Category: Accountants

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.

 

Who can I nominate as my super beneficiary?

Your superannuation death benefits must be paid to someone when you die. That somebody will usually be your estate or your nominated beneficiary (also known as your dependants).

Paying death benefits to your estate

Unlike other assets such as shares and property, your superannuation and any insurance benefits you have in superannuation do not form part of your estate.

That’s because your superannuation is not held by you personally, rather it is held in trust for you by the trustee of your superannuation fund.

However, you can direct your superannuation death benefit to your estate by nominating your ‘legal personal representative’ (LPR), who will usually be the executor of your estate. If you nominate your estate or LPR, you must also specify in your Will who you want to distribute your superannuation money to.

This can include eligible beneficiaries (see below) as well as anyone else you wish to leave your death benefits to.

As such, it’s important that the directions stated in your Will are up to date so your LPR pays out your death benefits (as well as your other estate assets) as per your wishes.

Paying death benefits to a beneficiary/dependant

If you want your superannuation death benefits to be paid to a person, that person must be a ‘dependant’ for super purposes.

The meaning of dependant is important as it determines who can receive a death benefit, whether the death benefit will be taxed and in what form your death benefit can be paid out (ie, lump sum, income stream, etc).

In particular, superannuation law determines who can receive your super directly from your super fund without having to go through your estate. These people are your superannuation dependants.

Tax law on the other hand determines who pays tax on your superannuation death benefit.

These people are considered tax dependants.

The table below summarises the difference between:

■ a superannuation dependant and tax law dependant, and
■ the types of death benefit that can be paid to each category of dependants.

As can be seen, the key differences between the superannuation and tax dependant definitions are:

■ a tax dependant does not include an adult child (whereas a super dependant does), and
■ a tax dependant includes a former spouse (whereas a super dependant does not).

Although your financially- independent adult children are your superannuation dependants and can receive a death benefit directly from your superannuation fund, they are not tax dependants. This means they will not receive more favourable tax treatment than a tax dependant would receive unless they qualify under an ‘interdependency relationship’ or are financially dependent on you.

A tax dependant will generally not pay any tax on superannuation death benefits. In contrast, a non-tax dependant is taxed on any taxable components of a superannuation death benefit.

This could be up to 15% tax plus Medicare levy on any taxable component and potentially up to 30% plus Medicare levy for any taxable untaxed elements within your fund.

Need help?

Please contact us if you would like further information about who you can nominate to receive your superannuation death benefits.

Definition of a dependant 

 

Who is a resident for tax purposes?

A person’s residency for tax purposes can be one of the most difficult issues to determine in Australian tax law. And it is not just a question of whether a person is a ‘citizen’ of Australia.

Moreover, it is highly relevant from a tax point of view, as a person who is a resident of Australia for tax purposes is liable for tax in Australia on their income from ‘all sources’ (ie, both from Australia and overseas) – including capital gains. On the other hand, a person who is not a resident of Australia for tax purposes is only liable for tax in Australia on income and capital gains that are considered ‘sourced’ in Australia.

A recent decision of the Administrative Appeals Tribunal (AAT) illustrates some of the issues involved in determining this complex matter (see PQBZ v FCT [2023] AATA 2984). In that case, the AAT found that the taxpayer was a resident of Australia for tax purposes under the ‘ordinarily resides’ test or principle – without having to consider the ‘subsidiary’ tests which involve, for example, questions of the person’s ‘domicile’ and whether they intended to take up residency in Australia. Significant to the AAT’s decision was that, apart from his business interests in an overseas country and the unit he lived in there to carry on that business, all of the taxpayer’s personal (and other) ‘connections’ were otherwise clearly with Australia.

These Australian connections included his family home, his personal and other business assets, where his wife and children lived, Australian bank accounts and his Australian health insurance.

It was also relevant that for the several years in question, the majority of the time he had spent living in Australia.

As a result the taxpayer, as a resident of Australia for tax purposes, was liable to tax in Australia on his overseas business income.

But not all residency issues are apparently as clear-cut as this.

