The importance of coming under your transfer balance cap

The importance of coming under your transfer balance cap can’t be understated.

If you do exceed your transfer balance cap you can rectify the matter yourself. There is also transitional relief in the 2018 year were a breach of less than $100,000 is rectified before January 2018.  Otherwise, there is a three-way penalty:-

  1. The ATO will issue you with an excess notice which includes a 15% penalty (30% for a second offence).
  2. The amount payable will attract interest charged daily at the GIC rate (currently about 9%).
  3. You will be denied the option to claim Capital Gains Tax relief on assets that are removed from your pension balance.

So an excess pension balance can prove to be quite costly.

But it doesn’t end there.

One has 60 days to act on an excess notice from the ATO (called a Crystallised Reduction Amount). If you do not commute (remove) the excess balance out of your pension balance within 60 days then:-

  • The fund (not just your portion) will be in breach. This may result in the ATO removing complying status for the fund. This has many nasty implications including the fund not being able to receive concessional contributions from any source.
  • The offending pension balance will cease to be in retirement phase in the year which the 60 day period ends. This could easily result in upwards of $5,000 of tax being payable.

The changes in respect of pension balances are amazingly complicated. If you have not acted upon your situation then you need to do so immediately to ensure that everything is done that needs to and can be done before July 2017.  Receiving advice on your particular circumstances is financial planning advice for which you will need the services of a financial planner; as accountants we are prohibited from doing any more than explaining the rules to you.

The top 10 benefits of cloud accounting

The cloud is still a widely misunderstood tool. This is a pity as there are compelling reasons as to why your accounting file should be in the cloud.

Here are our top 10 benefits of using cloud accounting:-

  1. You can access your numbers anytime from anywhere and do so easily. So can we.
    So can your bookkeeper.
    So can someone else in another store.
    So can anyone else that you need or wish to give access to.
    Access can be granted with differing rights to access certain areas and perform various functions (such as access payroll records and generate a profit and loss). 
  2. You can issue invoices from anywhere at anytime, even from a tablet or mobile.  No more waiting until you get back to the office.  You can even speed up your cash flow by taking payments on the go. 
  3. The four big players in this space, Xero, QuickBooks Online, MYOB and Reckon Hosted, all include the option to automatically upload bank transactions.  You don’t have to, but it does save time – so you either pay your bookkeeper less or spend less time yourself bent over the keyboard. 
  4. With automatic bank feeds, it becomes much easier to keep your numbers up-to-date.  Remember that old saying – what you can measure you can manage (and by extension, what you can manage you can control and what you can control gets done).  You will have the power to know what is happening in your business at all times.  The days of business owners being in the dark as to their true situation until a Tax Return is prepared some time after 30th June should, finally, be a thing of the past.

  5. As multiple people can access the same file, gone will be the common problem of the client, the bookkeeper and the accountant all wanting to work on the file at the same time yet only one having the current file at any one time.  No more re-entering invoices, no more incorrect restores, no more avoidable time wasting, no more wasted and costly time in delivering or collecting a back-up of a desktop file and other such annoying problems. 
  6. It is sometimes months after year end before we finalise a client’s financials (we only have two arms so we can’t finalise them all in July).  Cloud accounting packages allow us to access a client file at all times.  The closer we are to the time of each transaction, the greater value we can be to our clients. 
  7. You don’t have to load upgrades to the software – it is done for you. 
  8. No more version control problems between a client and their accountant. 
  9. We have for some years used programs such as LogMeIn to access clients’ computers remotely whether that be to obtain reports, fix problems, etc.  Those remote access programs are comparatively cumbersome.  With cloud based programs, we can just login once you have set us up as a user.  We can then answer your queries far more quickly and efficiently. 
  10. When up and running and used properly, cloud accounting should reduce accounting fees and, more importantly, enable us to provide a better service.

 If you are not yet using cloud accounting, then we welcome the opportunity to discuss your needs and discussing solutions. We are software agnostic – we don’t push only one program as some accountants do as we recognise that one program does not suit all needs.  We recommend what is best for you.  Call us for a free initial meeting to discuss your business and its needs.

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

Lessons from a Master Chef

George Calombaris from Master Chef was in the news during the week for his restaurants under-paying staff.

