Category: Accountants

 

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.

 

 

 

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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.

 

Strategies for Efficiently Handling GST Responsibilities in Your Business

 

Businesses include the goods and services tax (GST) in their pricing, passing on the amount due to the Australian Taxation Office (ATO) to consumers within the purchase price of products or services.

Timely submission of the accumulated GST to the ATO at each deadline is crucial to avoid ATO penalties for cashflow management purposes. Implementing effective planning and saving measures is key to ensuring sufficient funds are maintained to cover GST liabilities. Explore our essential advice for GST management below.

 

Understanding GST Obligations

Businesses are subject to GST if their annual sales exceed $75,000.

Existing entities are required to register for GST within 21 days after surpassing this threshold, whereas new ventures should do so if they anticipate reaching this volume within their first year of operation. An Australian Business Number (ABN) is a prerequisite for registration.

Typically, businesses with annual sales between $75,000 and $20 million must file their business activity statements (BAS) and remit GST by the 28th day following each quarter’s end.

Businesses voluntarily registering for GST with earnings below the threshold may opt for annual lodgement and payment cycles, whereas those with revenues exceeding $20 million are obligated to pay monthly.

 

Effective GST Management Strategies

Enhance your approach to GST with these five strategies:

 

Accurate GST Recording

• Ensure the GST for each transaction is recorded in your accounting system promptly and on your BAS. Employing a bookkeeper can simplify this process and mitigate the risk of penalties.

Maintain every invoice, clearly noting the GST, to prevent overpayment when filing your BAS.

 

Adopt Advanced Accounting Solutions

• Utilize contemporary accounting platforms, such as Xero, for an intuitive approach to managing invoices. These systems calculate your GST obligations automatically and can alert you to tax liabilities in real-time.

Some software options offer direct ATO integration, facilitating reminders for deadlines and secure GST submissions.

 

Leverage GST Credits

• Understand that GST credits, or input tax credits, can be claimed for GST paid on business-related purchases, with a claim period extending four years post-purchase.

This mechanism ensures you’re not taxed twice on business expenses. For example, purchasing stationery worth $11, including $1 GST, entitles you to a $1 credit.

 

Incorporate GST in Invoicing

• With a standard 10% GST on most items in Australia, it’s vital to include this in the pricing of your goods or services.

Segregating this ‘’GST’’ income helps prepare for quarterly tax payments, avoiding the need to dip into other financial reserves.

 

Engage a Professional Accounting Firm

• Consider engaging an external accountant to reduce the costs associated with an in-house team while ensuring compliance with tax regulations.

Glance Consultants provides a wide variety of accounting and taxation services, from forward planning to optimizing savings on an annual and quarterly basis. Contact us to learn how we can support your business’s financial health today.

 

 

Crowdfunding involves a team of people raising funds online to finance a new project or business concept. The money comes from a large pool of people who believe in the cause–these may be investors, everyday individuals, or sponsors.

As it’s a means of generating income–whether it’s hundreds or thousands–the Australian Taxation Office imposes several tax implications that could impact profits businesses and individual contributors receive.

Read on as we outline applicable taxes, share model-specific obligations, and highlight where GST applies. 

 

Which Taxes Apply to Crowdfunding? 

You must declare profits generated through crowdfunding on your individual tax return. Your position in the project could impact what you pay:

• Promoter: Profits or funds generated while using crowdfunding as an employee, taking profits for your own gain, carrying on a business, or entering the scheme as a profit-maker become assessable income.
• Intermediaries: The ATO may assess income generated from a charged flat fee or take commission taken from the total funds raised in exchange for offering a platform for projects to promote their cause.
• Contributors: If you invest in a crowdfunding initiative and receive a financial return, you could become income tax-liable. 

Fundamentally, the intention to make a profit or profits earned generally becomes assessable, especially if you’re carrying on a business. 

Even if you haven’t launched a business, performing commercial activities like drafting a business plan or marketing a product can be deemed “carrying on a business.” Here, income tax can apply.

Contact a business advisor for guidance on navigating taxes.

 

4 Types of Crowdfunding

Specific tax obligations may vary depending on the type of crowdfunding you perform. Here’s an overview: 

• Donation-based crowdfunding: Funds are typically voluntary, so promoters may not be tax liable provided the money complies with the payment terms. 
• Reward-based crowdfunding: Goods and services tax (GST) may apply when promoters reward contributors with financial returns, a product, or a service, as it’s like a business transaction.
• Equity-based crowdfunding: Contributors who receive dividends for investing in this model might become tax-liable. Here the tax doesn’t typically implicate promoters, as investments aren’t considered profits. 
• Debt-based crowdfunding: Promoters’ income isn’t assessable when contributors lend funds. The interest taken by contributors could then become tax-liable. 

