Author: Glance Consultants

 

If you can’t work because you or someone in your household is impacted by COVID-19, support is available.

There are two payments accessible to individuals: the COVID-19 Disaster Payment; and, the Pandemic Leave Disaster Payment.

How to apply for support

You can apply for the COVID-19 Disaster Payment through your MyGov account if you have created and linked a Centrelink account. Apply for the Pandemic Leave Payment by phoning Services Australia on 180 22 66.

COVID-19 Disaster Payments

The COVID-19 Disaster Payment is a weekly payment available to eligible workers who can’t attend work or who have lost income because of a lockdown and don’t have access to certain paid leave entitlements. If you are a couple, both people can separately claim the payment.

Timing of the payment

The disaster payment is generally accessible if the hotspot triggering the lockdown lasts more than 7 days as declared by the Chief Medical Officer (you can find the listing here). However, the disaster payment will also be available:

• In NSW from 18 July 2021, to anyone who meets the eligibility criteria. The requirement to be in a Commonwealth declared hotspot has been removed and the payment will apply to anyone in NSW impacted by the lockdowns who meets the other eligibility criteria.

• In Victoria from 15 July 2021, to anyone who meets the eligibility criteria. The requirement to be in a Commonwealth declared hotspot has been removed and the payment will apply to anyone in Victoria impacted by the lockdowns who meets the other eligibility criteria. And, the 7 day requirement has been removed so that the payment will be made for the period from 15 July 2021 (paid in arrears from 23 July 2021).

 

How much is the payment?

The COVID-19 disaster payment amount available depends on:

• How many hours of work you have lost in the week, and

• If the payment is on or after the third period of the lockdown.

The payment applies to each week of lockdown you are eligible and is taxable (you will need to declare it in your income tax return).

Eligibility

The COVID-19 disaster payment is emergency relief. It is available if you:

• Live or work in an area that is subject to a state or territory public health order that imposes restriction on movement and is declared a Commonwealth COVID-19 hotspot, or

• Have visited an area that is a Commonwealth COVID-19 hotspot and you are subsequently subject to a restricted movement order when you return to other parts of New South Wales or interstate.

And you:

• Are an Australian citizen, permanent resident or temporary visa holder who has the right to work in Australia, and

• Are aged 17 years or over, and

• Have lost 8 hours or more of work or a full day of your usual work as a result of the restrictions – losing work includes being stood down by your employer, not being assigned any shifts for the week of restrictions and being unable to work from home. Losing a full day of what you were scheduled to work but could not work because of a restricted movement order. This includes not being able to attend a full time, part-time or casual shift of less than 8 hours, and

• Don’t have paid leave available through your employer (other than annual leave), and

• Are not receiving income support payments, a state or territory pandemic payment, Pandemic Leave Disaster Payment or state small business payment for the same period. Income support payments include Age Pension, Austudy, Carer Payment, Disability Support Pension, Farm Household Allowance, JobSeeker Payment, Parenting Payment, Partner Allowance, Special Benefit, Widow Allowance, Youth Allowance and Income Support Supplement, Service Pension or Veteran Pension from the Department of Veterans’ Affairs.

A liquid assets test of $10,000 previously applied to the disaster payment but was removed from Thursday, 8 July 2021.

Pandemic Leave Disaster Payment

The Pandemic Leave Disaster Payment is for those who have been advised by their relevant health authority to self-isolate or quarantine because they:

• Test positive to COVID-19;

• Have been identified as a close contact of a confirmed COVID-19 case;

• Care for a child, 16 years or under, who has COVID-19; or

• Care for a child, 16 years or under, who has been identified as a close contact of a confirmed COVID-19 case; or

• Care for a person who has tested positive to COVID-19.

How much is the payment?

The payment is $1,500 for each 14 day period you are advised to self-isolate or quarantine. If you are a couple, you both can claim this payment if you meet the eligibility criteria.

Eligibility

The Pandemic Leave Disaster Payment is available if you:

• Are an Australian citizen, permanent resident or temporary visa holder who has the right to work in Australia; and

• Are aged 17 years or over; and

• Are unable to go to work and earn an income; and

• Do not have appropriate leave entitlements, including pandemic sick leave, personal leave or carers leave; and

• Are not getting any income support payment, ABSTUDY Living Allowance, Paid parental leave or Dad and Partner Pay. Income support payments include Age Pension, Austudy, Carer Payment, Disability Support Pension, Farm Household Allowance, JobSeeker Payment, Parenting Payment, Partner Allowance, Special Benefit, Widow Allowance, Youth Allowance and Income Support Supplement, Service Pension or Veteran Pension from the Department of Veterans’ Affairs.

The payment is taxable and you will need to declare it in your income tax return.

If you are uncertain of your eligibility, talk to Services Australia. If you are concerned about the impact of disaster relief payments on you, talk to us.

NSW Child-care gap fee

From 19 July 2021, the Government is enabling childcare services in NSW Local Government Areas subject to stay at home orders to waive gap-fees for parents keeping their children at home due to current COVID-19 restrictions. The gap fee is the difference between the Child Care Subsidy (CCS) the Government pays to a service and the remaining fee paid by the family.

The child-care gap fee waiver is only applicable where the childcare service opts in.

The current Local Government Areas are: Bayside, Blacktown, Blue Mountains, Burwood, Camden, Campbelltown, Canada Bay, Canterbury-Bankstown, Central Coast, Cumberland, Fairfield, Georges River, Hawkesbury, Hornsby, Hunters Hill, Inner West, Ku-ring-gai, Lane Cove, Liverpool, Mosman, North Sydney, Northern Beaches, Parramatta, Penrith, Randwick, Ryde, Shellharbour, Strathfield, Sutherland Shire, Sydney, The Hills Shire, Waverley, Willoughby, Wollondilly, Wollongong and Woollahra.

NSW Eviction moratorium

The NSW Government will introduce a targeted eviction moratorium to protect residential tenants who have lost 25% of their income due to COVID-19.

60 day freeze on evictions

Tenants who can’t pay their rent in full because they are impacted by the recent COVID-19 outbreak can’t be evicted between now and 11 September 2021.

Financial support for landlords

Residential landlords who decrease rent for impacted tenants can apply for a grant of up to $1,500 or land tax reductions depending on their circumstances. The land tax relief will be equal to the value of rent reductions provided to financially distressed tenants for up to 100% of the 2021 land tax year liability.

The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information. If expert assistance is required, professional advice should be obtained.

Updated 19 July 2021

 

Click to view our What lockdown support is available PDF

 

For those businesses that have found mid-July come about exceptionally quickly, thankfully, the ATO has extended the initial deadline for the expected Single Touch Payroll changes. Rather than the usual 14th July due date, you now have until 31st July to make any end-of-year STP finalisation declarations.

This is due to the continued impacts of the Covid-19 pandemic and subsequent restrictions taking place across Australian communities, giving a much-needed reprieve for some to ensure that they can assimilate all necessary documentation in time.

However, if you can complete declarations at an earlier date, the ATO does urge you to do so. We also remind businesses to ensure that they inform all of their employees that they have finalised their data so that they can lodge their income tax returns.

It is pleasing to see that the ATO is reacting to pressures that both businesses and agents are facing when faced with deadlines that are heavily impacted by the different phases of lockdowns and the unknown future that each week brings.

By providing a further two weeks grace to make any end-of-year STP finalisation declarations, businesses and their supporting professionals can take the necessary time to ensure that documentation is filed correctly and remains compliant with the new laws that have come into play this financial year.

At this point, the due date of 30th September for those with a mixture of arm’s length employees and closely held payees remains the same. Those small businesses that only have closely held payees need to complete all documentation by that given payee’s tax return due date.

