provision aims to catch the mischief of an individual taxpayer accessing underlying cash from after tax profits of a private company without having to pay their top up marginal tax rate.

So what's the fuss about?

To explain with an example, say a private company makes $500k and pays a flat 30% tax on it. If the after tax profit of $350k is distributed to it's mum and dad shareholder, they would most certainly have to pay a top up tax, which could be as high as 22% of the cash dividends. How easy would it be if the shareholders instead just took this cash out of the company as loans, or made the company pay for their personal expenses? This is the mischief that Div7A of ITAA'36 purports to catch!

What would the cash be used for? This could be broadly split into two categories;

A. Personal use and lifestyle

Cars, bikes, boats
Holidays, shopping, personal use goods
LIfestyle assets, home improvements, etc

B. Personal investment assets

Income generating assets like properties, market investments
Capital growth assets like land, with no personal use elements
Bank deposits and interest bearing assets

So why is a loan from a private company to a trust targeted by Div7A?

Presumably because, a trust could be used as a mechanism of using funds for both A – Personal Use and B – Personal Investments. Unknown to most taxpayers and accountants, a trust could actually be settled for holding funds for private use of its' beneficiaries, thus coming in direct firing line of Div7A.

Subdivision EA of Div7A focuses on application of Div7A to circumvent use of trust for the above mischief, either directly or indirectly.

In 2009 the commissioner further made a flip-flop on ATO's erstwhile position that a UPE from a trust to a company will not be a 'reverse' loan from company to a trust thereby possibly being caught under Div7A! This created a huge confusion and contradiction in the profession and has to an extent contributed to the current 'post implementation review' of Div7A.

So what is this 'post implementation review' about?

In simplistic terms, post implementation review aims to achieve simplistic solutions to this otherwise highly complicated section of taxation law, making it efficient yet easy and cost effective to implement.

One particular objective is to allow trusts to retain working capital at company tax rates. Various options are being circulated where a somewhat fine line of differentiation is being drawn between a business trust and investment trust. The underlining objective is to support a cause for a business trust to hold working capital while taking advantage of a corporate tax rate e.g. by making a UPE to a company.

Ultimately, is this Fuss worth it?

It baffles me to see the amount of effort and thought that is being drawn in, to try and prevent an investment trust from taking advantage of corporate tax rates! I am sure tax fraternity would agree that till date, the options that have come out only add to the complexity, creates more questions than answers, and leaves us no better off!

It's important to understand here that, to the extent circumventing mischief towards A - Personal Use and Lifestyle use of trust is concerned, Subdivision EA supported by other provisions of Div7A is fairly robust to prevent it. If there are any gaps, would possibly be not so difficult to plug them, in the current structure of legislation.

So why are we so bothered about preventing trusts from using perceivably concessionally taxed funds for B- Personal investment assets? Consider this;

Personal investment assets contribute to the growth of the economy, are an integral part of our growth cycle, provide support to business cycle (with many trusts holding assets which are ultimately used by related party businesses) and contribute to our taxation system;
In most jurisdictions there is a penal land tax regime on most types of trusts.
It is more expensive and administratively cumbersome to set up a trust, hold assets and run a trusts.
Bank funding is limited when assets are held in trusts as compared to being held in individual hands.

If analysed closely, it will appear that inspite of all the above covenants, trusts are used for holding investment assets (albeit to a limited extent) largely for asset protection and other worthwhile purposes.

|| So is this fuss worth it, to try and exclude an investment trust in our quest of quarantining a trust from Div7A impact? Wouldn't it be simpler and more efficient to simply exclude a trust from the list of 'culpable borrowers' under Div7A and make legislation robust to circumvent 'A- the personal use and lifestyle' mischief through trusts? ||

Corporate Tax Dodge - Why Can't Small Businesses Do It?

2014-12-11T00:00:00+11:00

Leading up to and beyond G20 summit in Brisbane earlier this year, news has been rift about multinational corporates using tax havens to dodge higher corporate taxes. US, Australia, UK, Europe, China, India, you name it, economies are worried about erosion of their base corporate tax. So much so, there is now a new term for this on the blocks; Base Erosion and Profit Shift (BEPS). It's not just multinationals like Google and Apple, but also our own backyard multinationals including top banks who are said to be using BEPS to avoid local taxes. Cayman Islands, Luxembourg, Switzerland, Bermuda, Ireland etc., have become commonly ill-famous as Tax Havens for their low corporate tax rate and corporate secrecy.

Australian Commission of Tax, Chris Jordan, Prime Minister Tony Abbot and Treasurer Joe Hockey have all gone on record pledging strong action to bring back to Australia it's fair share of corporate tax. Needless to say the less tax corporates pay, the more mum and dads have to pay!

|| Often small businesses ask, 'Why can't we do the same?'. It's hard to convince clients to do the right thing while the news is broadcasting multinationals dodging the corporate tax. Needless to say, the less tax corporates pay, the more mums and dads have to pay! ||

SO HOW DOES IT WORKS?

BEPS works primarily on two concepts: Transfer Pricing and Thin Capitalisation. Take for example, a smart phone is produced in China for say $100 and shipped to Australia for sale. While it is at sea, a transaction is made, only on paper ofcourse, where it is sold for $100 to say a company in Cayman Islands. This company then sells it to an Australian Company for $600 which sells it in a store in Australia for $700. Thus $500 profit is shifted from high tax region of China or Australia to a low tax region of Cayman Islands. Ofcourse all these companies are fully owned by either an American or European Smart Phone company. This is called Transfer Pricing. Unfortunately, corporate are taxed currently based on their residency status, hence profits generated by Cayman Island subsidiary can not be taxed in China or Australia.