 

Can You Claim Income Tax Deductions? 

Depending on your individual circumstances, models, and position, you could receive income tax deductions for any costs relating to business expenses. You must have substantial evidence proving that payments are eligible for deductions.  

If you’re carrying on a business and liable for income tax, including through profits generated by crowdfunding, you could claim the following:

• Operational expenses
• Depreciating assets
• Start-up expenses
• Motor-vehicle costs
• Travel expenses

 

Stay Updated with Ongoing Guidance

Crowdfunding is an ever-changing sector that a rapidly increasing number of people use. As such, the ATO pledges to update its guidance based on advancements shown across all models. 

Get in touch with Glance Consultants for unparalleled advice on complying with current tax obligations.

 

Managing substantial wealth and assets in Australia comes with the responsibility of effective tax planning. High-net-worth individuals often face significant tax liabilities, making it imperative to navigate the complexities of the Australian tax system while remaining fully compliant with the law. In this article, we will discuss four essential tax planning strategies tailored for individuals seeking to minimize their tax liabilities while staying within legal boundaries.

 

Utilize Self-Managed Superannuation Funds (SMSFs):

A self-managed super fund (SMSF) can be a powerful investment vehicle for high net worth individuals seeking greater control over their retirement investments. To establish an SMSF, individuals must establish a trust deed and register their SMSF with the Australian Taxation Office (ATO). Unlike traditional superannuation funds, SMSFs empower you and up to five other members to oversee your investment decisions, potentially reducing administrative and investment fees.

One of the key advantages of SMSFs is the ability to diversify investments across various asset classes, including shares, cash, fine art, foreign shares, managed funds, and property. SMSFs also offer favorable tax benefits, with a standard tax rate of 15% or lower, provided all compliance requirements are met. Investments made within an SMSF, such as property and equipment, can result in reduced tax liabilities.

It is crucial to note that establishing and managing an SMSF can be complex. Seeking professional business advisory support is highly recommended to ensure full compliance with current legislation.

Even if you did not have an SMSF, you can potentially maximise your deductible superannuation contributions for the year and claim such contributions as a tax deduction. Various factors need to be considered prior to making such contributions and tax planning is essential.

 

Engage in Negatively Geared Investments:

Negative gearing is a strategy where individuals borrow money to invest in assets, such as property, with the goal of generating long-term wealth through asset appreciation rather than immediate returns. In this approach, the total deductible costs, including interest costs, depreciation and property maintenance costs, exceed the rental income received.

The tax advantage of negative gearing lies in the fact that it can lower your assessable income. The Australian Taxation Office (ATO) taxes individuals on the reduced income after deducting expenses, which can lead to reduced tax liabilities.

 

Implement Debt Recycling:

Debt recycling is a more advanced strategy that involves repaying one debt (e.g., a student or mortgage loan) by investing funds obtained from the equity of another loaned asset. While this strategy carries higher risk, meticulous execution can unlock substantial equity for further investments.

By investing equity from an existing asset, such as your home or a vehicle, into income-producing assets like rental properties, you can reduce your tax liability. Interest incurred on the loan taken against your equity to invest in an income bearing asset can be deductible, further lowering your overall assessable income.

 

Explore Shares for Franking Credits:

Investing in shares of companies that pay taxes on their profits can provide access to franking credits with dividend distributions. Franking credits can assist in in reducing your overall tax liability as you will be required to only pay the differential tax between your marginal tax rate and the company tax rate.

In some instances, accumulating franking credits through diversified investments may even lead to an overpayment of tax, potentially resulting in a tax refund.

Effective tax planning is essential for high net worth individuals in Australia to minimize tax liabilities while adhering to legal requirements. These tax planning strategies, when employed carefully, can significantly reduce tax burdens and enhance wealth accumulation. However, due to the complexities involved, it is strongly advised to seek professional guidance and personalized tax planning services to maximize tax savings and ensure compliance with current tax laws. To get started on optimizing your tax strategy, please contact us for our tailored individual taxation services, offering expert advice, meticulous planning, and preparation of tax lodgments that consider your unique financial situation.