If you are unsure when any of your finalisation documentation is due, or are unsure what new information you are expected to provide this financial year, then please get in touch with us as quickly as possible to remain compliant and within these reformed due dates to avoid complications.

We understand that this is a particularly stressful time of year for most businesses, and the impact of the Covid-19 reactions by the government these past 18 months have placed further pressure on everyone.

Thankfully, the regulatory bodies are recognising this and providing support where possible to ease anxiety and tension throughout the Australian community.

For those small businesses and sole traders that continue to be affected by the necessary restrictions for the continuing health of the public, there is additional funding from the Victorian government to the sum of $8.4 million designed to provide relief.

This comes with praise from many, especially businesses significantly impacted by lockdowns and cannot operate online to significant effect.

There are approximately 3700 small businesses that are set to receive this support, with eligible sectors including gyms, yoga studios and dance schools. Unfortunately, as we know, these businesses have been unable to operate during the Covid-19 lockdowns imposed upon the state as the community works together to ensure the safety of those living within the border, as well as those outside of it.

Although a creative approach to operating remotely is encouraged, such as with online classes, there is no hiding the fact that most of these businesses have been unable to bring in the cash flows necessary to remain in a healthy financial state for when business resumes.

This additional support comes on top of the already provided $2500 to $5000 that is available to such businesses through the Business Costs Assistance Program Round Two, bringing the total support to date at about $7000 to those eligible businesses.

The total support for businesses that have been announced recently has gone beyond the $500 million mark. This includes this extra funding, the Business Costs Assistance Program, the Licenced Hospitality Venue Fund and the Regional Tourism Support Package.

As the names of each of these suggest, the different financial support packages are designed for other sectors of business that are seen to have been significantly affected by Covid-19 restrictions within the community. In total, over 90,000 different businesses across many sectors will be offered support through these schemes over the next three weeks.

With some applications restricted to deadlines, it is important that you act swiftly to obtain the support that you and your business is entitled to as we all continue to do what is necessary to keep Covid-19 out of our community.

Please call our office on 03 9885 9793 or email us at enquiries@glanceconsultants.com.au if you have any questions.

 

After a couple of years, the STP (Single Touch Payroll) initiative rolled out by the ATO has been going strong, supporting businesses to deliver real-time digital payroll reports. This includes Gross wages, PAYG withholding tax and superannuation information. As this process has been a gradual change from the previous process, there have been exemptions for certain smaller businesses from the initial deadlines. Until now, that is.

If you are facing the transition into STP for the first time this financial year, our team here at Glance Consultants are more than capable to assist. It may seem a little daunting, needing to utilise a new digital payroll system for the first time. Our team are familiar with its requirements.

As of July 1st 2021, businesses that were previously not required to report through the STP, such as micro-businesses and seasonal employers or those with closely held employees, will need to transmit wage information through Single Touch Payroll.

What is a closely held employee?

This is another term for employees directly related to the business, such as family members of a business owner who are being paid for their time, beneficiaries of a trust, directors and shareholders. So, for example, if you employed your uncle for the use of his truck or a cousin you will need to process payroll and submit the information via STP.

You can either submit the information directly yourself or outsource this function to your bookkeeper/accountant, depending on how involved you wish to be in the financial matters of your business. We will also discuss the timeframe you are given, whether you need to be declaring wages weekly, monthly, quarterly or yearly, as businesses will be faced with different circumstances.

If you are one of the small businesses having to adapt to STP, embrace the digital transformation as a positive experience, especially when you have us on your side. The STP process allows you to simplify matters when it comes to EOFY.

Contact our office located at 217A High Street, Ashburton VIC 3147 on  03 98859793 or email us at enquiries@glanceconsultants.com.au for assistance your STP obligations.

 

The Superannuation Guarantee (SG) increase is set to go ahead. However, we advise business owners to ensure that they understand the changes that are progressively being rolled out over the coming years and prepare for them to avoid penalties.

From July 1st, 2021, the base rate is set to rise from 9.5% to 10%, and this will be followed by incremental half per cent increases until the base rate sits at 12%, beginning July 1st, 2025.

Since late payments, underpayments or non-payments will attract the attention and potential penalties from ATO, in as little as 24 hours, it is best to have practises put in place as early as possible to ensure that your business isn’t red-flagged.

We understand that, in general, businesses operate in the interest of their bottom line. However, what is essential during this change is that you are transparent with your employees about how it will affect their take-home pay from month to month. Whether you as a business are looking to meet the total cost of the superannuation guarantee increases over the coming years or leave your employees to bear the brunt of the change within their pay packages, we implore you to be transparent about these changes and the impact that it will have on your business and those who work within it.

The superannuation guarantee, although legislated for some time, was still up in the air as late as March this year due to the precise impact that it will potentially have on wage growth in the country and the impact on employers and their profit margins. Larger profit margins generally result in business growth, which enables job opportunities within the community. The extra 0.5% yearly increase is likely to come at the cost of reduced wage growth and new jobs in the market over the coming years.

Since this is not a once-off payment, rather an incremental change spanning several years that will ultimately impact profit margins, it is imperative that we include the SG increase into forecasting models to allow you to properly budget, especially if you are a business that has a large workforce.

Should you wish to discuss these or any other considerations regarding the superannuation guarantee increases, then get in touch with one of team here at Glance Consultants on 03 98859793 or at enquiries@glanceconsultants.com.au .

Our office located at 217A High Street, Ashburton VIC 3147 is open Monday to Friday 9:00am – 5:00pm and Saturdays: by appointment only.

 

Contrary to what you might have previously believed, crypto is definitely on the ATO’s radar. In 2020 alone, some 350,000 notices were sent out to cryptocurrency investors.

So it is essential that you understand your tax obligations and keep good records regarding your cryptocurrency investments and movements.

Generally, crypto is taxed as a capital gains tax (CGT) asset when it is sold. However, the situation can become complicated should you trade heavily, whereby the sale might be on revenue rather than a capital amount. If you make a gain of less than $10,000, having used cryptocurrency for the sale, that gain may even be exempt from tax.

Let’s take a quick look at some of the various taxing points on crypto to obtain a better perspective.

CGT: Capital Gains Tax

Simply put, if the sale of crypto is a CGT event, then tax will be on the capital amount. However, if you are in the business of selling crypto, then you will be taxed on your income amount.

Should you be taxed on the capital amount, providing you have held on to the assets for more than 12 months, you will be entitled to a 50% CGT discount on the capital gain. If you have made a capital loss, this could be used to offset capital gains.

Situations that trigger a CGT event include:

• Converting crypto to fiat currency
• Gifting or selling crypto
• Crypto to crypto trades
• Using crypto to buy goods or services

Crypto-to-crypto trading:

Crypto-to-crypto trades trigger a CGT event.  A crypto-to-crypto trade occurs where you swap one coin for another without ever using any fiat currency.

For example, you might exchange some of your Bitcoin holdings for other cryptocurrencies, without selling any of the holdings and converting your funds back to Australian dollars.

CGT still applies to the trade, even though any of the gains you have made have not been realised in fiat currency.

The cost base is determined at the time that you acquire the crypto and the gain or loss is the difference in value when you swap.

Therefore, it is essential to record the value of the cryptocurrency at the time that you trade it for another cryptocurrency.

If you are unable to calculate the value of crypto you receive in the trade, you can use the market value of the crypto you disposed of.

Personal use transactions are exempt from CGT when:

• Goods and services purchased are for personal use
• Capital gains made are for personal use and below $10,000
• Your crypto has not been seen to be kept as an investment, as part of a profit-making scheme or in the course of business activities.