In other cases, it is necessary to consider issues such as whether the taxpayer has been in Australia for half the income year or more and whether they intend to take up residency in Australia.

It may also be necessary to consider the complexities of any ‘double tax agreement’ with the country in question.

And suffice to say, if the issue is relevant to you, not only is the advice of your professional adviser invaluable, it is also essential.

 

When two bonuses are not enough … Introducing the Energy Incentive!

If you’ve been putting off upgrading the inefficient office air-conditioner, a new 20% bonus deduction might just be the incentive you need to help beat the heat before it arrives with a vengeance!

Whilst the small business Technology Investment Boost has now ceased1, not only can you still take advantage of the Skills and Training Boost (generally for expenditure on training employees incurred before 30 June 2024), but there is also now a new kid in town – the small business Energy Incentive!

Similar in design to the earlier ‘boosts’, the proposed Energy Incentive provides a bonus tax deduction of 20% of expenditure on improving the energy efficiency of your business. Up to $100,000 of expenditure can be eligible for the incentive, with the maximum bonus tax deduction being $20,000 for the 2023-2024 tax year.

What type of expenses are eligible for the bonus? Where you can show improved energy efficiency, expenditure on electrifying heating and cooling systems, upgrading appliances such as fridges and cooktops, and installing batteries, heat pumps and off peak electricity monitors can all be eligible. (As always, there are some exclusions, such as expenditure on motor vehicles, building improvements and financing expenses.)

Although this proposed Energy Incentive is not yet law, it is an opportune time to consider whether your business may want to take advantage of the bonus and undertake the preparation and ‘leg work’ needed to ensure you can maximise the bonus.

If you’re interested in finding out more about either the Skills and Training Boost or the proposed new Energy Incentive, feel free to reach out to us and we can provide the information and guidance needed to make sure your business gets the most out of both incentives (before they end on 30 June 2024!).

 

Qualifying as an interdependent or financial dependant

A question that often gets asked when dealing with death benefit nominations is whether a person will qualify under the interdependency or financial dependency definitions. This is an important consideration as meeting the dependency criteria will enable potential beneficiaries to qualify as a dependant and therefore allow them to receive a death benefit.

INTERDEPENDENCY RELATIONSHIP

Put simply, an interdependency relationship exists between two people if all of the following conditions are met:

1. They have a close personal relationship
2. They live together
3. One or both provides the other with financial support
4. One or both provides the other with domestic support and personal care.

However, if two people satisfy the close personal relationship requirement but cannot satisfy the other three requirements, they can still satisfy the interdependency relationship if:

■ Either or both of them suffer from a physical, intellectual or psychiatric disability, or
■ They are temporarily living apart (eg, overseas or in jail).

There is no easy way in determining whether an interdependent relationship exists, however superannuation law provides the following list of considerations to help superannuation fund trustees determine if an interdependency relationship exists (or existed before one of the parties died):

■ Duration of relationship
■ Whether or not a sexual relationship exists
■ Ownership, use and acquisition of property
■ Degree of mutual commitment to a shared life
■ Care and support of children
■ Reputation and public aspects of the relationship
■ Degree of emotional support
■ Extent to which the relationship is one of mere convenience
■ Any evidence suggesting that the parties intend the relationship to be permanent
■ A statutory declaration signed by one of the persons to the effect that the person is or was in an interdependency relationship with the other person.

It is not necessary that each of these factors exists in order for an interdependency relationship to exist.

Instead, each factor is to be given the appropriate weighting depending on the circumstances.

FINANCIAL DEPENDANT

If a beneficiary fails to meet the interdependency relationship criteria, they may qualify as a financial dependant. Being financially dependent on the deceased generally means you relied on them for necessary financial support. This also applies to children over 18 years old as they must be financially dependent on the deceased to be considered a financial dependant.

That said, the term financial dependant is not expressly defined in superannuation or tax legislation, so it takes on the ordinary meaning of that term. As such, the definition of financial dependant is reliant on case law and comes down to the facts of each case.

