The super co-contribution scheme

Under the super co-contribution scheme, the government will contribute $1 for every $2 of personal contributions made by an employed or self employed person.  The maximum government co-contribution is $500 (meaning that one would need to contribute $1,000 to receive the maximum entitlement of $500). 

To be eligible for this fantastic freebie, one must:-

  • Be employed with their employer paying the compulsory SGC or be a self employed person running a business.
  • Have 10% or more of one’s income received from employment and/or a business.
  • Have combined assessable income (that being income before deductions), Reportable Fringe Benefits (RFBA) and employer super contributions in excess of basic SGC amount (RESC) of less than $51,021.
  • Have paid a non-deductible contribution into superannuation from after tax money by 30th June 2017 – that is, you make the contribution out of a personal bank account.
  • Be less than 71 at the end of the financial year.
  • Lodge a Tax Return for the year ending 30th June 2017.
  • The maximum co-contribution for a personal contribution of $1,000 is $500 if your combined assessable income is under $36,021.  Thereafter it progressively reduces by 3.333 cents for every dollar in excess of $36,021 – there is no entitlement if your combined assessable income exceeds $51,021. 

If you want to find out what you might be entitled to, click on the following link to the ATO’s calculator.   https://www.ato.gov.au/Calculators-and-tools/Super-co-contribution-calculator/

Other matters to note are:-

    • One’s own contribution and that made by the government will be preserved (that is, one will not be able to access it until one retires or satisfies another condition of release).
    • The ATO will deposit the co-contribution into one’s super account once they have reconciled one’s lodged 2017 Tax Return with the information provided by one’s super fund(s).  It is therefore likely that the vast majority of contributions will not be credited until at least January 2018.  
    • If you wish to make the contribution into a public or employer superannuation fund, you will need to ensure they accept such contributions and obtain the appropriate form and do so well before 30th June.  For those with your own self managed super fund, your fund can only accept such a contribution if permitted by its trust deed (we will take no responsibility where a client does not consult with us beforehand). 
    • For some people, this may the last year they can receive a co-contribution. From 2017/18, one can only receive a co-contribution (and indeed make the triggering personal non-concessional contribution itself) if their total super balances are less than $1,600,000 as of 30th June prior to the year in question.

At MRS, we will spend today planning for your future success

 

ATO tax debts and credit reporting agencies

From 1st July, the ATO will be reporting taxpayers with unpaid tax debts to credit reporting agencies.

Such reporting will mean that a black mark will added to one’s credit rating where it will remain for 5 years. This of course will have a detrimental impact on one’s ability to obtain finance and to re-finance.

Come 1st July, the ATO will report taxpayers who:-

  • Have an ABN.
  • Have a debt of more than $10,000 which has remained unpaid for more than 90 days.
  • The debt is not in dispute.
  • No payment plan has been established or an existing plan has defaulted.

The key outtakes are:-

  1. Do not let existing payment arrangements default.
  2. If your business tax debt is more than $10,000 and 90 days old, then you need to enter a payment arrangement NOW. We can help you with this application.
  3. It is now more important than ever to not commit to a payment plan than you can’t meet. Don’t commit to the first payment plan that comes into your head.
  4. Consider making extra payments – these can be offset against future instalments should you find that difficulty meeting them.
  5. Speak to us if you have are now having cash flow issues. We have a forecasting tool which can predict what your future cash positions will be like. Not only will we be able to show you what payment plan you can commit to but we look at your overall cash flow issues. Moreover, we can share our wealth of experience and knowledge of ways to improve your cash flow.

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

Should you elect for CGT relief

Should you elect for Capital Gains Tax (CGT) relief? This is just one of the crucial questions facing those who are either commuting part of their pension to come under the $1.6 million pension cap or are ceasing a Transition To Retirement Pension.

These two situations mean that asset sales which would have been CGT tax free or largely tax free will be taxable. In recognition of this, The ATO is granting CGT relief.  This relief is optional but only obtained if an election is made.  It is also irrevocable.

It can also be chosen on an asset by asset basis – which means down to individual purchases of listed shares. This is an important point as it is quite common to see a holding that has unrealised capital gains on some purchases but unrealised losses on others – this would be the case if one bought shares in say BHP or Woolworths 10 years ago but had bought further shares last year.

If CGT relief is chosen, the asset is deemed to be sold and repurchased at financial year-end. The tax-free portion (based of the exempt current pension income %) of any gain is ignored.  The taxable portion can either be declared within the 2017 Tax Return or can be deferred for payment until the asset is sold.

So should you elect the CGT relief? Well it depends.

Most self managed super funds are unsegregated so we will limit our comments to that scenario.

One should first determine whether CGT relief is indeed available. It can only being claimed for assets that were held from November 9 2016 through to July 1 2017.  The asset(s) in question must also have been supporting an existing pension during this period.