An important factor is that you have not acquired, kept or used the crypto as:

• An investment.
• As part of a profit-making scheme.
• In the course of business activities.

You should also note that your purpose for holding crypto may change during the period of ownership. For example, you may have originally acquired bitcoin for personal use and enjoyment, but after a sharp rise in the price of bitcoin later decided to hold onto your coins as an investment.

Generally, the ATO assumes that the longer you keep crypto, the less likely it is for personal use.

Chain Splits

A chain split is when there are two or more competing versions of a blockchain. Should you hold crypto as an investment, you receive another due to a chain split; you don’t derive ordinary income or make a capital gain at the time of the split.

If you hold the new crypto as an investment, you will make your capital gain once you sell it.

When working out your capital gain, the cost base of a new crypto received as a result of a chain split is zero. If you hold the new crypto as an investment for 12 months or more and you are not in the business trading crypto, you may be entitled to the CGT discount.

Ordinary Income

Ordinary income and trading stock rules apply if you are carrying on a business that involves transacting with crypto.

Proceeds from the sale of crypto held as trading stock in a business are ordinary income, and the cost of acquiring crypto held as trading stock is deductible.

If you are carrying on a business you will usually:

• carry on your activity for commercial reasons and in a commercially viable way
• undertake activities in a business-like manner – this would typically include preparing a business plan and acquiring capital assets or inventory in line with the business plan
• prepare accounting records and market a business name or product
• intend to make a profit or genuinely believe you will make a profit, even if you are unlikely to do so in the short term.

Examples of businesses that involve crypto include:

• crypto trading businesses
• crypto mining businesses
• crypto exchange businesses (including ATMs).

There is also usually repetition and regularity to your business activities, although one-off transactions can amount to a business in some cases.

Whether you are carrying on a business and when the business commences are important pieces of information. If you are still setting up or preparing to go into business, you might not yet have started the business.

Money received (or property received) prior to a business being carried on is not generally assessable income. Likewise, you cannot claim deductions incurred prior to the business being carried on.

Crypto Tax Reporting requirements

You need to keep records of all your crypto trades so you can calculate any capital gains or losses and include them on your tax return.

It is extremely important that you keep records of all the crypto trades that are made so you can calculate any gains or losses that are made within a financial year and include these in your tax return.

Crypto trading software, such as CoinTracking and Koinly, can assist with keeping historical records of your trades and generating capital gain reports.

This type of software can help you track your trades and generate capital gains reports. It offers integration with many leading exchanges to make things even easier.

Tax treatment of crypto can be complex as the rules outlined by the ATO are still fairly new.  If you are unsure as to whether the disposal of crypto is on income or capital account, you should seek advice.

Please ensure you discuss your situation with one of our advisors at Glance Consultants, who can offer you insights and advice on complex tax treatment of Cryptocurrency and associated record keeping obligations.

The Federal Treasurer, Mr Josh Frydenberg, handed down the 2021–22 Federal Budget at 7:30 pm (AEST) on 11 May 2021.

A stronger than expected economic recovery from the COVID-19 recession has resulted in a budget deficit of $161 billion, $52.7 billion lower than the governments expected deficit.

With the virus still a threat to the global and domestic economy, the Budget contains various measures to support businesses and individuals with job creation, incentives, tax relief and superannuation changes.

Please check the following link for our report on the Budget:

Federal Budget Glance Consultants 2021 – 2022

The financial year is almost over, but there are still effective strategies you may be able to put in place.

The aim is to make sure you pay no more tax than you have to for the 2020-21 year and maximise any refunds you may be entitled to. This is still the case, if not more so, in the on-going COVID-19 environment.

Imagine what you could do with your tax savings?

• Reduce your home loan
• Top up your super
• Save for a holiday (when we can travel again!)
• Deposit for an Investment Property
• Pay for your children’s education
• Upgrade your Car

While the best strategies are adopted as early as possible in a financial year and not at the end, it’s worth remembering proper tax planning is more than just sourcing bigger and better deductions. The best tips involve assessing your current circumstances and planning your associated income and deductions from income year to income year.

Not all of the following tips will suit everyone’s specific circumstances, but they should provide a list of possibilities that may get you thinking along the right track for your tax planning.

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TAX PLANNING GUIDE – BUSINESS

IS YOUR BUSINESS A “SMALL BUSINESS” ENTITY?

Small businesses can access a range of tax concessions from the ATO. To qualify as a “Small Business Entity”, the business must have an aggregated turnover (your annual turnover plus the annual turnover of any business connected/affiliated with you) of less than $10 million and be operating a business for all or part of the 2021 year.

REDUCTION IN COMPANY TAX RATES

The 2021 company tax rate for businesses with less than $50 million turnover is 26%, if 80% or less of a company’s assessable income is “passive income” (such as interest dividends, rent, royalties, and net capital gains). If you use a Trust structure, one strategy is to allocate profits to a “Bucket Company” and cap your tax at 26% for the 2020 year. Note that this company must qualify as a “base rate” entity to be eligible for the lower 26% company tax rate. Please contact our office to discuss whether your company will qualify.

TEMPORARY FULL EXPENSING FOR ASSET PURCHASES

The temporary full expensing regime is now operable for depreciating assets acquired after 6 October 2020 and before 30 June 2022 for businesses with an aggregated turnover of less than $5 billion. The business portion of the cost of acquiring depreciating assets is deductible in the year of income in which the asset is first held, provided the item is first used, or installed ready for use, by 30 June 2022.

The cost of improvements made to a depreciating asset is also deductible in the year of income the improvements are made (no later than 30 June 2022). In contrast to the instant asset write-off rules, there is no upper limit on the amount that can be fully deducted in respect of a business asset.

However, please note the car limit does apply for passenger vehicles with a logbook being a mandatory requirement.

This may enable some effective tax planning between the 2021 and 2022 tax years where there are assets you have been looking to acquire or improve. Please contact our office to discuss your eligibility and options available to you.

MAXIMISE DEDUCTIBLE SUPER CONTRIBUTIONS

The concessional superannuation cap for 2021 is $25,000 for all individuals. Note that employer super guarantee contributions are included in these caps. Where a concessional contribution is made that exceeds these limits, the excess is included in your assessable income and taxed at your marginal rate, plus an excess concessional contributions charge.

For the contribution to be counted towards the employee’s 2021 contribution cap, it must be received by the fund by 30 June 2021.

TOOLS OF TRADE / FBT EXEMPT ITEMS

The purchase of Tools of Trade and other FBT exempt items for business owners and employees can be an effective way to buy equipment with a tax benefit. Items that can be packaged include handheld/portable tools of trade, computer software, notebook computers, personal electronic organisers, digital cameras, briefcases, protective clothing, and mobile phones.

If structured correctly, the employer will be entitled to a tax deduction for the reimbursement payment to the employee (for the equipment cost), claim any GST input credit, and the employee’s salary package will only be reduced by the GST- exclusive cost of the items purchased.

Please contact our office to discuss if this applies to you.

REPAIRS & MAINTENANCE

Should there be a need for repairs to your business or rental property, make them prior to 30 June 2021.

PAY EMPLOYEE SUPERANNUATION

To claim a tax deduction in the 2021 financial year, you need to ensure that your employee superannuation payments are received by the super fund or the Small Business Superannuation Clearing House (SBSCH) by 30 June 2021.

You should avoid making last minute superannuation payments as processing delays may cause them to be received after year-end. If for any reasons you end up having to make last minute payments and you would like to claim them as deductions for the current year, contact us immediately and before you make any payments for possible resolutions.

DEFER INCOME

If possible, you may defer issuing further invoices and receiving cash/debtor payments until after 30 June 2021 in certain circumstances.

