Category: Accountants

 

The Federal Treasurer, Dr Jim Chalmers, handed down the 2024–25 Federal Budget at 7:30 pm (AEST) on 14 May 2024.

Described as a “responsible Budget that helps people under pressure today”, the Treasurer has forecast a second consecutive surplus of $9.3 billion. The main priorities of the government, as reflected in the Budget, are helping with the cost of living, building more housing, investing in skills and education, strengthening Medicare and responsible economic management to help fight inflation.

The key tax measures announced in the Budget include extending the $20,000 instant asset write-off for eligible businesses by 12 months until 30 June 2025, introducing tax incentives for hydrogen production and critical minerals production, strengthening foreign resident CGT rules and penalising multinationals that seek to avoid paying Australian royalty withholding tax.

The Budget also includes various amendments to previously announced measures, as well as a number of income tax measures that have already been enacted prior to the Budget announcement, including:

• the revised stage 3 personal income tax cuts (enacted by the Treasury Laws Amendment (Cost of Living Tax Cuts) Act 2024 (Act No 3 of 2024))
• Medicare levy and surcharge threshold changes (enacted by the Treasury Laws Amendment (Cost of Living—Medicare Levy) Act 2024 (Act No 4 of 2024)), and
• a specific exemption for Australian plantation forestry entities from the new earnings-based rules introduced as part of thin capitalisation reforms (enacted by the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Act 2024 (Act No 23 of 2024)).

These enacted measures have not been discussed in detail in this report.

The government anticipates that the tax measures put forward will collectively improve the Budget position by $3.1 billion over a 5-year period to 2027–28.

The full Budget papers are available at www.budget.gov.au and the Treasury ministers’ media releases are available at ministers.treasury.gov.au.

The tax, superannuation and social security highlights are set out below.

 

Income tax

• The instant asset write-off threshold of $20,000 for small businesses applying the simplified depreciation rules will be extended for 12 months until 30 June 2025.
• The foreign resident CGT regime will be strengthened for CGT events commencing on or after 1 July 2025.
• A critical minerals production tax incentive will be available from 2027–28 to 2040–41 to support downstream refining and processing of critical minerals.
• A hydrogen production tax incentive will be available from 2027–28 to 2040–41 to producers of renewable hydrogen.
• The minimum length requirements for content and the above-the-line cap of 20% for total qualifying production expenditure for the producer tax offset will be removed.
• A new penalty will be introduced from 1 July 2026 for taxpayers who are part of a group with more than $1 billion in annual global turnover that are found to have mischaracterised or undervalued royalty payments.
• The Labor government’s 2022–23 Budget measure to deny deductions for payments relating to intangibles held in low- or no-tax jurisdictions is being discontinued.
• The start date of a 2023–24 Budget measure to expand the scope of the Pt IVA general anti-avoidance rule will be deferred to income years commencing on or after assent of enabling legislation.
• Income tax exemptions for World Rugby and/or related entities for income derived in relation to the Rugby World Cup 2027 (men’s) and Rugby World Cup 2029 (women’s).
• Deductible gift recipients list to be updated.

 

Social security

• Social security deeming rates will be frozen at their current levels for a further 12 months until 30 June 2025.
• Carer payment recipients will have greater flexibility with their participation requirements.
• Eligibility for the higher rate of Jobseeker payment will be extended to single recipients with a partial capacity to work of zero to 14 hours per week.
• The maximum rates of the Commonwealth Rent Assistance will increase by 10% from 20 September 2024.
• Funding will be provided to implement a social security means test treatment for military invalidity payments affected by the Full Federal Court’s decision of FC of T v Douglas 2020 ATC 2020 ATC ¶20-773;[2020] FCAFC 220.
• Funding will be provided to enable Australia to enter into a bilateral social security agreement with Uruguay.
• Foreign investors will be allowed to purchase established build-to-rent properties with a lower foreign investment fee.

 

Superannuation

• Superannuation will be paid on government-funded paid parental leave (PPL) for parents of babies born or adopted on or after 1 July 2025.
• The Fair Entitlements Guarantee Recovery Program will be recalibrated to pursue unpaid superannuation entitlements owed by employers in liquidation or bankruptcy from 1 July 2024.

 

Tax administration

• The ATO will be given a statutory discretion to not use a taxpayer’s refund to offset old tax debts on hold.
• Indexation of the Higher Education Loan Program (and other student loans) debt will be limited to the lower of either the Consumer Price Index or the Wage Price Index, effective from 1 June 2023.
• A pilot program of matching income and employment data of migrant workers will be conducted between the Department of Home Affairs and the ATO.
• A new ATO compliance taskforce will be established to recover tax revenue lost to fraud while existing compliance programs will be extended.
• The ATO will have additional time to notify a taxpayer if it intends to retain a business activity statement refund for further investigation.
• The 2019–20 Budget measure “Black Economy — Strengthening the Australian Business Number system” will not proceed.

 

GST

• Refunds of indirect tax (including GST, fuel and alcohol taxes) will be extended under the Indirect Tax Concession Scheme.

 

Excise and customs duty

• Tariffs identified as a nuisance across a range of imported goods will be removed from 1 July 2024.
• The start dates for certain components of a measure to streamline excise administration for fuel and alcohol announced in the Coalition government’s 2022–23 Budget will be deferred.

 

Please check the following link for our PDF report on the 2024-2025 Budget:

Federal Budget PDF 2024-2025

 

Six super strategies to consider before 30 June

With the end of financial year fast approaching, now is a great time to boost your superannuation savings and potentially save on tax. Below are six superannuation strategies to consider before 30 June 2024.

 

1. Use the carry forward concessional contribution rules

If you want to make up for lost time and make extra contributions to top up your superannuation, you may be able to use the carry forward concessional contribution (CC) rules (otherwise known as “catch-up concessional” rules) to make large CCs this year without exceeding your CC cap.

This strategy can allow you to carry forward any unused CC cap amounts that have accrued since 2018/19 for up to five financial years and use them to make CCs in excess of the general annual CC cap (currently $27,500 in 2023/24).

You can then make a CC using the unused carry forward amounts this financial year provided your total superannuation balance (TSB) at 30 June 2023 was below $500,000.

 

2. Make a personal deductible contribution

Carry-forward contributions may also provide you with an opportunity to make higher amounts of personal deductible contributions in financial years where you may have a higher level of taxable income, for example, due to assessable capital gains.

But if you’re not eligible to use the carry forward rules to make a larger contribution, you can still boost your superannuation by making a personal deductible contribution up to the general CC cap.

It’s important to note that personal deductible contributions are only deductible if you meet all of the following conditions:

■ You make the contribution to a complying superannuation fund

■ You are at least age 18 when the contribution is made (unless you derived income from carrying on a business or from employment-related activities)

■ You make the contribution within 28 days after the month in which you turn 75

■ You notify your superannuation fund trustee in writing of your intention to claim the deduction

■ The notice must be given by the earlier of:

• when you lodge your income tax return for the year the contributions were made, or
• the end of the financial year following the year the contributions were made

■ The trustee of your superannuation fund must acknowledge receipt of the notice, and you cannot deduct more than the amount stated in the notice.

 

3. Spouse contribution splitting

You can split up to 85% of your 2022/23 CCs before 30 June 2024 to your spouse’s superannuation if your spouse is:

■ Under preservation age (currently age 60 if born on 1 July 1964 or later), or

■ Aged between their preservation age and 65 years, and not retired at the time of the split request.

This is an effective way of building superannuation for your spouse and can manage your TSB which can have several advantages, such as:

■ Equalising your balances to maximise the amount you both have invested in tax-free retirement phase income streams, or

■ Optimising both of your TSBs to access a higher NCC cap,º etc.

 

4. Superannuation spouse tax offset

If your spouse is not working or earns a low income, you may want to consider making a NCC into their superannuation account. This strategy could benefit you both by boosting your spouse’s superannuation account and allowing you to qualify for a tax offset of up to $540.