In most cases, it is not the value of payments received from the member that establishes financial dependency but the degree of dependency on that payment. This includes the extent the person relies on the financial support provided by another person to meet basic living expenses.

For example, a grandparent who chooses to pay school fees for their grandchild is unlikely to have their grandchild qualify as a financial dependant.

This is mainly due to the fact that the payment is seen to be more discretionary in nature than providing for an essential element of life, such as food or shelter.

In summary, superannuation case law provides more flexibility for someone to be partially or wholly dependent, whereas tax dependency takes a stricter approach as a substantial degree of dependency is required.

CONTACT US

The conditions for the existence of an interdependency and financial dependency relationship under the law can be complex. If you require further information on this topic, please contact us for a chat.

TIP

If you are uncertain whether an interdependency relationship exists (ie, where adult siblings have been living together, or where an adult child has been living with their parents), you can always request a private ruling from the Australian Taxation Office as the definition for interdependency is the same under both superannuation and tax law.

 

How to nominate a superannuation beneficiary

There are many types of nominations offered by different funds. Knowing which one suits your circumstances is key to ensure your superannuation ends up in the right hands.

Types of nominations

Individuals can direct or influence their superannuation fund trustee as to how they want their death benefits distributed by completing a death benefit nomination form.

Superannuation funds offer a range of death benefit nominations, including:

■ Non-binding death benefit nominations
■ Binding death benefit nominations
■ Non-lapsing binding nominations
■ Reversionary pension nominations, and
■ In the case of an SMSF, executing a trust deed amendment or using one of the above types of nominations.

However not all funds will provide all options to their members, and completion of these forms is best done by the member in conjunction with their adviser and an estate planning lawyer in the first instance.

Non-binding death benefit nomination

This is the most common type of death benefit nomination and is offered by most superannuation funds. A non-binding nomination is an expression of wishes which is not binding on trustees. The trustee of your superannuation fund will look at the nomination you make, but will exercise discretion to determine which of your beneficiaries receives your superannuation and in what proportions.

Binding death benefit nomination

A binding death benefit nomination is a written direction from a member to their superannuation trustee setting out how they wish some or all of their superannuation death benefits to be distributed. The nomination is generally valid for a maximum of three years and lapses if it is not renewed.

If this nomination is valid at the time of your death, the trustee is bound by law to follow it.

Non-lapsing binding death benefit nomination

This is a written direction by a member to their superannuation trustee establishing how they wish some or all of their superannuation death benefits to be distributed. These nominations generally remain in place forever unless you cancel or replace it with a new nomination. If this nomination is valid at the time of your death, the trustee is bound by law to follow it.

Reversionary pension nomination

If you are in receipt of an income stream, you can nominate a beneficiary (usually your spouse) to whom the payments automatically revert upon your death. With this type of death benefit nomination, the fund trustee is required to continue paying the superannuation pension to your beneficiary if your benefit nomination is valid.

SMSFs and death benefit nominations

If you are an SMSF member and want to make a death benefit nomination, it is important to review your fund’s trust deed requirements to determine the rules regarding death benefit nominations. Although the High Court recently ruled in the case of Hill v Zuda Pty Ltd [2022] that traditional three-year lapsing binding death benefit nominations do not apply to SMSFs, many trust deeds expressly include the traditional requirements. If this is the case, they must be complied with, and the nomination will lapse.

What if there is no nomination or an invalid nomination?

If you have not made a nomination, your superannuation fund will have rules for determining the death benefit recipient(s). In many cases, funds will either exercise discretion and follow the same process as if a member had a non-binding nomination, or pay your benefit to your legal personal representative (LPR). The risk with this option is if you don’t have a Will, your benefit may be distributed under the relevant state laws for dealing with intestacy!

Similarly, if your nominated beneficiary does not meet the definition of a superannuation law dependant at the time of your death, the nomination will be deemed invalid. Again, it will come down to your fund’s rules which may determine that your benefit must be paid to your LPR or alternatively that the trustee exercise their discretion.