BRING FORWARD EXPENSES

Should there be a need, purchase consumable items before 30 June 2021 claim a tax deduction this year. These include marketing materials, consumables, stationery, printing, office, and computer supplies.

DEFER INVESTMENT INCOME CAPITAL GAINS

If possible, you may arrange for the receipt of Investment Income (e.g. interest on Term Deposits) and the Contract Date for the sale of Capital Gains assets, to occur after 30 June 2021 in certain circumstances.

The Contract Date is generally the key date for working out when a sale occurred, not the Settlement Date.

MOTOR VEHICLE LOGBOOK

Ensure that you have kept an accurate and complete Motor Vehicle logbook for at least a 12-week period. The start date for the 12-week period must be on or before 30 June 2021. You should make a record of your odometer reading as at 30 June 2021 and keep all receipts/invoices for motor vehicle expenses. An alternative (with no logbook needed) is to simply claim up to 5,000 business kilometres (based on a reasonable estimate) using the cents per km method.

INVESTMENT PROPERTY DEPRECIATION

If you own a rental property and have not already done so, arrange for the preparation of a Property Depreciation Report to allow you to claim the maximum amount of depreciation and building write-off deductions on your rental property prior to submission of your tax return.

PRIVATE COMPANY (“DIV 7A”) LOANS

Business owners who have borrowed funds from their company in previous years must ensure that the appropriate principal and interest repayments are made by 30 June 2021. Current year loans must be either paid back in full or have a loan agreement entered in before the due date of lodgement for the company return, or risk having it counted as an unfranked dividend in the return of the individual.

YEAR-END STOCKTAKE /WORK IN PROGRESS

If applicable, you need to prepare a detailed Stock Take and/or Work in Progress listing as at 30 June 2021. Review your listing and write-off any obsolete or worthless stock items.

Please contact our office to discuss about the different options for valuing stock for tax purposes.

WRITE-OFF BAD DEBTS

Review your Trade Debtors listing and write-off all bad debts before 30 June 2021.

Prepare a management meeting document listing each bad debt, as evidence that these amounts were written off prior to year-end and enter these into your accounting system before 30 June 2021.

SMALL BUSINESS CONCESSIONS – PREPAYMENTS

“Small Business Concession” taxpayers can make prepayments (up to 12 months) on expenses (e.g., loan interest, rent, subscriptions) before 30 June 2021 and obtain a full tax deduction in the 2021 financial year.

TRUSTEE RESOLUTIONS

Ensure that the Trustee Resolutions are prepared and signed before 30 June 2021 for all Discretionary (“Family”) Trusts. Please see us for more information about these resolutions.

 

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TAX PLANNING GUIDE – INDIVIDUALS & SUPERANNUATION

USE THE CGT RULES TO YOUR ADVANTAGE

If you have made and crystallised any capital gain from your investments this financial year (which will be added to your assessable income), think about selling any investments on which you have made a loss before 30 June. Doing so means the gains you made on your successful investments can be offset against the losses from the less successful ones, reducing your overall taxable income.

And while there may be many opportunities to realise capital losses in the current circumstances, you should be aware that the deliberate realisation of capital losses for the purpose of reducing capital gains in some circumstances may trigger a response from the ATO.

Keep in mind that for CGT purposes a capital gain generally occurs on the date you sign a contract, not when you settle on a property purchase or share transaction. When you are making a large capital gain toward the end of an income year, knowing which financial year the gain will be attributed to can be a handy tax planning advantage.

Of course, tread carefully and don’t let mere tax drive your investment decisions – but check to determine whether this strategy will suit your circumstances, and whether you risk attracting the attention of the ATO in any way.

INVESTMENT PROPERTY

Expenses stemming from your rental property can be claimed in full or in part, so, if possible, it can be helpful to bring forward any expenses that can be undertaken before June 30 and claim them in the current financial year. If you know that your investment property needs some repairs, some gutter clean up or some tree lopping, for example, see if you can bring the maintenance and (deductible) payments into the 2020-21 year.

It should also be noted that deductible rental property expenses remain deductible even if the property is not rented as long as it is genuinely available for rent (which is relevant in the current COVID-19 environment).

PRE-PAY INVESTMENT LOAN INTEREST

If you have some spare cash, then see if you can negotiate with your finance provider to pay interest on borrowings upfront for the investment property or margin loan on shares (or other loan types) and make that deduction available this year. Most taxpayers can claim a deduction for up to 12 months ahead. But make sure your lender has allocated funds secured against your property correctly, as a tax deduction is generally only allowed against the finance costs incurred for the purpose of earning assessable income from investments.

Be aware that a deduction may not be available on funds you redraw from a loan of this type that is put to other purposes. Also, a component of the National Rental Affordability Scheme payment is not assessable income and therefore the deduction on these properties may need to be apportioned.

BRING FORWARD EXPENSES/DEFER INCOME

Try to bring forward any other deductions (like the interest payments mentioned above) into the 2020-21 year. If for instance you know that next income year you will be earning less (for example, due to maternity or partner leave or going part-time), then you will be better off bringing forward any deductible expenses into the current year.

An exception will arise if you expect to earn more next financial year. In that case it may be to your advantage to delay any tax-deductible payments until next financial year, when the financial benefit of deductions could be greater. Tax planning is the key, as your personal circumstances will dictate whether these measures are appropriate.

It’s probably leaving it a bit late to adopt this strategy now, but you could consider a tactic that can take advantage of this sort of timing and place money into a term deposit that matures after 30 June 2022. Then interest will form part of your taxable income in the following tax year.

Again, this type of strategy may be invaluable if you are anticipating less or more income next year as a result of some of the more longer-term effects of COVID-19 on the economy.

FINAL REMINDERS

You can claim up to $300 of work-related expenses without receipts, provided the claims are reasonable for outgoings related to earning assessable income. If the total amount you are claiming is $300 or less, you need to be able to show how you worked out your claims, but you do not need written evidence.

No-one knows your affairs better than yourself, so you will recognise if any of the above tax tips applies to your circumstances. But no-one is better informed as to what is appropriate, or indeed allowable, than your tax agent (and don’t forget, any fee is an allowable deduction in the year it is paid).

Every individual taxpayer is required to lodge their return before October 31, but tax professionals are generally given more time to lodge, which can be a handy extension to a payment deadline if any arises.

Of course, if you’re sure you are going to get a refund there is no use delaying, so in these cases it is worth getting all of your information in and your return lodged as soon as you can after July 1 – especially if the value of a refund is important for your circumstances.

DEALING WITH EXCESS BEFORE-TAX SUPER CONTRIBUTIONS

Making extra before-tax contributions into super (called concessional contributions) can help boost a person’s retirement savings. However fund members need to be aware of the implications for when they exceed the concessional contributions cap.

Since 2013-14, when the excess concessional contributions refunding scheme came into effect, individuals exceeding their concessional contribution cap will accrue a tax liability.

The excess concessional contribution (CC) amount will be added to the individual’s assessable income for the relevant year and taxed at their marginal tax rates plus an excess CCs charge (as explained below).

The individual will, however, be entitled to a 15% non- refundable tax offset to compensate for the tax already paid by their fund(s) on the same excess amount. The ATO will determine whether there are any excess CCs once the individual’s fund has finalised its reporting requirements and the individual has lodged their personal tax return for the relevant income year.

Upon exceeding their CCs cap, the individual will receive an excess CC determination from the ATO advising them that their excess CCs amount has been included as assessable income in their tax return.

Together with the determination, the ATO will issue the individual with an income tax return notice of assessment or notice of an amended assessment.