You may be able to get the full offset if you contribute $3,000 and your spouse earns $37,000 or less pa (including their assessable income, reportable fringe benefits and reportable employer superannuation contributions).

A lower tax offset may be available if you contribute less than $3,000, or your spouse earns between $37,000 and $40,000 pa.

 

5. Maximise non-concessional contributions

Another way to boost your superannuation is to make a NCC with some of your after-tax income or savings. The general NCC cap for 2023/24 is $110,000 and eligibility to utilise the cap depends on your TSB.º

Although NCCs don’t reduce your taxable income for the year, you can still benefit from the low tax rate of up to 15% that is paid on superannuation on investment earnings. This tax rate may be lower than what you might pay if you held the money in other investments outside superannuation.

 

6 Receive the government co-contribution

If you’re a low or middle-income earner earning less than $58,445 in 2023/24 and at least 10% is from your job or a business, you may want to consider making a NCC to superannuation before 1 July 2024. If you do, the Government may make a ‘co contribution’ of up to $500 into your superannuation account.

The maximum co-contribution is available if you contribute $1,000 and earn $43,445 pa or less. You may receive a lower amount if you contribute less than $1,000 and/or earn between $43,445 and $58,445 pa.

Like the superannuation spouse tax offset, the definition of total income for the purposes of the co-contribution includes assessable income, reportable fringe benefits and reportable employer superannuation contributions.

You’ll need to meet certain eligibility conditions before benefitting from any of these strategies. Contact us before 30 June if you’re thinking about investing more in superannuation so we can help you decide which strategies are most appropriate to your circumstances.

º: Refer to Super contribution caps to increase on 1 July in last month’s Newsletter (March 2024) for more information.

 

Important tax residency issues to consider

What happens from a tax point of view when a person leaves Australia part- way through the income year? How is the income they derived before that time taxed? And how is any income they derived after that time taxed (whether from Australian or foreign sources)?

Well, the answer will primarily depend on whether the person ceases to be a “resident of Australia” for tax purposes at the time they leave Australia.

This can be one of the most difficult issues in tax law to determine. Not only will it depend on the precise facts and the intention of the taxpayer, but it can also involve what often seems to be a “judgement-call” at the relevant time. This is especially the case as a taxpayer’s residency status is worked out on an income year basis, and this can change from one income year to another.

But putting aside all the issues involved in determining whether a person ceases to be a resident of Australia for tax purposes part-way through an income year, let us assume this is the case.

So, what are some of the general tax consequences associated with such part-year residency?

For a start, the person’s tax threshold for the relevant income year will be adjusted downwards (pro-rated) to reflect the fact that the person ceased to be a resident for tax purposes part-way through the income year. As a result, this pro-rated threshold will apply to the person’s assessable income:

■ from all sources both within and outside Australia for the period they are a resident of Australia, and

■ from sources within Australia while they are a foreign resident.

Importantly, this in effect means that the resident tax rates do not change on the basis of a person’s part-year residency – but only the relevant tax-free threshold.

It should also be noted that assessable income derived from sources outside Australia during the period in the income year that the person is a “foreign resident” will not be subject to tax in Australia as it will be outside the Australian taxing jurisdiction.

And, of course, for the following income years the person will be assessed as a foreign resident and therefore only pay tax in Australia on Australian-sourced assessable income at foreign resident rates.

Another consequence that is often overlooked is that a person ceasing to be a resident of Australia for tax purposes will be deemed to have disposed of all their Australian-sourced CGT assets for their market value at that time. However, this is subject to an exception for “taxable Australian property” (which always remain subject to CGT regardless of the taxpayer’s residency status) and any “pre-CGT” assets of the taxpayer.

Furthermore, a person can instead choose to opt out of this “deemed disposal” rule – in which case all their Australian-sourced CGT assets will be treated as taxable Australian property until they are actually disposed of or the taxpayer becomes a resident of Australia again for tax purposes.

So, these are some of the tax considerations to be taken into account on a person ceasing to be a resident of Australia. But the key question of determining a person’s residency for tax purposes remains – and this is not always an easy issue.

For example, in a recent tax decision, the Administrative Appeals Tribunal held that a person was a resident of Australia for tax purposes even though they were working outside the country for substantially more than half the year and even though this occurred over a four-year period.

The AAT found that because the taxpayer’s wife and family remained in Australia and because he had other connections to Australia such as the ownership of property and motor vehicles here, then he was a resident for tax purposes – as he had no “plans to abandon Australia”.

The case illustrates something of the difficulty of determining a person’s residency for tax purposes. It is clearly a “case-by-case” matter.

And it is clearly something on which professional advice should always be sought.

 

Family companies and the many tax traps

If you own a family company, then it is very important how you receive and treat any payments made from the company to you (or your associates – for example, your spouse). And this is simply because any payment from a company (other than a return of the original capital) is, in most cases, prima-facie a dividend in the hands of the recipient – however it may otherwise be classified.

In particular, if you arrange for your company to provide you (or your associate) a loan, then it will be deemed to be a taxable dividend (and an unfranked one at that) – unless you comply with the requirements for it to be a “complying loan’’ (which includes imposing a market rate of interest on it).

Likewise, any forgiveness by the company of the loan made to you will be treated as a deemed dividend in your hands also – again unless certain requirements are met.

This area of treating loans by the company to a shareholder (or associate) as a deemed “Div 7A dividend” is a fundamental issue in tax law – and has been for many, many years.

And it is a matter that you should always speak to your adviser about.

Importantly, it also extends to the case where your family trust makes a resolution to distribute trust income to a beneficiary company (usually a so-called “bucket company”) and the amount is never actually paid to the company but is kept in the trust.

In this case, the ATO treats this as a deemed dividend made by the company to the trust – albeit, it is a hot button issue in tax at the moment as to whether the ATO is correct in its approach to this.

Again, this is a matter that you MUST always speak to your adviser about – especially with the current uncertainty and changes in the air in relation to Div 7A.

With family companies there is also the issue of loans made by shareholders or directors to the company and any subsequent forgiveness of them.

On the face of it a complete forgiveness of the debt owed without any repayment of the loan should trigger a capital loss in the hands of the shareholder or director.

However, the tax laws are more sophisticated than this – and a capital loss will only arise to the extent that the debt is incapable of being repaid by the company. There is also an argument as to whether any capital loss should be available at all even if the company could not repay the debt.

Likewise, there will be consequences for the company.

While no immediate taxable gain will arise to the company from the release of its obligation to repay the debt, there may be a restriction on its ability to claim tax deductions in the future for such things as carry forward tax losses and/or depreciation.

While this may not be an issue if the company is winding up, it will be if it continues to operate.

So, the moral of the story is just because you own the company doesn’t mean you can treat it as your own private bank to make withdrawals from it as you please or make loans to it (and forgive them) – without considering the serious tax consequences of such actions.

There will always be tax consequences – and you will always need professional advice on this matter.

 

Selling your home to a developer? Beware the tax consequences!

The NSW state Government is attempting to help with the housing affordability crisis by making areas around train stations and shopping centres eligible for rezoning for denser development. It will be important to see your tax adviser if you receive a generous offer from a property developer for your home (or rental property) as a result of this rezoning. And not just if you live in NSW.

This is because you will have to consider the capital gains tax (CGT) – or possible other income tax consequences – of selling your home or rental property in these circumstances – including where you may be forced to sell under some state compulsory acquisition rule (eg, in relation to strata units).

In relation to something that is your home you should be right as a home is exempt from CGT.

But if you have ever used your home to produce assessable income (eg, rented the whole or a part of it out or used it as a place of business) you will be subject to a partial CGT liability – and calculating the amount of this liability can be quite complex, depending on the exact situation.