Check your nomination

Remember to regularly review your superannuation death benefit nominations when your circumstances change to ensure it remains up to date and ends up in the hands of the right person(s).

 

Click here to view Glance Consultants November 2023 newsletter via PDF

 

 

 

 

 

 

 

 

 

 

In a post-pandemic landscape, over 2 million Australians work from home (WFH) at least once weekly. Although this work environment offers greater flexibility and improves individuals’ work-life balance, workers incur the additional electricity, internet, and home office equipment costs.

So, how do you calculate these deductions?

Keep reading for further details of the WFH deduction method that works best for you.

 

Which Work-From-Home Deductions Apply?

The ATO permits deductions for the following costs:

• Mobile data and internet charges
• Electricity and gas bills
• Stationary and computer consumables (like ink and paper)
• Mobile and landline costs
• Cleaning in dedicated offices only

Depreciating assets, like computers and specialist equipment, are deductible, too. You’d claim the declining value over time.

You could receive an immediate deduction if an asset costs $300 or less. The ATO also includes maintenance and repair fees.

For depreciating assets, you’d need the receipt, a usage log, the date you first used it for work, and an outline declaring how you intend to utilise it. 

 

Consider the Fixed Rate Method

The fixed rate method enables you to claim selected WFH expenses hourly. As of 2023, the fixed rate method increased to 67 cents per hour–a rise from 52 cents between the 2018–2019 and 2021–2022 fiscal years.

You don’t need a dedicated workspace to use the fixed rate method, so it’s a great option for people living in flats and bungalows. 

The ATO needs evidence of your work patterns, so use timesheets to record your hours from home. Use a logbook to track work-related telephone usage and electricity and gas bills to show you’re not deducting bills for personal use.

 

Use the Actual Cost Method

The actual cost method enables you to get a more accurate deduction on expenses made for bills and equipment. While this is a useful way to maximise your tax savings, it does incur more detailed record keeping. 

As of 2023, you don’t need a dedicated workspace but can’t deduct indirect expenses. For instance, you couldn’t claim lighting or heating expenses while working in the living room where another tenant was using those utilities.

Records needed for the actual cost method include receipts and invoices and specific details like the amount paid, the date, and the supplier. You’d also need to calculate the percentage of each bill dedicated to work.

 

Which Costs Aren’t Deductible?

You can’t deduct the following expenses:

• Personal use of utilities, such as electricity, phone interaction, or computer use
• Refreshments like tea, coffee, or groceries
• Other tenants’ use of accepted items

If you use the fixed rate method, you cannot claim another separate deduction. 

 

Maximise Your Tax Savings with Glance Consultants

Speak to a member of our friendly team if you need advice in determining which method is best for you and your unique working habits. 

We can help you prepare your tax returns with accurate deductible expenses and in the process assisting you in maximizing your tax refund. Contact us to get started.

Tax deductions relate to expenses paid from your pocket to run your business or complete workplace duties. The Australian Office outlines eligible costs that can reduce your assessable income, minimising your final tax bill. 

As a home-based business owner, you’re more likely to invest more of your personal finances into performing your role. For instance, your energy bill will encompass personal use and electricity used to power your computer, printer, and other devices. 

Taking advantage of tax deductions can maximise your finances, allowing you to expand crucial elements of your business. Read on as we summarise the key deductions for home-based businesses you need to know about before June 30th. 

 

4 Deductions for Home-Based Businesses

A home-based business operates primarily from home, unlike an external workplace like an office or warehouse. Review four expenses you can claim on your tax return below:

 

Occupancy Expenses

According to the ATO in 2023, You can claim occupancy costs, such as the following:  

• Rent
• Mortgage bills
• Land taxes
• Council rates
• Home insurance

Calculate the deductible by measuring the area of your home dedicated to work in square metres. You then compare that area to your home’s total area. Here’s a calculation you can use:

• House (2 floors): 186 square metres = 100%

• Home office: 8 square metres = 

• Rent: $1,200

You can use the formula: 100% (186 sqm) – 8 sqm = 92% divided 100 = 0.92 X $1200 = $1,104. Here, the deduction would be ($1200 – $1,104) $96. 