What is best for each SMSF will depend upon:-

  • What is the exempt current pension income now and what will it be in the eventual year of sale.
  • Does the fund have significant capital or revenue losses?
  • Could the value of the asset actually fall after June 2017?
  • Has the share been held for 12 months by the end of June 2017? If not, then electing to obtain CGT relief will mean that the one third CGT discount will not be allowable within the calculation of the gain to be deferred.
  • Will the share be sold within 12 months? If so, electing to obtain CGT relief will mean that the 12 month CGT one third discount period starts again as from July 2017.

It is highly unlikely that the members of any two funds will be in the same situation. This is a quintessential example of the dangers of following a mate’s advice.  These changes are also dangerous in that there are more considerations than just this CGT relief.  We cannot stress the importance of seeking advice from a licenced financial planner (in this regard as Maggs Reid Stewart as an accounting firm can’t help you but our separate financial planning company can).

Transfer Balance Cap and the cost of doing nothing

July is almost here and many are still to resolve what they are going to do in response to the $1,600,000 Transfer Balance Cap (pension balance limit). This is rather scary as the cost of doing nothing can be very expensive. 

Take this notional case of Ms She Willbe Right-Mate who does not grasp the opportunity to act and has $3,200,000 in pension mode on 30th June 2017.

The ATO will force her to:-

  1. Remove the excess balance of $1,600,000 from pension mode.
  2. Assess her Excess Transfer Balance Earnings (ETBE). ETBE is an amount of income deemed to have further accrued within pension mode and must also be removed from pension mode. It is calculated on a daily basis at the ATO’s GIC interest rate (currently 8.76%). If we assume the monies remain in pension mode for 5 months after year end, then the ETBE will be $1,600,000 * 8.76% * 5/12 = $58,400. In all likelihood, she is not earning 8.76% on that excess balance so it has forced extra monies out of pension mode than if she had acted before July.
  3. An Excess Transfer Balance Tax (ETBT) will then be applied. This is a penalty payable by the member and which can’t be paid from super fund monies. First time breaches are taxed at 15% (30% for a subsequent breach) so in this case it will equate to $8,760.
  4. If she is particularly lazy and doesn’t act on the ATO demand within 60 days, the fund will be deemed not to be in pension mode in the year prior. Wow! In this case a pension balance of $3,200,000 earning say 6% (including franking credits) would have derived tax free income of $192,000. Having the ATO now deem that year as taxable would result in a tax impost of $28,800.

A lack of action has become rather costly!

So what does one do? One should obtain financial planning advice (which an accountant can’t provide).  It will be highly unlikely that anyone you know will be in a similar situation – there is no cookie cutter approach / copy what your mate is doing.  This in part due to the fact that the $1,600,000 pension is just one of the changes and considerations to be addressed. 

So if you haven’t received personal financial planning advice focused and tailored to your circumstances, jump to it.

The $20,000 instant asset write-off continues

One of the good news items in the 2017 Federal Budget is that the $20,000 instant asset write-off will continue until June 2018.

So small businesses which buy assets costing less than $20,000 (excluding GST) will be able to deduct the cost in full. This is great for cash flow as the tax deduction will match the expenditure.  So an asset costing say $10,000 excluding GST will reduce a Company’s tax liability by $2,750 (meaning that the net cost to a company will $7,250).  For those undertaking their business in their own name or via a trust or partnership will save tax at their marginal tax rate (which could be as high as 49%).

What makes this news so welcome is that a small business is now defined as one with group turnover under $10,000,000 (previously $2,000,000).

So should you jump at this opportunity? Be careful as there are a number of matters to consider and traps to be aware of.  To read more, go to http://www.mrsaccountants.com.au/the-20000-instant-asset-write-off/

At MRS, we will spend today planning for your future success

Did they really think they could get away with it?

Did they really think they could get away with it? I was gob-smacked when I heard about the $165 million tax fraud.

On one level, I was surprised how many people were allegedly involved.

On another level, I was surprised to hear that one of the main players was the son of a senior ATO official. How did it come to pass that not only a ATO official, but being one heading a major corruption and fraud section, saw his son leading what is reported to be an extravagant lifestyle?

What surprises me the most is how they thought that they would get away with it. The scam involved underpaying both employees and contractors.  Surely at some stage someone was going to complain about being underpaid. 

The really dangerous game though was in respect of the alleged underpaid PAYG WH (wages tax) and SG super. Since 2012, PAYG WH and SG super that goes unreported and unpaid for more than three months becomes a personal liability of a director (it doesn’t matter if the business can’t pay).  All the ATO has to do is issue what is called a Directors Penalty Notice (DPN). 

And if that all wasn’t bad enough, the other 40 tonne truck was the fact that the amount of late paid SG super is increased by the addition of lodgement fees and lost earnings. And if all of that wasn’t bad enough, the total amount payable is non-deductible – meaning that any late payment will cost anywhere from 2 to 3 times as much if it had been paid on time.