For example, if you originally lived in the home and rented it for a period you will ordinarily be able to apply the “absence concession” to continue to treat it as your home and therefore sell it CGT-free.

But if you can’t, you will have to reset its cost for CGT purposes by reference to its market value at the time you first rented it and then recalculate its precise cost for the calculation of the partial gain. This includes knowing what range of expenses can be included in this cost!

Likewise, if you use part of your home as a place of business you will have to reset its cost for CGT purposes on the same basis – but in this case you may (and it’s a big “may”) be entitled to the CGT concessions for carrying on a small business.

But this is an area ripe with confusion – and controversy (unbeknown to many).

And then of course, there is the issue of whether you qualify for the generous 50% CGT discount to reduce any assessable capital gain – and this is often not as simple as it looks.

It may even be the case that you could be assessed on any gain you make on the sale of your property on the basis that it is like taxable business income (and not a concessionally taxed capital gain). And this can potentially happen if you carry out activities in a business-like manner to increase the value of your home in order to fetch a higher price from developers. There is even recent case law on this matter which confirms this view (albeit, this case law is only at a lower tribunal level).

So, if for better or worse, if you find yourself being approached by a developer to sell your home (or other real estate), go see your tax practitioner. Their advice will be invaluable in perhaps this one-off chance to make a significant gain on your main asset.

 

The tax treatment of compensation payments can be tricky

If you have had a rental or commercial property damaged by recent summer storms (or bushfires or floods) you may have received an insurance payout to cover the damage. You may be surprised to know that this payout is subject to capital gains tax (CGT) on the basis that it arises from your right to seek compensation (being a CGT asset itself). However, the tax law and the ATO will treat it concessionally depending on what exactly the payout is for and how it will be used.

For example, if the payout is for the “destruction or loss” of the whole or part of the property, the payout won’t be subject to CGT at that time – but only if it is used to acquire a replacement asset within the required time (generally two years). This is because a “concessional roll-over” applies in the circumstances.

However, there may be an immediate CGT liability (and/or other CGT consequences) if only some (or more) than the amount of the payout is used in acquiring a replacement asset.

On the other hand, if a payout is received for merely some “permanent damage” to the property then a different CGT concession will apply – namely, there will be a reduction in the cost base of the property for CGT purposes by the extent of the compensation received (and whether or not the proceeds are used to repair or restore the damaged property).

So, if you find yourself in this situation, it is vital to see your tax professional to help assess what situation you fall into – and furthermore how the compensation is exactly treated in that case.

In the different case where you receive compensation for wrongful dismissal from work and/or for injury suffered at work, it is also vital to seek professional advice. This is because such compensation can potentially be treated in one of several ways:

■ Firstly, it may be treated as assessable income to the extent it is a substitution for lost income – regardless of whether it is received in a lump sum form or not and however it is calculated.

■ Secondly, it can be treated as being exempt from being assessable income (and CGT) where it is received for injury, the loss of physical capacity, illness, pain, suffering or where it is paid under anti-discrimination legislation.

However, determining which category of compensation such a payment falls into is not always easy – especially where it may be an out- of-court settlement payment which comprises both types of payments. While generally such payments will not be taxable, if they are an out-of-court settlement and the whole or part of the payment can be identified as comprising compensation for lost income (by whatever means, such as the initial pleadings), then that component can be assessable.

So, suffice to say your professional adviser is invaluable in this situation – and in particular before agreeing on the receipt of any such settlement payment.

 

Mortgage vs super: Where should I put my extra cash?

Many of us wonder about the best vehicle to use for our extra savings. Is it better to direct extra savings to your mortgage or superannuation? As with most financial decisions, there is no one-size-fits-all approach as it depends on a number of factors for each individual.

 

Paying extra off the mortgage

The priority for most people is to pay extra off their mortgage. This is because extra repayments can reduce the amount of interest payable and will help you pay off your loan sooner, freeing you up from mortgage repayment commitments.

Furthermore, if your home loan has a redraw or offset facility, you can still access your money if your circumstances change.

However paying extra off your mortgage involves using after-tax money which is less advantageous than using pre-tax income to invest into superannuation which will eventually be used to pay off your mortgage.

 

Paying extra into superannuation

Paying extra to superannuation will usually involve pre-tax money by making salary sacrifice contributions. An effective salary sacrifice agreement involves an employee agreeing in writing to forgo part of their future entitlement to salary or wages in return for the employer providing them with benefits of a similar value, such as increased employer superannuation contributions.

As salary sacrifice contributions are made with pre-tax dollars and do not form part of your assessable income, this means these contributions are not taxed at your marginal tax rate and will instead be taxed at a maximum of 15% when received by your superannuation fund.

It is also worth noting that making pre-tax contributions such as salary sacrifice contributions count towards the concessional contribution (CC) cap which is currently $27,500 pa in 2023/24 (or $30,000 in 2024/25). As your employer superannuation guarantee (SG) contributions also count towards this cap, you will need to determine how much room you have left within your cap before you start salary sacrificing to superannuation. As discussed in Six super strategies to consider before 30 June on page 1, there is the ability to make larger CCs by utilising the carry forward concessional contribution rules if you meet certain eligibility criteria.

In a nutshell, once the money is in superannuation it is invested and will grow. The power of compounding returns along with the concessional tax nature of superannuation means that even small contributions can boost your retirement savings in the future. When the time is right and you are ready to retire, you can either withdraw a tax-free lump sum to clear your remaining mortgage or commence a superannuation pension and draw tax-free pension payments to meet your mortgage repayments from the age of 60 onwards.

 

Example – pre vs post tax money

Bill earns $150,000 per year and has a savings capacity of around $1,000 – $1,500 per month. Bill can either:

• Direct this amount to his mortgage, or
• Salary sacrifice $1,587 into superannuation as this contribution occurs before tax (ie, the after-tax cost of $1,587 is $1,000).

Bill decides to salary sacrifice to superannuation. Bill’s contribution is taxed at 15% when it is received by his fund so his end contribution is $1,349. For the same out-of-pocket cost to Bill, his superannuation fund receives an extra $349 each month.

This example shows the difference between Bill’s marginal tax rate (37%) and the tax rate on contributions (15%) constitutes the benefit of salary sacrifice contributions. As mentioned above, Bill will need to ensure he does not exceed his CC cap by making extra salary sacrifice contributions to superannuation.

 

Final thoughts

So which option is better? Well it depends. The answer boils down to a number of factors that need to be considered, such as your mortgage interest rate, your income and marginal tax rate, your superannuation investment strategy, and your age to retirement. If you need extra information or advice on what you should do, make sure you speak to your financial adviser before you make any financial decisions regarding your mortgage or superannuation.

 

 

Click to view Glance Consultants April 2024 Newsletter via PDF

 

 

 

 

For businesses, staying vigilant about fluctuating interest rates is crucial for financial stability and longevity.

As a business owner, you’re well aware of how changes in interest rates can impact various aspects of your operations. From loan repayments to consumer spending habits, the ripple effects can be significant. If you find yourself grappling with cash flow challenges during periods of high interest rates, here are some actionable tips to help you weather the storm.

 

Build a Financial Safety Net

During periods of increased financial performance,, proactively set aside funds in a separate account to serve as a financial buffer. This ensures that you have a safety net to fall back on when revenue streams fluctuate. Consult with financial experts, like our team of chartered accountants, to determine the best approach for your business.

 

Tackle High-Interest Debt Head-On

Prioritize paying off debts with high-interest rates to minimize overall interest expenses. Whether it’s overdrafts, mortgage payments, or tax obligations, allocating extra funds towards these payments can save you money in the long run. Stay proactive with your tax planning to avoid accruing additional debt with authorities like the Australian Taxation Office.

 

Conduct a Comprehensive Spending Audit

Review your business expenditure meticulously to identify areas where costs can be trimmed. Whether it’s excess inventory or unnecessary overheads, optimizing your spending can free up much-needed capital. Consider outsourcing non-core functions to reduce operational expenses.