Case study

• Greg is 54 years old and subject to a marginal tax rate of 34.5% (including the Medicare levy).
• Greg’s only superannuation interest is in his self- managed superannuation fund (SMSF). His total superannuation balance (TSB) on 30 June 2019 was $1.8 million.
• Greg had super guarantee (SG) and personal deductible contributions totalling $30,000 in CCs made into his SMSF during 2019-20.
• Greg’s CCs cap for 2019-20 was $25,000, giving him an excess CCs of $5,000.
• The total CCs amount of $30,000 is reported to the ATO as part of the super fund’s 2019-20 annual return.
• Greg lodges his personal income tax return for 2019-20 on 31 August 2020 and receives a notice of assessment with payment due 21 September 2020.
• However, the ATO determines that Greg has exceeded his CCs cap for 2019-20 by $5,000.

On 1 November 2020, it issues Greg with an excess CCs determination and amended notice of assessment with payment due on 21 December 2020.

First, the CCs (totalling $30,000) would be included in the SMSF’s assessable income for 2019-20 and taxed at 15% (that is $4,500).

Secondly, the ATO would add the excess CCs of $5,000 to Greg’s assessable income for 2019-20 and recalculate his income tax for that year allowing for a 15% tax offset to reflect the tax already paid by the SMSF.

This gives Greg the following tax liability: $5,000 taxed at a marginal tax rate of 34.5% ($5,000 x 34.5%= $1,725). Less 15% tax offset ($5,000 x 15% = $750). Total $975.

EXCESS CONCESSIONAL CONTRIBUTION CHARGE

When an individual has their tax payable increased due to having their excess CCs included in their assessable income, they will also have to pay an excess CC charge (essentially an interest charge) that applies to the extra tax liability. The excess CC charge:

• applies from 1 July in the year in which the excess contribution was made until the day before the individual is due to pay their income tax liability under their first assessment notice for that income year
• is calculated by the ATO and compounded daily at a rate equal to the 90-day bank accepted bill (as published by the Reserve Bank of Australia) plus a 3% uplift factor.
• is contained (along with the period and rate of the excess CCs charge) in the excess CC determination received by the individual from the ATO, and
• is not a deductible expense and the ATO cannot exercise its discretion to remit it.

Following on from Greg’s scenario earlier, the excess CC charge will apply to his extra tax liability amount of $975 (not the full $5,000 excess CCs) from 1 July 2019 to 20 September 2020 (being the day before tax is due to be paid under his first notice of assessment).

SHORTFALL INTEREST CHARGE

An individual’s tax liability may also increase by the shortfall interest charge (SIC) that applies to the shortfall between the amount of tax the individual paid originally, and the amount of extra tax identified in their amended tax return (which includes the excess CCs and applicable 15% tax offset).

The SIC rates are the same as the excess CC charge, and is applied to the shortfall amount from the time the original tax liability was payable until the day before the extra tax liability related to the amended assessment for the excess CCs is due. The SIC is charged on the total of the extra tax payable due to excess CCs, plus the amount of the excess CC charge.

In Greg’s case, Greg may need to pay the SIC on the extra income tax liability of $975 plus the excess CC charge amount. Many taxpayers seem to be unaware of the SIC until they receive an amended assessment from the ATO.

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OTHER COMPLIANCE MATTERS

THE SME RECOVERY LOAN SCHEME IS NOW OPEN

Loans for small to medium enterprises (SMEs) are available until 31 December 2021 under the Federal Government’s SME Recovery Loan Scheme. The scheme is designed to support the economic recovery, and to provide continued assistance, to firms that received JobKeeper and also to businesses that are flood-affected.

Treasury says the scheme aims to enhance lenders’ ability to provide cheaper credit, allowing many otherwise viable SMEs to access vital additional funding to get through the impact of COVID-19 and to recover and prepare for the future. The Federal Government aims to work with lenders to ensure that eligible firms have access to finance, with actions such as offering a guarantee.

The scheme builds on the framework established in the two phases of the Coronavirus SME Guarantee Scheme, and is only open to recipients of the JobKeeper payment between 4 January 2021 and 28 March 2021 as well as businesses that were located or operating in eligible flood affected local government areas (LGAs) in March 2021. Phase 2 of the existing SME Guarantee Scheme will remain open to eligible borrowers until 30 June 2021, and SMEs with phase 1 or phase 2 loans will be able to apply for SME Recovery Loan Scheme loans provided they meet eligibility criteria. Businesses that access other disaster related financial assistance will be able to apply for loans under the SME Recovery Loan Scheme, on the condition that they meet eligibility criteria.

ELIGIBILITY

The scheme is only open to SMEs with a turnover of up to $250 million that were recipients of the JobKeeper payment between 4 January 2021 and 28 March 2021 or were affected by the floods in eligible LGAs in March 2021. Both self-employed individuals and non-profit businesses are eligible. Businesses that have accessed loans in phase 1 and phase 2 can also apply for loans under the scheme.

KEY FEATURES

Participating lenders are offering guaranteed loans on the following terms under the SME Recovery Loan Scheme:

■ The Federal Government guarantee will be 80% of the loan amount.
■ Lenders are allowed to offer borrowers a repayment holiday of up to 24 months.
■ Loans can be used for a broad range of business purposes, including to support investment. Loans may be used to refinance any pre-existing debt of an eligible borrower, including those from the SME Guarantee Scheme.
■ Borrowers can access up to $5 million in total, in addition to the phase 1 and phase 2 loan limits.
■ Loans are for terms of up to 10 years, with an optional repayment holiday period.
■ Loans can be either unsecured or secured (excluding residential property).
■ The interest rate on loans will be determined by lenders, but will be capped at around 7.5%, with some flexibility for interest rates on variable rate loans to increase if market interest rates rise over time.

All big four banks have released loan offerings based on the scheme. Ask this office for other essential information.

EVIDENCING SMSF PROPERTY VALUATIONS

The ATO recently clarified the evidence that is required to support real property valuations within SMSFs, particularly in light of the unique challenges brought about by COVID-19.

Under SMSF regulations, assets must be valued at market value in an SMSF’s accounts and financial statements each year. SMSF auditors need to be in possession of sufficient appropriate audit evidence to support the value of a fund’s investments.

It’s worth noting that in 2018, the most common contravention identified by auditors and referred to ASIC was about such valuations. Before a change to regulations in July 2012, the compliance burden was less onerous; fund assets were only required to be valued every three years (except where the fund was paying a pension or it held in- house assets).

THE ATO’S CLARIFICATION

In October 2020, the ATO updated its website clarifying the objective and supportable evidence needed to support real property valuations. The ATO listed the following examples of various items it considered may be useful:

■ independent appraisals from real estate agents (ie, kerb side valuations)
■ sales contract (provided the purchase is recent and no events have occurred to the property that could materially impact its value since the purchase, such as perhaps a global pandemic or natural disaster)
■ recent sales of comparable property in the area
■ rates notices — provided they are consistent with other evidence on valuation
■ net income yield of commercial properties. (The ATO notes, however, that this on its own is not sufficient and is only appropriate where tenants are unrelated.)

EXTERNAL VALUATIONS

It’s important to note that an external valuation using a qualified independent valuer is not required in the normal course of events (but would obviously assist) However, a trustee should consider an external valuation where the property represents a significant proportion of the fund’s value. Expert valuations should also be considered where an event has occurred, such as a natural disaster, which may significantly alter the property’s value.

Where an external, expert valuation is not used, objective and supportable evidence must form the basis of the valuation each year. The evidence should also be contemporaneous. That is, it should as much as possible support an end of year 30 June valuation. This is particularly the case where the market is volatile. Perhaps the take-away point with supporting evidence, is that it should be a mix of relevant material that the auditor is furnished with, rather than a single item listed above.

