Monthly Archives: October 2016

When cheap becomes costly

It never ceases to both sadden and amaze me how many people go for what is the cheapest offering – rather than what is right and best for them. The end result is that cheap becomes costly.

I was reminded of this in an article in the Sunday Age edition of October 30, 2016. In a letter to the editor within the financial section, the aggrieved consumer was complaining about being unable to claim for their full loss under their home insurance policy. Their mistakes were (1) to take out the cheapest policy and (2) to do so without understanding what was excluded.

The basic idea of insurance is, for the cost of a minor annual fee, to pass a risk on to someone else. It is therefore critical to ensure that you are appropriately covered, particularly for the most important items such as your home, your future income, trauma insurance and against temporary and permanent disability. Having the cheapest policy that provides incomplete cover is the most expensive.

There is also a lesson in that it is dangerous to do some things by yourself. The need to speak to a qualified insurance broker is as important as ever. Don’t be fooled by ads, price and “simple” online applications.

At MRS, we will spend today planning for your success tomorrow.

Which PAYG instalment method to use

Which PAYG instalment method to use is a question that comes up at the start of every financial year – or rather with the September activity statement.

PAYG Instalments are income tax payments paid during the year by companies, super funds and individuals. In respect of individuals, it is levied on income not taxed upon receipt with common examples being interest, dividends and trust distributions. It is not assessed on wages or capital gains.

One can pay PAYG instalments under one of two methods – by paying a fixed dollar amount as advised by the ATO or applying a percentage advised by the ATO against the income of that quarter. So what are the relative advantages and disadvantages of each method?

Under the fixed dollar method:-

You know what you are up for.
If the current year (in this case 2016/17) is much better than 2015/16, then any shortfall will not be payable until the Tax Return for 2017 is lodged – this could be as late as May 2018.
It’s a simple method as it doesn’t require any calculations.
If the amount is too high then it can be very downwards – but I would not do so on the September activity statement when the year is far from known.
Should it be that the PAYG Instalments already paid are too high then a variation can be made and any overpayment refunded.
This is a better method to use if you wish to avoid complex and costly calculations of your gross income years (which is required under the percentage method).
As it is a simple method, no extension to lodge is granted where there is only a PAYG instalment payable; the extensions to lodge through the Taxpayer or Tax Agent Portal are not available.

Under the percentage method:-

The ATO determines the percentage by dividing the prior year’s tax bill into the prior year’s tax liability. It is a rough method but one which usually approximates the appropriate tax.
One will pay more if the income in 2016/17 is greater than 2015/16. People who prefer to pay the appropriate (or should I say approximate) amount of tax each quarter as they go prefer this method.
It is a good method to use if one’s income is likely to be less than the year before as one will pay less tax. Under the fixed dollar method, one would be forced to vary the amount which could be problematical (see below).
As the percentage method requires a calculation of gross income, an extension to lodge is available to those who lodged through the Taxpayer or Tax Agent Portal

Two other important points to note are:-

You are entitled to vary an amount or instalment downwards – but do so carefully as the ATO has the right to issue a fine for gross underestimations.
It may be that your September activity statement offers only the fixed dollar or percentage method. If you do wish to change method, a request to the ATO can be made to reissue the activity statement with both methods being offered.

We would welcome the opportunity discuss which is the best method for you.

At MRS, we will spend today planning for your success tomorrow.

SG super obligations

Friday 28^th October is the end date for satisfying Super Guarantee (SG) super obligations for the September quarter.

SG super is payable on all forms of remuneration including:-

Commissions.
Bonuses (but see below).
Directors’ fees and all other forms of remuneration to directors.
Allowances (except where fully expended).
Contractors paid mainly for their labour.

But excluding the following remuneration:-

Overtime.
Reimbursements.
Unused annual leave on termination.
Remuneration of less than $450 in a month.
Bonuses that are only in respect of overtime.
Bonuses that are ex-gratia but have nothing to do with hours worked (harder to satisfy than what you might think).
In respect of employees younger than 18.
Employees carrying our duties of a private or domestic nature for less than 30 hours in a week (such as nannies).
On quarterly remuneration greater than $51,620.
Non-residents performing work for an Australian business outside Australia.

SGC super should never be paid late as late payments attract substantial interest and penalties. Furthermore, and SG (and BAS) liabilities that remain unreported and unpaid after 3 months automatically become personal debts of directors.

The SGC rate remains at 9.50%.

Please ensure that you make your payment with sufficient time through your Super Stream gateway. A SG commitment is only satisfied when the money is received by the fund; not when paid to the gateway. Whilst some gateways pay into the respective super funds the next working days (such as the ATO’s free gateway), other gateways take up to 5 working days.

We welcome any question you might have.

At MRS, we will spend today planning for your success tomorrow.

When a SMSF is no longer an option

What do you do when a SMSF is no longer an option?

This is a situation that confronts those with their own self managed super fund (SMSF) when they:-

Lose mental capacity,
Otherwise no longer have the time or inclination to fulfil all SMSF trustee obligations,
Have become disqualified from continuing to act as a SMSF trustee (after having become bankrupt or convicted of an act of dishonesty), or
Are about to move overseas for more than two years and become a non-resident of Australia tax purposes.

There are a couple of options. One commonly unknown option is to replace the current members as trustee(s) either in their own names or as a director of a corporate trustee and replace them/it with an APRA approved trustee. One key benefit of this option is that the super fund has not been deemed to dispose of its assets and therefore does not crystallise any capital gains tax liability.

In addition to this important taxation consideration, there are some other important options, advantages and disadvantages. You can discuss these financial planning considerations with a financial planner.

At MRS, we will spend today planning for your success tomorrow.