 

Negotiate Favorable Payment Terms

Explore opportunities to renegotiate payment terms with suppliers and vendors to better align with your cash flow cycles. This can help alleviate short-term financial strain and improve your overall liquidity position.

 

Seek Professional Guidance

Partnering with experienced accountants,, can provide invaluable insights and support in managing cash flow effectively. Their expertise can help you navigate complex financial landscapes and make informed decisions for the future of your business.

In conclusion, navigating cash flow challenges amidst rising interest rates requires proactive planning and strategic financial management. By implementing these tips and leveraging expert guidance, you can steer your business towards financial resilience and success.

 

In the volatile landscape of business finance, unexpected financial hardships can strike without warning. To provide a safety net, the Australian Taxation Office (ATO) extends a helping hand through payment plans, allowing businesses to manage and spread the burden of their debts.

If you find yourself approaching a tax deadline with inadequate funds, this comprehensive guide will walk you through the ins and outs of ATO payment plans, including eligibility, procedures, and the consequences of missed payments.

 

What Exactly Are ATO Payment Plans?

ATO payment plans offer a structured approach to settling outstanding tax debts or other tax-related obligations over an agreed-upon period. Whether you’re an individual taxpayer, a business entity, or a sole trader, you can utilise this option.

It’s important to note, however, that while these payment plans provide a crucial lifeline for meeting tax obligations, they should not be seen as a fallback or default method of payment. The best practice remains staying current with your bills, paying them in full and on time.

 

How Do ATO Payment Plans Operate?

As of 2024, individuals, sole traders, and businesses with debts amounting to $100,000 or less can conveniently set up their payment plans online.

The ATO encourages prompt repayment, allowing flexibility in determining a suitable repayment period—typically spanning six, 12, or 24 months—depending on the amount owed.

While a general interest charge (GIC) is typically applied to outstanding balances until they are cleared, opting for direct debits or voluntary payments can expedite the debt repayment process.

For debts exceeding $100,000, direct contact with the ATO via telephone is necessary to initiate the repayment process.

 

Key Points to Consider Before Committing to a Payment Plan

Before committing to an ATO payment plan, it’s essential to bear in mind the following:

• Fulfill Other Financial Obligations: Payment plans do not absolve you of ongoing financial responsibilities, such as upcoming PAYE instalments, payroll taxes, or business activity statement bills. Neglecting these payments could lead to further debt accumulation.
• Maintain a Positive Payment History: A history of timely payments and meeting financial obligations enhances your credibility with the ATO, potentially influencing the terms of your payment plan. Conversely, consistent defaults or insufficient funds may result in less favorable conditions.
• Explore Debt Reduction Options: Tax credits, refunds, and allowable expenses can help offset your outstanding debt. However, it’s important to note that these measures cannot substitute for regular instalments. The ATO may consider factors such as utility bills, wages, and superannuation contributions when determining your repayment schedule.

 

Consequences of Missed Payments

Failure to adhere to the terms of your payment plan, such as underpayment or missed instalments, can lead to default status. In such cases, the ATO may resort to debt enforcement measures, such as garnishee notices, to recover the outstanding amount.

It’s advisable to communicate openly with the ATO if you encounter difficulties meeting your payment obligations. Doing so may afford you the opportunity to negotiate revised terms and avoid more severe repercussions.

 

Take Charge of Your Financial Future with Glance Consultants

At Glance Consultants, our team of chartered accountants, administrators, and bookkeepers is dedicated to assisting small businesses in managing their debts and implementing effective budgeting and financial management strategies. We provide support tailored to your specific circumstances.

Contact us today to discuss your business’s financial situation and explore how we can help you regain control of your finances.

 

In the early months of 2024, there has been a noticeable change in the Australian Taxation Office (ATO) approach to handling employment-related taxes. This shift, primarily driven by an increase in non-compliance cases, prompts important considerations and its ramifications for Australian businesses.

Dive deeper into this evolving landscape to grasp the essence of this intensified scrutiny, comprehend the underlying motivations, and strategize effectively to fulfill your obligations.

 

The ATO’s Vigilance on Employment Taxes

The ATO has subtly amplified its scrutiny through enhanced auditing procedures aimed at verifying the accuracy of financial records. While the Random Enquiry Program (REP) traditionally focused on assessing income tax compliance, it now extends its scope to include audits on various employment-related taxes such as:

• Fringe benefits tax (FBT)
• PAYG Withholding
• Payroll
• Superannuation contributions

This broadened spectrum of audits represents a significant departure from previous practices, marking a notable shift in the ATO’s approach.

 

The Rationale Behind ATO’s Enforcement

At its core, this crackdown serves as a vital mechanism to ensure businesses adhere to their lodgement and record-keeping obligations. It underscores the imperative of maintaining precise financial records to facilitate accurate tax payments within stipulated timelines. Notably, emphasis is placed on areas like fringe benefits and PAYG Withholding, which historically have witnessed lapses in meticulous reporting.

This initiative gains further relevance amidst Australia’s post-Covid-19 recovery phase, characterized by a surge in instances where businesses struggled to fulfill their financial obligations.

 

Implications for Australian Businesses

While the ATO’s objective isn’t punitive, businesses operating with outdated or inaccurate financial records may find themselves facing challenges, particularly concerning their ability to settle tax liabilities promptly or submit requisite documents on time. Non-compliance could result in substantial penalties, potentially exceeding $700,000 in certain cases.

 

Navigating Compliance Challenges

In light of the ATO’s random and comprehensive audits, refining bookkeeping practices and tax preparation strategies assumes paramount importance for businesses. In the event of an audit, the ATO is likely to request detailed records pertaining to PAYG Withholding,, fringe benefits, and other employee-related expenses, necessitating meticulous documentation of salaries and super contributions.

While some industry pundits view this intensified scrutiny as resource-intensive, they advocate for proactive measures such as conducting pre-audits to preemptively address any discrepancies. Being prepared for potential audits and voluntarily sharing relevant information about your business can significantly enhance your position in such situations.

 

Partnering with Experienced Tax Advisors

Collaborating with seasoned chartered accountants well-versed in both state and national tax regulations can provide invaluable support to businesses navigating these complex compliance landscapes. Glance Consultants offer dependable, long-term assistance, ensuring you remain well-prepared to meet every tax-related obligation efficiently and effectively.

Stage 3 tax cuts: A tax saving opportunity?

Legislation giving effect to the government’s revised settings for the Stage 3 tax cuts has been passed by both houses of Parliament with the support of the Coalition.

 

The stage 3 tax cuts changes:

■ reduce the 19% tax rate to 16% for incomes between $18,200 and $45,000
■ reduce the 32.5% tax rate to 30% for incomes between $45,000 and the new $135,000 threshold
■ increase the threshold at which the 37% tax rate applies from $120,000 to $135,000, and
■ increase the threshold at which the 45% tax rate applies from $180,000 to $190,000.

 

A permanent tax saving

Many taxpayers and their advisers focus on timing issues around year-end by deferring income and bringing forward deductions. Legitimate steps can be taken to shift taxable income from one year to the next and most people would prefer to pay tax next year rather than this year. However, any benefit gained reverses in the following year when you have to do it all again just to stand still. It’s a lot of effort for a once-off timing advantage.

The difference with the 1 July 2024 tax rate changes is that reducing your taxable income in 2023-24 and increasing it in 2024 25 (where it is taxed at a lower rate) produces a permanent saving over the two- year period – a saving you get to keep. That may make such timing issues worth another look.

 

How much can you save?

That depends on your where you sit on the income scales and how much taxable income is shifted. Very high income earners will have a marginal tax rate of 45% regardless of whether they shift income and deductions around, and those on lower incomes don’t pay much tax to begin with, so their potential savings are less.