Although not listed in the ATO’s October communique, in the past few years there has been a rise of online valuation providers. The ATO has stated that a valuation from this source would also be acceptable.

MARKET VALUE

For background, market value in relation to real property and other SMSF assets means the amount that a willing buyer of the asset could reasonably be expected to pay o acquire the asset from a willing seller.

Generally, the ATO will accept a fund’s determination of market value where:

■ it does not conflict with the “Valuation guidelines for SMSFs” (available on the ATO’s website)
■ there is no evidence that a different value was used for any corresponding CGT event, and
■ it was based on “objective and supportable data”.

AUDITOR’S ROLE

To be clear, it’s not the auditor’s job to undertake a valuation. Rather, it is the trustee’s responsibility to provide their auditor with the documents that are requested to support the market valuation of SMSF assets, including real property.

The auditor should seek evidence that shows how the asset was valued, including the method used and the data on which the valuation was based. On the property front, although real property investments are generally less susceptible to short-term market volatility compared with shares or certain other financial instruments, values can nonetheless fluctuate significantly in the short-term.

This is particularly the case when the economy experiences an unexpected shock, such as that brought about by COVID-19.

COVID-19 IMPACTS

For SMSFs that hold real property, COVID-19 and the accompanying government restrictions have made accurate valuations more difficult. Some investors are holding off purchasing property as they wait to understand the full fallout of the pandemic.

The pandemic resulted in some business failure among real estate agencies, and hence made it more difficult to obtain supporting valuation evidence, including relevant comparisons. Aside from the economic impacts of COVID, government-imposed lockdowns throughout 2020 resulted in many auctions being abandoned and in-person inspections limited or banned. All told, the auditor’s job became more difficult.

The assumptions underpinning the value of various property types are also being challenged by the impacts of COVID-19, making property valuations even more difficult.

For instance, stay-at-home orders requiring firms to work remotely may have led to tenants re-evaluating their need for large office space when their lease next comes up. Demand for this style of property may fall away. The value of accommodation facilities (given international travel restrictions), casinos and CBD carparks may also be more difficult to gauge.

RISKS FOR AUDITORS

Auditors face significant potential exposure where they sign-off without sufficient valuation evidence. In one case, the auditor was ordered by the New South Wales Supreme Court to pay more than $2 million in damages stemming from valuation errors.

An investment strategy was in place, but the auditor failed to check that the investments were in line with the strategy. As it turned out, the bulk of the unlisted investments were worthless or of substantially compromised value.

The procedures for auditors have not been relaxed for COVID-19. If an auditor is not satisfied of the market value of the real property, they should qualify the financial and compliance report sections of the SMSF independent auditor’s report advising they have been unable to obtain sufficient appropriate audit evidence on the value of the real property.

Without this evidence to verify the value of the real property, the auditor must use their professional judgement to determine whether an auditor/actuary contravention report (ACR) should also be lodged. The ACR should include the reasons why the trustee was unable to obtain the appropriate evidence.

In short, despite the obstacles COVID-19 has thrown up, the compliance rules and procedures for auditors have not changed when it comes to dealing with the valuation of SMSF real property.

TRUSTEE CONCESSIONS

However, in acknowledging the effects of COVID-19, the ATO extended leniency to SMSF trustees. While the ATO has stopped short of providing trustees with a complete COVID-19 “get out of jail free” card when it comes to breaches of valuation regulations, the ATO will be flexible.

During both the 2019-20 and 2020-21 years, if the trustee has difficulty obtaining supporting property valuation evidence due to COVID-19 and this results in the lodgment of an ACR, the contravention will not incur penalties.

Instead the trustee will receive a letter from the ATO advising them to ensure they comply with the ATO’s valuation guidelines and have supporting valuation evidence by the time of their next audit if possible.

Repeated contraventions will likely lead topenalties.

TAKE-HOME MESSAGES

It falls to the trustees to provide the auditor with objective and supportable evidence to value SMSF real property (and of course assets within the fund).

Where an expert valuation is not obtained, trustees should provide the auditor with the type of evidence listed by the ATO. This should involve a range of these items, not just one.

While the impacts of COVID-19 may make attaining reliable valuation evidence more difficult, the auditor’s role has not changed. Contraventions must be dealt with in the usual way. However, the ATO may extend leniency to trustees during the current and previous financial year.

INDEPENDENT REVIEW FOR SMALL BUSINESSES

From 1 April 2021, the ATO’s independent review service has been made permanently available for eligible small businesses with a turnover less than $10 million. The service provides an additional option to achieve early and fair resolution of an audit dispute.

The service was locked in after a successful pilot period and consultation with the business community. Disputes covered by this service include:

■ income tax
■ GST
■ excise
■ luxury car tax
■ wine equalisation tax
■ fuel tax credits.

All independent reviews are conducted by an ATO officer who has not had any prior involvement in the audit.

Requesting a review does not affect objection rights. Eligible small businesses who have an audit in progress will be offered the opportunity to request an independent review.

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IMPORTANT INFORMATION

This is general advice only and does not take into account your personal financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances and/or contact our office to discuss if the above applies to you.

Click to view our May 2021 Newsletter PDF

 

Improvements can always be made at the margin. Small tweaks to your processes or systems can make a massive difference to the end result. It’s the same with your business margin – a 1% increase in your gross margin on $500,000 of sales is an extra $5,000 on your bottom line.

The best part about improving your margin is that you increase your profit without needing to lift your sales.

Here are 10 strategies to lift your margin:

1. Negotiate better prices with your suppliers.

As they say, ‘the squeaky wheel gets the oil’, so if you don’t ask, you won’t get.

2. Update your pricing model.

Make sure you’re using the most recent supplier prices and that all costs are included in your price.

3. Back cost jobs regularly.

Review exactly what you spent on 2-3 jobs each month and compare the actual cost to what you anticipated the cost would be when you quoted the job.

4. Get rid of slow-moving items or work that has a poor return.

Selling old stock at cost will drop your margin, but if you replace those items or jobs with higher-margin items, you’ll achieve a higher return in the long run.

5. Set budgets and targets with your team.

Give your team something to aim for. Celebrate success when the targets are achieved.

6. Report your results on a cloud-based, real-time system.

You can’t manage what you don’t measure! Regularly monitor your most important Key Performance Indicators on your dashboard.

7. Reduce wastage and re-work.

What processes need to be updated to help reduce wastage and re-work? Or, if the processes are correctly documented, what training do you need to provide to your team to ensure the processes are being followed to reduce wastage and re-work?

8. Review your sales process.

Does your sales team know which products or services have the highest margin? Do they know how to upsell to those higher-margin products or services? Identify the sales skills gaps in your team and implement training.

9. Make a plan.

There are plenty of areas for improvement in your business. Unless you write them down, you’re unlikely to bring the correct focus to them. Make a plan to improve one area at a time.

10. Involve your accountant.

Not only to help you with idea generation and building a plan, but also to hold you accountable to do the things you need to do.

Need more help or information? Contact our team of skilled accountants at Glance Consultants on 03 9885 9793.

 

Some money is not counted as ‘income’ by the ATO

It is possible to receive amounts that are not expected by the ATO to be included as income in your tax return. However some of these amounts may be used in other calculations, and may therefore need to be included elsewhere in your tax return.

The ATO classifies the amounts that it doesn’t count as assessable into: Exempt income; non-assessable non- exempt income; and other amounts that are not taxable.

Exempt income

Exempt income doesn’t have tax levied on it. However certain exempt income may be taken into account for other adjustments or calculations — for example, when calculating the tax losses of earlier income years that you can deduct, and perhaps the “adjusted taxable income” of your dependants.