 

Utility Bills

Running expenses usually encompasses utility bills, including:

• Electricity
• Mobile phone bill
• Furniture
• Repairs on furniture
• Internet

If you don’t have a dedicated work area, you might be unable to deduct occupancy and running expenses simultaneously. For items with dual purpose (personal and professional), you must calculate the usage and take that percentage from the price you paid. 

 

Business Transport

Vehicle expenses cover the fuel spent on travelling to the following locations is claimable:

• Visiting clients’ premises to deliver or provide goods and services
• Retailers or vendors for supplies
• Bank for business banking purposes, like depositing cash
• Attend financial appointments with tax agents and advisors
• Post office to send work-related documents and items like invoices or goods

 

Work Equipment

Work equipment like printers and accessories like ink and paper are deductible. You can claim on work-related equipment, such as computerised electronic devices. 

 

What Deductions Can’t You Claim?

You cannot claim refreshments like food, tea, and coffee. Personal expenses aren’t applicable either. For example, if you purchased a printer but only used it for personal documents, you cannot claim the cost of that device. 

You can’t claim further deductions on the above expenses if you receive the 0.67 cents per hour through the Fixed Rate Method. 

You may be subject to capital gains tax if you sell the house where you worked. You may not deduct this tax but could be eligible for small business CGT concessions. Ensure you maintain your tax and financial records to apply this initiative. 

 

Speak to Our Certified Accountants

Let’s tackle your tax return together to ensure you optimise your annual savings. Contact us to see how our certified accountants and advisors can best support you.

 

Electronic tax lodgement offers a more accessible way for small businesses and individuals to meet their obligations. Unfortunately, online criminals take advantage of this convenience, with the Australian Taxation Office reporting more than 25,000 cases of impersonation in the 2021–2022 financial year alone.

Losing money to unlawful situations can have devastating effects on small businesses trying to establish themselves in their chosen industry. We’ve constructed this useful guide outlining prevalent tax scams you should know about and several tips on mitigating them.

 

What Are Tax Scams?

Scammers falsify their identity, posing as the ATO and misleading small businesses into paying what they believe is their business tax bill or an “excess”. Besides financial damage, responding to scams also puts businesses’ confidential information, such as direct bank details. 

Scammers are most likely to reach you through the following mediums: 

• Phishing: Fake SMS, WhatsApp, and email messages requesting finances or information. The sender may pose as myGov or software providers.
• Cold calls: ATO impersonators may suggest that you’ve underpaid tax and must follow a process to complete your tax bill. Alternatively, they may say you’re due a refund to steal your financial information. 

 

How to Avoid Tax Scams

Protect yourself by reviewing the preventative measures against tax scams below:

 

Understand How the ATO Communicates

The ATO enables you to assign communication preferences of:

• Direct electronic mail via your myGov portal
• Paper mail sent via post

Although you may receive texts or emails alerting you of unread notifications in your myGov portal, the ATO will never demand action, like paying money or submitting files using these methods. It won’t call you either.

One way to check the legitimacy of email senders is by clicking on the address. Scammers usually have odd-looking email addresses containing sporadic numbers and letters. Seeing household address providers like “gmail.com” also indicates a scam.

Log into your myGov account properly and review your communication history to see all correspondence sent to you.

 

Avoid Application Fees

Scammers create websites offering tax file numbers (TFN) and Australian business numbers (ABN) for a fee. Avoid these websites completely and process all applications via the ATO’s website. TFN and ABN applications are free to complete, so avoid any source requesting payment.

 

Don’t Click on the Links Provided

Scam messages might provide a false link, posing as a shortcut to the myGov login. These links could contain malware, viruses, or trojans that could corrupt your device. 

They could also seize control over your device, downloading recording software, meaning scammers can see your activity, such as logging into bank accounts. Always use the correct process to access your financial accounts and remove messages containing suspicious links.