But for anyone who expects to fall in the taxable income range of $120,000 to $135,000, for example, there is a permanent saving of 7% on up to $15,000 in taxable income that is shifted from 2023-24 into 2024-25.

Take someone in that income range who owns a rental property which is in need of a $15,000 paint job and who was planning to get it done by Christmas. They could save themselves $1,050 by arranging to have the job done in May or June. Not a fortune, but not chickenfeed either.

 

So, how can you go about shifting taxable income into 2024-25? 

Before looking at various options, it is necessary to point out that the tax laws include anti-avoidance rules that prevent tax planning strategies which have as their sole or dominant purpose the gaining of a tax advantage. However, if you are simply bringing forward ordinary business-related purchases that you would have made anyway, those rules are unlikely to be triggered. To make certain you stay on the right side of the tax rules you should check with us before taking any action.

 

Bringing deductions forward

Subject to that necessary reservation, and depending on your expected taxable income, bringing deductions forward into the 2023-24 income year offers the widest range of options for achieving a permanent tax saving. Bear in mind that bringing purchases forward does involve an earlier than planned cashflow impact that you would need to fund. Options include:

 

Rental properties

If you have a rental property that is in need of any sort of maintenance or repairs, why not get on to it now? You’ll be bringing the deduction into 2023-24 and keeping your tenants happy at the same time. There can sometimes be a fine line between repairs (deductible immediately) and improvements (deductible over time). We can help you sort out which is which.

 

Gifts and donations

If you have a tradition of gifting and donating, maybe to telethons and appeals that occur later in the year, consider making those donations to the charities before the end of June 2024. Charities are more than happy to receive donations at any time of the year, and if the taxman can give it an extra boost, why not? Double check that your chosen charity is a deductible gift recipient.

 

Superannuation

Consider making after-tax contributions into your super fund. But be mindful of contribution caps and the additional 15% tax on contributions made by high income earners. You should seek financial advice prior to taking any action.

 

Sole traders and partnerships

Do you have a small business which you operate through your own name or in partnership? Consider some of these possibilities:

■ Depreciation: Could you do with a new laptop or other tools and equipment? Or even a modest motor vehicle? Legislation that is expected to pass Parliament before 30 June 2024 will set the small business threshold for claiming an outright deduction for the cost of depreciating assets to $20,000. If you’re planning to make these purchases anyway, you would be better off with that sort of deduction falling into the 2023-24 year where the tax rate is higher. So consider paying a visit to JB Hi-fi, Bunnings or the nearest car yard and start looking around.

■ Bad debts: Have a receivable you know isn’t going to pay, but you just haven’t wanted to admit it? Consider writing it off and take the deduction now. But remember, the debt must be more than simply doubtful and there are certain other requirements which must be met. We can help you with those.

■ Obsolete stock: Is that box of polaroid cameras really going to move anywhere other than to a museum? Write it out of stock before 30 June 2024 and take the deduction.

■ Bring forward deductible expenses: Buying two boxes of printer paper? Buy three instead. Stock up on printer ink, you never know when you’re going to have that big print run you hadn’t anticipated. Consider what other consumables you use and stock up for your short-term needs before 30 June 2024.

■ Prepay deductible expenditure: All taxpayers are entitled to claim deductible prepaid expenditure where the expenditure is below $1,000 (excluding GST) or the expenditure is required by law (e.g., car registration fees). Where the expenditure is $1,000 or more, small business entities can deduct the full amount of prepaid expenditure if it relates to a period of 12 months or less. Note that this is also available to non-business expenditure of individuals (e.g., work-related expenses or rental property expenses).

■ Employee bonuses: Confirm commitments to pay employee bonuses are made by 30 June 2024, and don’t forget that PAYG withholding must be withheld when the bonuses are paid.

■ Skills and training: Take advantage of the small business entity skills and training boost before it ends on 30 June 2024. The Boost enables small businesses to deduct an additional 20% of expenditure that is incurred for the provision of eligible external training courses to their employees by registered providers in Australia.

■ Energy incentive: Take advantage of the small business entity energy incentive which provides a bonus deduction of 20%. Eligible assets include heat pumps and electric heating or cooling systems, and demand management assets such as batteries or thermal energy storage. Eligible assets or upgrades will need to be first used or installed ready for use by 30 June 2024.

Note: this incentive is provided for in the same Bill as the $20,000 instant asset write-off provisions, which is currently before Parliament and is expected to pass before 30 June 2024.

 

Deferring income

Options for shifting income into the 2024-25 year are more limited, but include:

 

Salary sacrifice

Consider salary sacrificing into super before 30 June 2024. As mentioned above, be mindful of the contribution caps, the additional tax for higher income earners and seek financial advice before taking any action.

 

Interest

Ensure term deposits mature after 30 June 2024.

We are here to help you work through any of these options.

 

Don’t forget the CGT small business rollover

For those who run a “small business” and decide to sell it, the various Capital Gain Tax (CGT) small business concessions are invaluable (as has been noted many times before).

 

Of course, it is great if you can qualify for the “15-year exemption” concession because this will mean that you won’t have to pay any CGT. But this requires, among other things, that you are aged 55 years or over and are “retiring in connection” with the sale, something that may just not be the case.

But if this is not the case, you may still be able to use the retirement exemption to eliminate up to $500,000 of capital gain.

However, if you are under 55 years of age at the time of the sale of the business then any qualifying capital gain must be paid into your super. You cannot take it directly. On the other hand, if you are 55 years or older you can take it directly without having to pay it into super and spend it as you wish.

But like the “15-year exemption” there are a number of hoops to jump through, especially if the capital gain has been made by a company or family trust you control. And these hoops relate to making the payment of the CGT exempt amount to you in the appropriate manner.

As a last resort, you can use the roll-over in the CGT small business concessions to acquire a replacement asset. However, if a replacement asset is not acquired within two years then the capital gain is reinstated and taxed at that time.

But this concession is far more than “a last resort”.

In fact, it is a significant (and acceptable) planning device in its own right. Furthermore, it can be used from the start in relation to the whole of the capital gain so that all its benefits can be fully utilised.

And these benefits include the ability to defer the assessment of the gain for up to two years to, say, allow time for you to turn 55 years of age so that you can then use the retirement exemption to take the capital gain CGT-free.

It can also be used to buy you time to meet other relevant conditions to qualify for the retirement exemption – so that when the rolled over gain is reinstated after two years you can then apply the retirement exemption to your benefit. This may be relevant where, for example, the capital gain was made by a family trust, and you need to find a “controller”of the trust in order to use the exemption.

And if nothing else, the rollover can give you an extra two years just to think what you are going to do about things, including whether just to do the obvious and buy a replacement business asset (of any type) in the meantime.

So, once again, the advice of your accountant is invaluable in the matter of whether to buy a replacement asset or when (and how) it is best to realise your capital gain.

 

Super contribution caps to increase on 1 July

For the first time in three years, the superannuation contributions are set to increase from 1 July 2024.

 

CONTRIBUTION CAPS TO INCREASE

Due to indexation, the contribution caps will increase on 1 July 2024 as follows:

■ Concessional contributions cap – from $27,000 to $30,000

■ Non-concessional contributions cap – from $110,000 to $120,000

■ The maximum non-concessional contributions cap under the bring forward rules – from $330,000 to $360,000

 

WHAT ARE CONCESSIONAL CONTRIBUTIONS?

Concessional contributions (CC) are before-tax contributions and are generally taxed at 15%. This is the most common type of contribution individuals receive as it includes superannuation guarantee (SG) payments your employer makes into your fund on your behalf. Other types of CCs include salary sacrifice contributions and tax-deductible personal contributions.

The government sets limits on how much money you can add to your superannuation each year. Currently, the annual CC cap is $27,500 in 2023/24.

 

WHAT ARE NON-CONCESSIONAL CONTRIBUTIONS?