Exempt income includes:

■ certain government pensions, including the disability support pension paid by Centrelink to a person who is younger than age-pension age

■ certain government allowances and payments, including the carer allowance and child care subsidy

■ certain overseas pay and allowances for Australian Defence Force and Federal Police personnel

■ government education payments, such as allowances for students under 16 years old

■ some scholarships, bursaries, grants and awards

■ a lump sum payment you received on surrender of an insurance policy where you are the original beneficial owner of the policy – generally these payments are not earned, expected, relied upon or occur regularly (eg: payments for mortgage protection, terminal illness, and permanent injury occurring at work.

Non-assessable, non-exempt income

Non-assessable, non-exempt income is income you don’t pay tax on and that also does not count towards other tax adjustments or calculations such as tax losses.

Non-assessable, non-exempt income includes:

■ the tax-free component of an employment termination payment (ETP)

■ genuine redundancy payments and early retirement scheme payments (shown as “Lump sum D” amounts on your income statement)

■ super co-contributions

■ a payment made on or after 1 January 2020 by a state or territory for loss of income as a result of you performing volunteer work with a fire service in the 2019-20 income year

■ Disaster Recovery Allowance paid directly as a result of bushfires in Australia in the 2019-20 income year

■ Ex-gratia disaster income support allowance for special category visa (subclass 444) holders paid directly as a result of the bushfires in Australia in the 2019-20 income year

■ payments by a state or territory relating to the 2019- 20 bushfires under the disaster recovery measures that were introduced.

Other amounts that are not taxable

Generally, you don’t have to declare:

■ rewards or gifts received on special occasions, such as cash birthday presents and gifts from relatives given out of love (however, gifts may be taxable if you receive them as part of a business-like activity or in relation to your income-earning activities as an employee or contractor)

■ prizes you won in ordinary lotteries, such as lotto draws and raffles

■ prizes you won in game shows, unless you regularly receive appearance fees or game-show winnings

■ child support and spouse maintenance payments you receive.

 

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New insolvency reforms to support small business

The Australian Government has made changes to the ATO’s insolvency framework to help more small businesses restructure and survive the economic impact of COVID-19.

The insolvency system is facing a number of challenges:

■ An increase in the number of businesses in financial distress because of COVID-19.

■ A “one-size-fits-all” system, which imposes the same duties and obligations, regardless of the size and complexity of the administration.

■ Barriers of high cost and lengthy processes that can prevent distressed small businesses from engaging with the insolvency system early, reducing their opportunity to restructure and survive.

Under the reforms, where restructuring is not possible, businesses will be able to wind up faster, enabling greater returns for creditors and employees. The package of reforms features three key elements, available from 1 January 2021:

■ A new formal debt restructuring process for small businesses to provide a faster and less complex mechanism for financially distressed but viable firms to restructure their existing debts, maximising the chance of them surviving and contributing to economic and jobs growth.

■ A new, simplified liquidation pathway for small businesses to allow faster and lower-cost liquidation, increasing returns for creditors and employees.

■ Complementary measures to ensure the insolvency sector can respond effectively both in the short and long term to increased demand and to the needs of small business.

ELIGIBILITY

The new processes are available to incorporated businesses with liabilities of less than $1 million:

■ simplified liquidation – you must have all your lodgments up to date to be eligible

■ restructuring – before providing a restructuring plan to creditors you must have:

● paid all employee entitlements that are due and payable (including superannuation)

● your tax lodgments up to date (or at least been “substantially complying” with this requirement).

The reforms adopt a “debtor in possession” model. That means that the business can keep trading under the control of its owners, who know the business best, while a debt restructuring plan is developed and voted on by creditors.

Business owners will be able to trade in the ordinary course of business when a plan is being developed; prior approval of a small business restructuring practitioner will be required for trading that is outside the ordinary course of business.

The business owners will be required to work with the practitioner to develop and put forward a restructuring plan and to provide information about the business’s financial affairs to the practitioner to assist with identifying creditors and to assist creditors in making an informed decision on the restructuring plan.

Safeguards will be included to prevent the process from being used to facilitate corporate misconduct such as illegal phoenix activity. They include a prohibition on related creditors voting on a restructuring plan, a bar on the same company or directors using the process more than once within a prescribed period (proposed at seven years), and the provision of a power for the practitioner to stop the process where misconduct is identified.

SIMPLIFIED LIQUIDATION

Regulation around liquidation in Australia, including mandated investigative functions, is suited to large, complex company failure, where intentional misconduct may have been involved. However most liquidations in Australia relate to small businesses, who overwhelmingly fail “honestly”. In these cases, the costs of the liquidation can consume all or almost all of the remaining value of a company, leaving little for creditors.

Under the new process, also accessible to incorporated businesses with liabilities of less than $1 million, regulatory obligations have been simplified, so that they are commensurate to the asset base, complexity and risk profile of eligible small businesses. This will free up value for creditors and employees, and allow assets to be quickly reallocated elsewhere in the economy, supporting productivity and growth.

The simplified liquidation process will retain the general framework of the existing liquidation process, with modifications to reduce time and cost. As currently occurs, the small business can appoint a liquidator who will take control of the company and realise the company’s remaining assets for distribution to creditors.

The liquidator will also still investigate and report to creditors about the company’s affairs and inquire into the failure of the company.

 

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When it comes to real estate and CGT, look at timing

When you sell or otherwise dispose of real estate, the time of the event (when you make a capital gain or loss) is usually when one of the following occurs:

■ You enter into the contract (the date on the contract), not when you settle. The fact that a contract is subject to a condition, such as finance approval, generally doesn’t affect this date.

■ The change of ownership occurs if there is no contract – such as when a property passes to a beneficiary.

■ The real estate is compulsorily acquired – the time of the event is earliest of

● when you receive compensation from the acquiring entity

● when the entity became the property’s owner

● when the entity enters the property under a power of compulsory acquisition or takes possession under that power.

Although you report your capital gain or loss in the tax return for the income year in which the contract is entered into, you’re not required to do this until settlement occurs. If settlement occurs after you’ve lodged your tax return and been assessed for the relevant income year, you will most likely need to request an amendment.

You may be liable for shortfall interest charge (SIC) because of an amended assessment for a capital gain.

The ATO generally remits the SIC in full if the request for amendment is lodged within a reasonable time after the settlement (generally considered to be one month in most cases).

However, remission is not automatic – you must request it in writing, which we can help you with. The ATO says it considers each request on a case-by-case basis, so informed wording of that request can make a difference.

If you consider that the shortfall interest charge should be remitted, it is generally best to provide your reasons when requesting an amendment to your assessment.

Two “main residences” is possible

It is generally accepted that an exemption to capital gains tax applies to the family home, or “main residence”, and the exemption usually applies for only one home at any given time. But there is a rule that allows for a taxpayer to have two main residences and still maintain that CGT-free status for both premises for a temporary period.

Known as the “six month rule”, this states that two properties can be claimed as a main residence at the same time where a taxpayer acquires a dwelling that becomes their new main residence before they dispose of the original. This is a sensible allowance for an overlap of periods in which a taxpayer can claim exemption from CGT for two properties — one newly acquired and one that is to be sold. Selling the old house may take longer than six months, but the CGT exemption only holds for that long, and the ATO cannot extend this concession.

It is available for the earlier of; six months after taking ownership of the new house, or when you transfer ownership of the old house. However there are two prerequisites to qualify — the old house must have been your main residence for at least a continuous three months in the 12 months before transfer; and if it was not your main residence for any of that time it can’t have been used to produce income.

 

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Managing your superannuation transfer balance account

Most people think of retirement as a time to put your feet up and relax, but it can also be a time when pre- retirees and retirees alike actually need to flex the grey matter.