 

Get Advice From Reliable Sources

False social media accounts appearing as the ATO or other reputable tax sites could provide advice via private messages. While this advice could be highly inaccurate, meaning you submit your tax documents incorrectly, they could also demand payment or confidential login information. 

The ATO doesn’t communicate via social media, so omit any messages on these platforms. Only liaise with certified agents who can prove their credentials.

 

Receive Legitimate Support From Glance Consultants

Working with certified accountants at Glance Consultants gives you peace of mind, knowing your finances and information are safe. You’ll receive quality support and advice on taxes, accounting, bookkeeping, auditing, strategy planning, and more that you can trust. Contact us today to see how we can help you.

 

Disclaimer: Glance Consultants cannot provide legal advice. Please contact the authorities, banking institute, or a legally recognised body for support if you’ve fallen victim to a scam.

 

“Business structure” defines the legal organisation of an entity providing goods and services. 

Selecting the right business structure is arguably one of the most vital decisions you’ll make as a business owner. It impacts the way you handle daily operations, how your business is taxed, your liability level, and the legal obligations you need to meet for compliance purposes.

We have compiled a definitive guide exploring each business structure’s requirements, advantages, and disadvantages.

 

4 Primary Business Structures in Australia

The entity’s size, number of directors or owners, and whether you’ll employ others impact a business’ structure. Review the four common entities below: 

 

Sole Trader

A sole trader is the simplest business structure. You have full control over the business, but are personally liable for all debts and losses. As a sole trader, you can employ others.

Like other structures, you must register for an Australian Business Number (ABN) and GST if your annual income exceeds the threshold. You can also access the 50% capital gains tax. 

It’s a relatively straightforward structure that can be easy to set up and run with minimal paperwork and costs. As a sole trader, you’re taxed as an individual and report your business income on your individual tax return.

The main downside of being a sole trader structure is that you incur personal liability for all business debts and obligations. If your business fails, creditors can come after your personal assets, such as your home or car.

 

Company

A company is a separate legal entity. Shareholders own the company, while directors are responsible for the day to day operations of the business. 

Companies have different tax compliance obligations compared to other types of businesses and pay corporate tax at a flat rate on their profits. 

Unfortunately, a company doesn’t have access to the same 50% capital gains tax concession that sole traders and partners do.

One advantage of setting up a company structure is that the shareholders’ liability is limited to their investment in the company; they are not personally liable for the business debts and liabilities. So, it’s usually the preferred structure for high-risk business operations that need a solid asset protection strategy in place.

 

Partnership

A partnership business structure is similar to a sole trader in that the partners are legally responsible for all aspects of the business. However, in a partnership, two or more owners share equally in the profits and losses of the business.

Partnerships are also relatively easy and inexpensive to set up and have fewer compliance requirements than companies. However, each partner is jointly liable for all debts and liabilities incurred by the partnership.

In terms of their tax obligations, partners pay tax on the share of the net partnership at their respective individual tax rates. 

 

Trust

A trust is a legal arrangement where assets are held by one party (the trustee) for the benefit of another party (the beneficiary). There are several types of trusts in Australia, including fixed, discretionary, unit, and hybrid trusts.

Discretionary trusts are often the preferred type in a business structure because of their flexibility. Essentially, a discretionary trust gives trustees complete discretion over how to distribute business profits—which is a popular (legal) tax minimisation strategy. Beneficiaries then pay tax on their distribution share at their personal income tax rates. 

Another popular benefit of a trust structure for your business is that it provides asset protection for the beneficiaries. This means that if the trustees are sued, the assets of the trust will not be at risk.

Because the trustee essentially operates the venture on behalf of the beneficiaries, we recommend you appoint a corporate trustee because its shareholders will also benefit from a company’s limited liability. 

Unfortunately, one key downside of a trust is that it must distribute all of its income to its beneficiaries. This means that if you have a business that is growing rapidly and reinvesting its profits back into the business, a trust is not the best option. The reason for this is that any profits left in the business would be subject to tax at the highest marginal tax rate.

Contact Glance Consultants today for help, let’s get the best out of your business