Non-concessional contributions (NCC) are voluntary contributions you can make from your after-tax dollars. For example, you may wish to make extra contributions using funds from your bank account or other savings.

As such, NCCs are an after-tax contribution because your employer has already taken out the tax you need to pay on your income. Currently, the annual NCC cap is $110,000 in 2023/24.

 

WHAT ARE THE BRING FORWARD RULES?

The bring forward rules apply to NCCs and allow you to make up to three years of NCCs in a single financial year, if you’re eligible. This means you can put in up to three times the annual cap of $110,000, which means you may be able to top up your superannuation by $330,000 within the same financial year.

Using the bring forward rules can be beneficial for individuals who have a large amount of cash to contribute which may have come from an inheritance or from the sale of an asset/property.

However, how much you can make as a NCC will depend on your total superannuation balance (TSB) as at 30 June of the previous financial year (see table below).

 

BRING FORWARD NCC AMOUNTS WILL ALSO INCREASE

In addition to the contribution caps increasing, the maximum NCC cap under the bring forward rules will also increase on 1 July 2024.

The table below shows the TSB thresholds that apply to determine how much you can contribute under the bring forward rules.

 

TAKE CARE BEFORE YOU CONTRIBUTE

The increase to the NCC cap under the bring forward rules will not apply to individuals who have already triggered the bring forward rule in either this year (2023/24) or last year (2022/23) and are still in their bring forward period. This is because the NCC cap that applies to an individual is calculated with reference to the standard NCC cap when they triggered the bring forward rule in their first year.

For example, if the NCC cap in the second and third year of a bring forward period changed to $120,000 due to indexation, your NCC cap will still be $330,000 ($110,000 x 3 years) and not $350,000 ($110,000 + $120,000 + $120,000).

For this reason, if you want to maximise your NCCs using the bring forward rule, you may wish to consider restricting your NCCs this year to $110,000 or less so you do not trigger the bring forward rule this year.

However, how much you can contribute and whether your fund is allowed to accept your contribution can depend on your age, your TSB and other eligibility criteria. The rules are complex and making contributions to superannuation that exceed the contribution caps can result in excess tax.

Give us a call if you need any further information or would like to chat about your options.

 

Briefing a barrister

When you’re faced with a complex or high-risk question in tax or super, briefing a barrister can provide you with the expertise and perspective to help you move towards a solution with confidence.

 

Barristers (who are also referred to as “counsel”) are independent specialists in court work and legal advice. There are specialist barristers across Australia in tax, super and associated areas of law.

This includes “King’s Counsel” or “Senior Counsel”, who are barristers of seniority and eminence.

The barristers who practice in tax and super will particularly be familiar with the ATO, and also the decision-making approaches of the Administrative Appeals Tribunal (AAT) and the Federal Court of Australia.

 

Why brief a barrister?

Although barristers are best known for their courtroom advocacy, that’s only part of what they offer. Barristers, through their training, experience and networks, are intimately familiar with the decision-making processes and reasoning of courts and tribunals. When barristers address complex and high-risk legal questions, they provide precise advice and practical solutions guided by how laws are interpreted and applied by courts and tribunals in practice.

You may consider briefing a barrister to provide advice on high-risk or high-value matters, or when you have limited time to answer a complex question. In those situations, it’s prudent to obtain specialist advice to ensure you fulfill your duties.

A barrister’s expertise and objectivity will provide you with confidence as to the best approach in the circumstances.

 

Who can brief a barrister?

Anyone can brief a barrister. There are broadly two ways you can do it:

■ directly (where you brief a barrister without engaging a solicitor), or

■ indirectly (where you engage a solicitor and instruct them to brief a barrister).

Directly briefing a barrister (which is also referred to as “direct access” briefing) can provide you with cost and efficiency benefits. Generally, barristers are less expensive than solicitors of equivalent experience.

Barristers are not obliged to take direct briefs, but many do. Barristers may directly give legal advice and may prepare and advise on certain legal documents (in addition to their dispute-related work).

Importantly, barristers can be directly briefed to appear in the AAT.

There are slightly different rules in each Australian state and territory on the types of work that barristers can and can’t do, and the circumstances in which you can directly brief a barrister. Generally, barristers are not permitted to undertake work traditionally performed only by solicitors, such as conducting general correspondence or other administrative tasks in relation to the client’s legal affairs.

In some circumstances, barristers who have been directly briefed may later request that their client also engage a solicitor. This will occur where the absence of an instructing solicitor would seriously prejudice the client’s interests (for example, where a solicitor is needed to help the client gather large amounts of evidence).

 

Who should you brief? 

As a starting point, the bar associations of each state and territory maintain a website where you can view and search the profiles of every barrister in that jurisdiction. On those websites, you’ll be able to identify the barristers who practice in tax and super and view their background, experience level and contact details. Just search for “bar association” in your state or territory.

If you’ve engaged a solicitor, they’ll be able to recommend a good barrister. If you want to brief directly, but you don’t know who to brief, you can obtain guidance from barristers’ clerks. The clerks act like an agent for a large group of barristers. The clerks have familiarity with the expertise, experience and availability of each barrister. The clerks’ contact details are also on the bar association websites.

 

Preparing a brief

Historically, a “brief” was a comprehensive set of papers given to a barrister to enable them to appear, advise, or draft or settle documents (as the case may be). Today, barristers are more versatile in what they receive from clients (and how they receive it).

If you’ve directly briefed a barrister, you should first speak to them about the nature and form of documents and information they require you to provide. For example, where you require tax advice on a legal question, your barrister may (depending on the circumstances) ask you to provide the following types of documents and information:

■ questions upon which you require legal advice

■ timeframes for the provision of that advice

■ identity of all parties involved in the subject matter of the advice

■ chronology of key events, and

■ key correspondence, contracts and other documents.

Barristers will also have their eye on ensuring their advice is commercially acceptable. For this reason, it is useful to also inform them about:

■ your purpose for engaging in relevant activities, and

■ any commercial issues likely to influence your preferred approach.

 

Some tips

If you’re going to brief a barrister, you should keep these tips in mind:

■ Brief early: This will give your barrister the opportunity to read the brief, understand your circumstances and seek out any further information.

■ Brief clearly: Precisely communicating what you want from your barrister (and when, how and why you want it) will provide you with the best outcome.

■ Brief orderly: Where you need to provide lots of documents, speak to your barrister about the form and categorisation in which they prefer to receive, store and use them.

Barristers offer you legal expertise from a practical perspective. You should visit the website for the bar association in your state or territory if you want further information about the role of barristers or if you want to find a barrister to help you.

 

 

 

Click to view our Glance Consultants March 2024 newsletter via PDF

 

 

 

 

 

Compensation from your bank or financial institution – is it taxable?

Unfortunately our financial institutions have not always acted as ethically as we consumers would like.

Whether you’ve received bad advice or paid for advice you didn’t receive at all, our supervisory and regulatory bodies have sought not only to improve the system so it won’t happen again, but also to ensure that if you are on the receiving end of such bad behaviour, you could be entitled to receive financial restitution.

If you’ve recently received a compensation payment, you might be wondering whether you need to pay tax on it.

The answer is – it depends!

It depends on how your investment was held1 and the type of compensation you received.

For example, if you’ve disposed of the investment and previously reported a capital gain in your income tax return, your compensation payment increases the capital gain (you may be able to claim the 50% discount too if you held the investment for more than 12 months). You may need to amend your income tax return to include this additional capital gain.

If you haven’t yet disposed of the investment, and you hold it as a capital investment1, then the compensation payment reduces its cost for when you do dispose of it in the future (make sure keep details of the compensation payment with your tax
records to provide to us later). Where your compensation payment includes an amount that is a refund or reimbursement of adviser fees, and these fees were previously claimed a tax deduction by you, then the amount you received as a refund or reimbursement will generally be taxable to you in the income year you receive it. Similarly, any part of the payment that represents interest should also be included in your tax return in the year you receive it.