This ofcourse leads to substantial funds (tax free profits) locked in these tax haven companies. Next step is to then lend these funds to high tax group companies at a high interest rate. Thus while a tax deduction of say 30% is claimed on interest paid by an Australian Subsidiary, there is virtually no tax paid on interest income earned by the Cayman Island Subsidiary. This is called Thin Capitalisation. Again, weak tax policies and lack of unified global approach just make this too simple.

Some estimates indicate hundreds of billions of corporate tax is 'dodged' by multinationals using these strategies each year. Poorer tax haven economies don't mind flush of funds helping them prosper.

SO WHY CAN'T SMALL BUSINESSES DO IT?

The key difference is in separation of ownership and control. Multinationals are controlled by directors and executives who may own a small portion of the company through listed shares or may not own any shares. They earn salaries, bonuses and incentives, often in millions of dollars. Make no mistake, to this extent they pay top dollar tax! And their pay pack continues to rise as the company's profits increases, partly helped by this corporate tax dodge. In essence, livelihood of these executives is not dependent on the cash profits made and dumped in tax haven bank accounts.

In contrast, the owners of small businesses live on the profit of their companies. Even if they could use BEPS to 'legally' reduce their corporate tax, they can't afford to leave their profits in the tax haven bank accounts. And the moment they dip in and bring back these cash reserves, they are taxed on this money in their local economy.

Thus, even if small businesses could afford the high costs multinationals pay to top end tax advisors from companies like KPMG, Ernst & Young etc. to achieve corporate tax dodge, the fact that they live on their profits makes the whole exercise futile.

IS THERE HOPE FOR AUSTRALIAN MUMS AND DADS?

While publicly Australian and other international authorities have made a lot of noise on curbing BEPS, little seems to have been achieved. At best, G20 countries have agreed for better information sharing across international tax authorities and banks. On the contrary, as per public news, ATO's budget cuts seems to have depleted it's Counter-BEPS work force, some of whom have joined the big four tax advisors firms sharing inside information on ATO's capabilities and inabilities!

|| At last count, Treasurer Hockey indicated that Australia will join UK in bringing in a 'Google' tax to curb BEPS. ||

I guess, the situation is well summed up by former treasurer Peter Costello, in his advise to Abott's government, "In the world of electronic transfer and the internet, and mobile capital, and mobile income, your best tax bases are always going to be ones that are local,". Based on this, the current chairman of 'Future Fund' seems to suggest it is better to raise GST and personal tax rates rather than curb tax evasion by multinationals. Interestingly, reports suggest Future Fund, a government owned body, is itself guilty of using tax havens to avoid tax!

Some analysts seem to think, whatever governments may do, corporate tax payers and advisors will always be one step ahead! Hard working Mums and dads thus live in this (possibly falsified) hope that someday these multinationals will pay their fair share of taxes bringing prosperity and lower taxes on us, the mums and dads!

It's too much money! Honey!

2014-09-01T00:00:00+10:00

With PUP joining hands alongside Liberals to water down FOFA laws, a few questions arise; What is the real issue with Financial Planning laws? Why is it that we have seen so many cases of fraud and inappropriate advice?

Years ago, when I was earnestly studying to become a tax advisor, I had an opportunity to sit in a presentation by one of the best known Australian minds in Superannuation and Financial Planning Industry. After the presentation I approached him to seek guidance on my career path. He said, 'Manu, how much do you think the best paid partners in large tax firms make a year? About $500,000. This kind of money is made by a corner shop financial planner in Parramatta!'. Now I must add that this great mind continues to be one of the most ethical advisors I have met in my lifetime. He, however pinpointed to the problem in Financial Planning industry, so succinctly : It's Too Much of Money! Honey!

In financial planning industry you could earn as much as a Cardiologist without years of education and training or thousands in HECS debt. Even a hairdresser has to study way more for her license than a financial planner does. I guess it is this attraction of easy money which creates 'conflict of interest' and, at times, inappropriate advice, which results in people loosing their lifetime of savings.

So what does this new look FOFA mean to us?

Financial Advisors would be able to tick a few boxes to confirm that 'they acted in best interest of their client' without any rigorous compliance.
Bank tellers will be able to lead you into buying their insurance and superannuation products without personalised advise for commissions.
Ongoing clients will continue to pay commissions to their financial planners without even knowing how much! This is even when the financial planner has never contacted them over the years.

So what do we, as ordinary Australians, need to do?

When you deal with a financial planner, ask him these top 10 questions;

Are you a certified financial planner? What are your qualifications, your strengths and your experience?
Have you ever recommended a managed agricultural scheme?
Do you put your clients into your own firm's funds and products? Who owns your advice license and do you or your firm receive any benefits by recommending their products?
If you make a financial recommendation, will you show me something comparable from a company you are not aligned with?
Can you show me the benefits I receive from my decisions?
Can you show me a sample statement of advice?
Can you show me your investment portfolio?
Do you offer flat fee-for service pricing or do you earn commissions from your recommendations?
What ongoing care will you provide me, and how much will it cost?
Would you have any issues if I discuss your statement of advice with another financial planner or with my accountant?

Once you find a good financial planner and have their statement of advice, do not be hesitant to take a second opinion or discuss his answers with your trusted accountant. Impartial second opinion always helps.

Alternatively, consider Doing it Yourself. You can choose to set up a Self Managed Superfund (SMSF) and manage your investments yourself. Three key questions to ask yourself before you set up your own SMSF;

Do I have sufficient balance in my fund to be able to make an SMSF viable?
Do I have the time and inclination in doing the hard yards and making choices of investments for my fund?
Do I have the required knowledge to ensure my SMSF is compliant under the law.

We can help you work through the above questions in making an informed decision towards securing your retirement nest egg.