If all was as reported, then it was just a matter of time.

 

 

What was in the 2017 Federal Budget for you?

 

So what was in the 2017 Federal Budget for you?

There weren’t the nasty changes so often seen in a budget delivered in the first year of a new electoral term.  There were even some welcome announcements – particularly in respect of the extension of the $20,000 instant asset write-off.

That all said, much of what appeared on TV and the press is simplistic and narrow further confused by useless political clap-trap from both parties. 

We have published a briefing paper which sets out the important changes and includes tips thereon.  You can make a request by e-mailing admin@mrsaccountants.com.au

We will be modifying our 2017 pre-year end checklist for businesses to take advantage of any opportunities and avoid any of the pitfalls where possible.

But whilst there may be only be minor adverse outcomes from this year’s budget, we remind you of the superannuation changes announced in last year’s budget which include:-

  • From July 2017, the concessional contribution limit everyone will reduce to $25,000.
  • From July 2017, the non-concessional contribution limit everyone will reduce to $180,000 and the three-year bring forward limit will reduce from $540,000 (for which there are tricky transitional rules).
  • From July 2017, one will not be able make any further non-concessional contributions if their superannuation balance exceeds $1,600,000. 
  • From July 2017, one will be fined and forced to withdraw any pension balance in excess of $1,600,000.  Those affected by these rules and who take action before July also have the option of nominating Capital Gains Tax relief on an asset by asset bases.
  • From July 2017, income on transition to retirement pensions will be taxed.

These and other changes require many to take action both well before and after June and do so based on their individual circumstances.  Many will also need to revisit their estate planning.

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

 

 

Unclaimed monies

In 2012, we sent out a warning e-mail to our clients in respect of the then new unclaimed monies regulations.

Since then, the balance of any bank account unused for more than 3 years is transferred to the government.

As it is not easy to reclaim one’s money as what one might think, we again remind you to either transact on any dormant account or close it. Please remember that charges debited or interest credited by a bank to your account do not keep an account active. You therefore need to either make a payment from or deposit into an account for it to be considered active.

If you want to know more or undertake a search on a closed bank account, go to http://tinyurl.com/qjozgon

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

Some crucial clarity at last

Effectively at a quarter to midnight, we now have some crucial clarity at last.

Superannuation changes announced in last year’s Federal budget, revised in September 2016 and passed into law by the Senate on 23rd November 2016 have remained far from clear for far too long.  Only last Thursday did the ATO finally provide clarification on the unanswered questions in respect of pensions commuted before July 2017 in order to come under the pension balance cap.  Also, a far less common situation was only addressed on Friday; that being in respect of defined benefits schemes.

This is a joke. The never should have been any ambiguity – or at the very least, it should have been rectified within weeks of the changes coming into law late last year.  As it is, these two matters have been addressed so late that they will not feature in any tax or financial planning journal nor any seminar until at least June.

A commutation requires an exact figure to be nominated. The ATO now accepts that most members with a self managed super fund have no idea of their exact balance and will not be in a position to comply with the law as intended (fortunately, our clients do following the migration to Simple Fund 360 which, other than property, provides real-time valuations and balances).  The ATO has now finally confirmed that they will ignore strict requirements and permit commutations of an unspecified amount sufficient to bring the pension balance under $1,600,000 – in other words of an amount that is not quantified until the financial statements are prepared.

The ATO will accept such commutations where:-

  • The request by the member and acceptance by the trustee are in writing.
  • The trustee resolution acknowledging this is dated before July 2017.
  • Specifies the methodology which allows the precise quantum of the amount commuted.
  • Specifies which pension will be commuted (which remains one of the big tax and estate planning issues).
  • Does not conflict with a similar request to commute.

It is also important to note that the commutation cannot be revoked.

There is also the unstated issue that commutations must be made in accordance with the trust deed. If that deed does not permit such ATO approved commutations, then the fund will be in breach of SIS regulations.  This may require some to upgrade their trust deed.

Whilst this all clarifies one issue, there are still many financial planning matters to consider such as which pension(s) is commuted and on what assets will Capital Gains Tax relief be obtained.

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

Questions for all business owners

We all know that the world is changing at an accelerating rate and becoming more online. At a conference last week, I saw a great example of this as evidenced by live numbers at http://www.internetlivestats.com/.  Click on the link and look at the numbers – you will be amazed.  So the questions for all business owners are, how are you changing your business to remain relevant and to maximise the opportunities that are now available?

The sad fact is that for most businesses, the answer is nothing. It is not only true in adopting new technologies that improve operational processes, but it is particularly true in respect of marketing (where technology now means that marketing is now push marketing not pull marketing).

To help you understand the tools you can use to improve your processes, we are looking at running a seminar on modern technologies. Please register your interest by emailing seminars@mrsaccountants.com.au

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