If you’ve received an amount of compensation and not sure whether it is taxable, or if you need to amend a prior year tax return for a payment you received, please reach out to us.

 

Tax issues when dealing with volunteers

From bushfire relief groups, sporting clubs, environmental groups, charity associations and many more, volunteers are an indispensable workforce and support network for many organisations. For most, if not all, having volunteers ready to lend a hand is pivotal in them being able to function or survive.

Given that there are many hundreds of volunteers propping up all sorts of good works throughout the nation, and in the spirit of thorough tax planning, an important practical consideration for many may be if payments to volunteers constitute assessable income and whether their expenses are tax deductible.

WHAT’S A VOLUNTEER?

There is no common law definition of “volunteer” for tax purposes, although it typically means someone who enters into any service of their own free will, or who offers to perform a service or undertaking.

A genuine volunteer does not work under a contractual obligation for remuneration, and would not be an employee or an independent contractor.

Volunteers can be paid in cash, given non-cash benefits or a combination of both – payments include honorariums, reimbursements and allowances. Generally, receipts which are earned, expected, relied upon and have an element of periodicity, recurrence or regularity are treated as assessable income.

Conversely, where a person’s activities are a pastime or hobby – rather than income-producing – money
and other benefits received from those activities are generally not perceived as assessable income.

The examples below shed light on whether typical payments such as honorariums, reimbursements and allowances constitute assessable income.

IS AN HONORARIUM ASSESSABLE INCOME?

An honorarium is either an honorary reward for voluntary services, or a fee for professional services voluntarily rendered, and can be paid in money or property.

Example 1

Q. Alex works as a computer programmer at the local city council and volunteers as a referee for the local rugby union. This year he organised an accreditation course for new referees. He applied for a grant, arranged advertising, assembled course materials, and booked venues. Alex is awarded an honorarium of $100 for his efforts.

A. No, the honorarium is not assessable income as honorary rewards for voluntary services are not assessable as income and related expenses are not deductible.

Example 2

Q. Mindy has an accounting practice and volunteers at the local art gallery. Mindy prepares the gallery’s annual report using her business’s software and equipment.At the gallery’s annual general meeting, Mindy is awarded an honorarium of $800 in appreciation of her services.

A. Yes, this honorarium constitutes assessable income because it is a reward for services connected to her income-producing activities.

IS A REIMBURSEMENT ASSESSABLE INCOME?

A reimbursement is precise compensation, in part or full, for an expense already incurred, even if the expense has not yet been paid. A payment is more likely to be a reimbursement where the recipient is required to substantiate expenses and/or refund unspent amounts.

Example 3

Q. Matthew is an electrical contractor. He volunteers to mow the yard of a local not-for-profit childcare centre. Matthew purchases a $15 spare part for the centre’s mower. The childcare centre reimburses Matthew for the cost of the spare part.

A. No, the $15 reimbursement is not assessable income because Matthew has not made the payment in the course of his enterprise as an electrician.

Example 4

Q. Rose has a gardening business. She volunteers to prune the shrubs of a local nursing home and uses materials from her business’s trading stock.

A. Yes, any reimbursement she receives for the cost of the materials is assessable income because the supplies were made in the course of her enterprise.

IS AN ALLOWANCE ASSESSABLE INCOME?

An allowance is a definite predetermined amount to cover an estimated expense. It is paid even if the recipient does not spend the full amount.

Example 5

Q. Andy volunteers as a telephone counsellor for a crisis centre. He is rostered on night shifts during the week and is occasionally called in on weekends. When Andy works weekends, the centre pays him an allowance of $150. The allowance is paid to acknowledge Andy’s extra efforts and to compensate him for additional costs incurred.

A: Yes, these payments to Andy are considered assessable income because he received the allowance with no regard to actual expenses and there is no requirement to repay unspent money.

EXPENSES INCURRED BY VOLUNTEERS

On the tax deductibility of volunteer expenses, a volunteer may be entitled to claim expenses incurred in gaining or producing assessable income – except where the expenses are of a capital, private or domestic nature.

For instance, expenditure on items such as travel, uniforms or safety equipment could be deductible, but expenses incurred for private and income-producing purposes must be apportioned – with only the income-producing portion of the expense being tax deductible.

Example 6

Q. Robert operates a commercial fishing trawler and uses navigational charts in his business.He also volunteers as an unpaid training officer at the volunteer coastguard. Robert purchases two identical sets of navigational charts – one for his business, the other as a training aid in coastguard courses.

A. Yes, Robert can claim the part incurred in gaining or producing assessable income – in this case, half the total cost.

WHAT ABOUT DONATIONS? ARE THESE DEDUCTIBLE?

It is also common for volunteers to donate money, goods and time to not-for-profit organisations. To be tax deductible, a gift must comply with relevant gift conditions, and:

■ be made voluntarily
■ be made to a deductible gift recipient, and
■ be in the form of money ($2 or more) or certain types of property.

Donors can claim deductions for most, but not all, gifts they make to registered deductible gift recipients. For instance, a gift of a service, including a volunteer’s time, is not deductible as no money or property is transferred to the deductible gift recipient.

However, individuals may be entitled to a tax deduction for contributions made at fundraising events, including dinners and charity auctions.

Example 7

Mila buys a clock at a charity auction for $200. This is not a gift even if Mila has paid a lot more than the value of the clock. Payments that are not gifts include those to school building funds as an alternative to an increase in school fees and purchases of raffle or art union tickets, chocolates and pens.

Example 8

Clive receives a lapel badge for his donation to a deductible gift recipient. As the lapel badge is not a material benefit or an advantage, the donation is a gift.

Consult this office for more information on which volunteer payments are considered assessable income and which expenses are typically tax deductible.

 

Collectables – and inherited jewellery

Collectables

Capital gains tax does not just apply to “big ticket” items such as real estate, farms and shareholdings. It also applies to a special class of assets known as “personal use assets” and, in particular, those personal use assets known as “collectibles”.

“Collectables” are specifically defined under the tax law to mean the following items that are “used or kept mainly for your personal use or enjoyment”:

■ artwork, jewellery, an antique, or a coin or medallion; or
■ a rare folio, manuscript or book; or
■ a postage stamp or first day cover.

However, for an asset to be a collectable, it must have cost more than $500. Otherwise, collectables acquired for $500 or less are exempt from CGT (but subject to important rules to get around or avoid this threshold test).

However, the most important rule about a collectable is that if you make a capital loss on selling or disposing of a collectable, that capital loss can only be offset against capital gains from other collectibles.

It cannot be offset against the capital gain from, say, shares or real estate, and nor can it be offset against your other income.

Furthermore, that jewellery you inherit from your mother will retain its “character” as a collectable (if it was acquired by her after 20 September 1985). So, this too is something to be aware of.

Personal use assets

As for “personal use assets” per se (ie assets used for personal use or enjoyment which are not “collectables” – such as furniture, clothing, pianos etc) they are only subject to CGT if they cost more than $10,000. More importantly, however, is that you cannot claim a capital loss made on a personal use asset.

But is it a business?

Finally, of course, it is often the case that a person who owns such collectibles does so for the purpose of trading in them. In this case, the CGT rules take a backseat to the fact that the profit from such activities is assessable in the same way as ordinary income, as if you were operating a business.

If you find yourself dealing with such items, it is necessary to get good tax advice on the matter.

 

Using super to pay the mortgage

Have you reached preservation age and still have a mortgage? If so, you may be able to use your super to deal with your rising mortgage repayments if you meet certain conditions.

 

Introduction

The constant increase to interest rates over the last two years have left some borrowers strapped for cash. Fortunately, those that have reached preservation age can access their superannuation via a special type of pension, known as a transition to retirement (TTR) pension, even if they haven’t retired.