With all the rules and regulations swirling around the superannuation sector these days, it’s not unusual for those nearing retirement to feel compelled to dust off the calculator and bone up on certain superannuation concepts. The transfer balance account and the transfer balance cap are topics that can challenge many retirees.

Transfers into and out of retirement phase are referred to as credit or debit events. Your transfer balance account is calculated by keeping track of these events and is used to determine if you have exceeded your personal transfer balance cap (TBC, more on this below).

All of your retirement phase income streams are taken into consideration, including capped defined benefit income streams and market linked pensions.

The value of your superannuation interests is calculated by your superannuation fund and reported to the ATO (and if you believe the value reported is incorrect, it is best to contact your super fund or the ATO directly).

CREDITS TO YOUR ACCOUNT

Generally, a credit arises in your transfer balance account when you become the recipient of a super- annuation income stream that is in retirement phase.

The following events will cause a credit to your transfer balance account:
■ superannuation income streams that were in existence just before 1 July 2017 and you continue to receive them after that date – including both reversionary and non-reversionary death benefit income streams

■ new superannuation income streams that commenced after 1 July 2017 – including both reversionary and non-reversionary death benefit income streams

■ when a transition to retirement income stream starts to be in retirement phase

■ repayments from limited recourse borrowing arrangements

■ excess transfer balance earnings.

These credits increase your transfer balance account and reduce your available personal TBC space.

SUPERANNUATION INCOME STREAMS

An income stream is a series of periodic benefit payments to a member. This includes both reversionary and non-reversionary death benefit income streams and can be either:
■ account-based income streams (the amount supporting the income stream is allocated to a member’s account), or

■ non-account based income streams, including capped defined benefit income streams (these are income streams that don’t have an identifiable account balance in the member’s name — the member receives regular payments, usually guaranteed for life).

ACCOUNT-BASED INCOME STREAM

If you were receiving an account-based superannuation income stream just before 1 July 2017, and you continued to receive it after that date, your fund will have reported the value of all the superannuation interests that support the income stream in retirement phase that you were receiving at that time.

If you started an income stream after 1 July 2017, your fund will report the commencement value of that superannuation income stream. This includes death benefit incomes streams and market linked pensions.

Transition-to-retirement income streams (TRIS) that are in retirement phase are also included in the transfer balance account. Your TRIS will start to count towards your transfer balance cap on the day it becomes a retirement phase income stream based on its value on that day.

CAPPED DEFINED BENEFIT INCOME STREAMS

Capped defined benefit income streams are treated differently because you usually can’t commute these income streams, except in limited circumstances. Capped defined benefit income streams are:

■ lifetime pensions, regardless of when they commence

■ lifetime annuities that existed just before 1 July 2017

■ life expectancy pensions and annuities that existed just before 1 July 2017

■ market-linked pensions and annuities that existed just before 1 July 2017.

The modified value of a capped defined benefit income stream is referred to as the “special value”, and this value will be calculated by your superannuation provider.

A capped defined benefit income stream will not give rise to an excess transfer balance by itself. However, you may have an excess transfer balance when you have a combination of both an account-based income stream and a capped defined benefit income stream. If the combined value of the account-based income stream and the special value of the capped defined benefit income stream is in excess of the general TBC, then you will be required to commute the excess transfer balance from the account-based income stream.

TRANSFER BALANCE CAP

The transfer balance cap (TBC) is a limit on how much superannuation can be transferred from your accumulation superannuation account to a tax-free retirement phase account. At present, the general TBC is currently $1.6 million and all individuals have a personal TBC of $1.6 million.

However the general TBC is to be indexed from 1 July 2021, and will rise to $1.7 million. From then on there will be no single cap that applies to all individuals. Every individual will have their own personal TBC, somewhere between $1.6 million and $1.7 million, depending on their circumstances.

If you exceed your personal TBC, you may have to:

■ commute (that is, convert a portion of your retirement phase income stream into a lump sum) the excess from one or more retirement phase income streams

■ pay tax on the notional earnings related to that excess.

If the amount in your retirement phase account grows over time (through investment earnings) to more than your personal TBC, you won’t exceed your cap.

However if the amount in your retirement phase account goes down over time, you can’t “top it up” if you have already used all of your personal cap space.

 

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Refinancing loan interest may be deductible to a partnership

A general law partnership is formed when two or more people (and up to, but no more than, 20 people) go into business together. Partnerships are generally set up so that all partners are equally responsible for the management of the business, but each also has liability for the debts that business may incur.

Tax law also provides for the notion of a “tax law partnership” – which occurs when individuals are in receipt of income jointly – such as an investment property.

See the panel on the following page for some facts about partnerships as a business structure.

TYPICAL FINANCING SCENARIO FOR GENERAL LAW PARTNERSHIPS

A typical scenario when launching a business based on a general law partnership structure sees each partner advance some capital to start up the enterprise. As the income years come and go, each partner takes a share of the profit and counts this as part of their personal assessable income for tax purposes.

However as the business becomes established, or better yet proves to be viable and becomes a successful operation, there is likely to come a time when its working capital — which had been financed from each partners’ pocket — can be refinanced through the partnership business borrowing funds.

SO WOULD THE INTEREST COSTS BE DEDUCTIBLE TO THE PARTNERSHIP?

The refinancing principle

For such partnerships, there is a “refinancing principle” under tax law that provides some general principles governing the deductibility of loan interest in such circumstances.

As a general rule, interest expenses from a borrowing to fund repayment of money originally advanced by a partner, and used as partnership capital, will be tax deductible. This is covered in a tax ruling (you can ask this office for a copy).

The ruling states that to qualify for a tax deduction, the interest expense “must have sufficient connection” to the assessable income producing activities of the business, and must not be “of a capital, private or domestic nature”.

However interest on borrowings will not continue to be deductible if the borrowed funds cease to be employed in the borrower’s business or income producing activity. Nor will deductibility be maintained should borrowed funds be used to “preserve assessable income producing assets”. There is also a limitation on deductibility of loan interest in that borrowings to repay partnership capital can never exceed the amount contributed by the partners.

The ability to make these interest expense deductions under the “refinancing principle” is generally limited to general law partnerships — and not tax law partnerships. This principle would also not apply to companies or individuals. (There are prescribed conditions where, for example, a company may make such a claim, but under very specific circumstances.)

 

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Partnership facts and foibles

Set-up costs

Partnerships can be less expensive to set up as a business structure than starting business as a sole trader, as there will likely be greater financial resources than if you operated on your own. On the flip side however, you and your partners are responsible for any debts the partnership owes, even if you personally did not directly cause the debt.

Joint and several liability

Each partner’s private assets may still be fair game to settle serious partnership debt. This is known as “joint and several liability” – the partners are jointly liable for each other’s debts entered into in the name of the business, but if any partners default on their share, then each individual partner may be severally held liable for the whole debt as well.

Other tax factors

Other general factors to note about partnerships include:

■ the business itself doesn’t pay income tax. Instead, you and your partners will each need to pay tax on your own share of the partnership income (after deductions and allowable costs)

■ the business still needs to lodge a tax return to show total income earned and deductions claimed by the business. This will show each partner’s share of net partnership income, on which each is personally liable for tax

■ if the business makes a loss for the year, the partners can offset their share of the partnership loss against their other income

■ a partnership does not account for capital gains and losses; if the partnership sells a CGT asset, then each partner calculates their own capital gain or loss on their share of that asset

■ the partnership business is not liable to pay PAYG instalments, but each partner may be, depending on the levels of their personal income

■ as a partner you will need to take care of your super arrangements, as you are not an employee of the business

■ money drawn from the business by the partners are not “wages” for tax purposes.

 

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