What is preservation age?

Your preservation age is the earliest age you can access your superannuation. The preservation age that applies to you depends on your date of birth and ranges from age 55 to 60, as shown in the table below.

Alternatively, you will also reach preservation age when you reach age 65, even if you are still working.

What is a TTR pension?

A TTR pension allows you to supplement your income by allowing you to access some of your superannuation once you’ve reached your preservation age. You can start a TTR pension by transferring some of your superannuation to an account-based pension (ABP), which is a regular income stream bought with money from your superannuation fund.

Once you start a TTR pension, you need to withdraw payments between a minimum and maximum range each year. The minimum drawdown rate depends on your age and is 4% for those under 65 years old. The maximum amount you can withdraw is 10% of your account balance as at 1 July of each financial year (or 10% of the value from the date your TTR pension started in that financial year). This means you can choose pension payments anywhere between your minimum and maximum payment limit each year.

But note that a TTR pension does not allow you to withdraw your superannuation as a lump sum. This can generally only be done once you’ve reached your preservation age and met certain conditions of release, such as retirement.

Example

Justine is 60 years old and has $650,000 in superannuation. Justine’s adviser recommends she commences a TTR pension with $600,000 to help ease her financial difficulties. Justine must draw a minimum of $24,000 (ie, 4% x $600,000) or up to a maximum of $60,000 (ie, 10% x $600,000) in pension payments in the 2023-24 financial year.

Justine can use the additional TTR pension payments to help supplement her employment income and meet her mortgage repayments. She could also use a TTR pension as a strategy to pay down her mortgage much quicker than planned even if she could easily afford her repayments.

Factors to consider

■ If you are 55 to 60, the taxable amount of your income from your TTR pension is taxed at your marginal tax rate, less a 15% tax offset.
■ Once you turn 60, your TTR pension payments are all tax free.
■ Any investment earnings generated from your TTR pension are subject to the same maximum 15% tax rate as superannuation accumulation funds.
■ Once you reach age 65 or retire, your TTR pension will automatically convert to an ABP. This means more flexibility as the 10% maximum pension limit will no longer apply.

Need help?

You should seek financial advice before deciding if a TTR pension is right for you as it could help you understand the possible benefits and implications for your particular circumstances.

TIP

If you commence a TTR pension halfway through the year, the minimum payment percentage is pro-rated to reflect the number of days the pension is in place in that first financial year. The minimum will be recalculated at 1 July based on your TTR pension balance and your age at that time to factor in a whole year’s worth of pension payments.

 

Returning to work after retirement

Most people look forward to retirement as it is a chance to finally take time to relax, enjoy life and do things they never had time for when they were working. But sometimes things change and some people feel the urge to return to work. If a return to work is inevitable, it is important to understand the superannuation retirement rules when it comes to working and accessing your superannuation.

Introduction

Many new retirees find that after a few months the novelty of being on ‘permanent vacation’ starts to wear off. Some people may miss their sense of identity, meaning, and purpose that came with their job, the daily structure it brought to their days, or the social aspect of having co-workers.

In fact, figures from the Australian Bureau of Statistics (ABS) have revealed financial necessity and boredom are the most common factors prompting retirees back into full or part-time employment1. As such, it is not uncommon to want to return to work after retirement, even if only on a part-time or casual basis. Whatever your reasons or motivations might be, there are a range of factors to consider if you wish to return to work depending on your age.

There are three ways in which you can retire, access your superannuation and then return to work, which are summarised below.

1. Retire on or after reaching preservation age

Individuals can retire after reaching their preservation age2, ending gainful employment and declaring that they intend never to return to any ‘gainful employment’ for 10 hours or more each week.

It is illegal to access your superannuation with a false declaration of intention so your intention to retire must be genuine at the time. This is why your superannuation fund may require you to sign a declaration stating your intent.

That said, you can return to work while still accessing your superannuation as long as your intention to retire at the specific time was genuine and that you didn’t plan to return to work all along. Your intentions are allowed to change even though you may have retired and have already accessed your superannuation or are receiving age pension payments.

2. Ceasing an employment arrangement after age 60

From age 60, you can stop an employment arrangement (ie, resign from a job) and obtain full access to your superannuation without having to make any declaration about your retirement or future employment intentions.

If you are in this situation, you can return to work without any issues because there was no requirement for you to declare your retirement permanently. For example, you could resign from a job with one employer and start work with a different employer and access your superannuation.

3. Retire after age 65 or older 

Once you turn age 65, you can access your superannuation regardless of your work status and do not need to make any declaration about your retirement status. You only need to be retired if you want to access your superannuation before you turn age 65.

Whether you are accessing your superannuation or not, you can return to work at any time.

Your super after returning to work Regardless of what age category you fall into, you may have taken your superannuation as a lump sum, income stream or a combination of both. If your circumstances change and you return to work, any amounts in your superannuation fund, including any pension payments you may be receiving will remain accessible and can continue to be paid.

However upon recommencing any future employment, any future superannuation contributions and earnings from subsequent employment and any voluntary contributions will remain preserved until a further condition of release is met, such as retirement or reaching age 65.

Impact on age pension

If you are receiving the age pension and decide to return to work, your employment income will count towards Centrelink’s income test which may impact your age pension entitlements.

Having said that, Centrelink has a ‘Work Bonus’ scheme which reduces the amount of your employment income, or eligible self employment income, which Centrelink applies to your rate of age pension entitlement under the income test.

Fortunately, you don’t need to apply for the Work Bonus, rather Centrelink will apply the Work Bonus to your eligible income if you meet all the eligibility requirements. All you need to do is declare your income.

If your intentions or circumstances have changed and you have decided that you would like to return to work, contact us if for a chat about your options.

 

 

Click to view Glance Consultant’s February newsletter via PDF

 

 

 

1 ABS – Retirement and Retirement Intentions, Australia, released 29/8/2023
2 Refer to ‘Using super to pay the mortgage’ article for more information on preservation age

 

 

Navigating Cash Flow Amid Rising Interest Rates

For businesses, staying vigilant about fluctuating interest rates is crucial for financial stability and longevity.

As a business owner, you’re well aware of how changes in interest rates can impact various aspects of your operations. From loan repayments to consumer spending habits, the ripple effects can be significant. If you find yourself grappling with cash flow challenges during periods of high interest rates, here are some actionable tips to help you weather the storm.

• Build a Financial Safety Net

During periods of increased financial performance,, proactively set aside funds in a separate account to serve as a financial buffer. This ensures that you have a safety net to fall back on when revenue streams fluctuate. Consult with financial experts, like our team of chartered accountants, to determine the best approach for your business.

• Tackle High-Interest Debt Head-On

Prioritize paying off debts with high-interest rates to minimize overall interest expenses. Whether it’s overdrafts, mortgage payments, or tax obligations, allocating extra funds towards these payments can save you money in the long run. Stay proactive with your tax planning to avoid accruing additional debt with authorities like the Australian Taxation Office.

• Conduct a Comprehensive Spending Audit

Review your business expenditure meticulously to identify areas where costs can be trimmed. Whether it’s excess inventory or unnecessary overheads, optimizing your spending can free up much-needed capital. Consider outsourcing non-core functions to reduce operational expenses.

• Negotiate Favorable Payment Terms

Explore opportunities to renegotiate payment terms with suppliers and vendors to better align with your cash flow cycles. This can help alleviate short-term financial strain and improve your overall liquidity position.

• Seek Professional Guidance

Partnering with experienced accountants like Glance Consultants, can provide invaluable insights and support in managing cash flow effectively. Our expertise can help you navigate complex financial landscapes and make informed decisions for the future of your business.

In conclusion, navigating cash flow challenges amidst rising interest rates requires proactive planning and strategic financial management. By implementing these tips and leveraging expert guidance, you can steer your business towards financial resilience and success.