He apologised for this and said it was a book-keeping oversight caused by the business growing too quickly. This often happens.  And it can happen all too easily as whilst there are support channels and complaint procedures for employees (as there should be), there is no such similar support for businesses.  It is a pity there is such a lack of support for employers as there are so many matters to comply with.  It is particularly difficult for most employers to correctly identifying what award (or awards) employees apply. 

Sometimes, breaches are quiet avoidable – like not issuing pay slips or not issuing employees with the national 10 employment standards.

The costs of getting it wrong can be considerable – both financial (as in fines) and reputation (due to negative press stories).

We ran a seminar on employment obligations two years ago and will look to re-run it again. In the meantime, we can refer you on to a qualified employment expert who can ensure that you comply with all obligations – including PAYG WH, WorkCover, Pay-roll Tax, employment law, awards, FWA provisions.  We can also set you up on a complying payroll program (and guide you away from deficient ones).

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

What do the company tax cuts mean to you?

After much debating and deal making, the company tax rate cuts announced in last year’s Federal Budget have finally been passed by the Senate. So what do the company tax cuts mean to you?

The most important matter to understand is that the tax rate cuts only apply to businesses – the company tax rate for companies that earn passive income from such sources as interest, rents and dividends will still be taxed at 30%.

So for companies with turnover under $10,000,000, the tax rate for 2016/17 will be 27.5%. The same rate will apply in 2017/18 for those companies with turnover under $25,000,000 with progressive increases in the threshold turnover until it applies to all corporate businesses in 2023/24.  Thereafter, the rate will reduce progressively down to 25%.

Businesses who trade through a corporate structure will benefit in that they will pay less tax (including PAYG Instalments). Their cash flow will improve.

So who won’t benefit:-

  • Businesses who don’t trade through a corporate structure whether that be as a sole trader, partnership or trust (although there is a tax discount of up to $1,000 granted to non-corporate businesses).
  • Corporate businesses who make a loss or have carried forward income tax losses. In this regard, it must be noted that it is said that half of all companies don’t make a profit.
  • Those shareholders who are remunerated by dividend from their company as they will receive a lower imputation credit and will therefore either pay more tax or receive a lesser refund.

The last point is just as important to investors (including self managed super funds) as it is to shareholders of their own company.

So let’s compare the situation as we have known it with what happens if a (a) company pays out the same amount of dividend and (b) a company that pays out all after tax profits out as dividends. 

 

To date at 30% company tax

If company pays same dividend amount

If company pays out same amount of pre-tax profit
Profit 1,000 1,000 1,000
Tax 300 275 275
Profit after tax 700 725 725
Assuming all paid out as a dividend 700 700 725
Franking credit 300 266 275
Taxable income 1,000 966 1,000
Individual’s tax at 39% MTR & M/care 390 377 390
Franking Cr claimed 300 266 275
Tax payable by shareholder 90 111 115
After tax money 610 589 610

Companies will still be able to attach imputation credits to dividends at the same rate the company tax was paid. That said, it won’t be long before the 30% credits are used and the first column in the above table will be a thing of the past.

So what can you do to maximise your position? If you or your super funds is a shareholder in a public company, then your position will be dictated by the dividend pay out rate as resolved by the board and existing tax credits.  However, if you are a shareholder in your own name, you may wish to change your strategy to better suit your circumstances both now and into the future.  We would the opportunity to discuss your situation with you.

 

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

Why valuers and actuaries are going to have a field day

 

If you see someone happy about these super changes, then you can safely presume what they do for a job as valuers and actuaries are going to have a field day.

The importance of being above or below the transfer balance cap and/or the pension balance cap requires that those members who are borderline need to have accurate numbers within their self managed super fund (SMSF) both before 30th June and thereafter each 30th June.  Yes, the trustees of a SMSF are entitled to determine the value a fund’s property(ies), but no doubt the ATO will question those that appear to have a favourable outcomes from changing property values.  In such cases, it may be prudent to pay for a valuation from a licenced valuer to remove any doubt and to stop any ATO enquiry in its tracks.

Actuaries’ workloads will increase more so. There will be a number of funds that stop and/or start pensions before 30th June and for which they will need an actuarial percentage should the fund be unsegregated.  And then there will be those large funds that can no longer remain segregated after 30th June 2017 with the excess of any members’ balances over the $1,600,000 pension cap thereafter required to be moved into pension mode.  The wonderful days of the fund being entirely in pension mode will cease in just over 100 days.  Accounting fees will increase with the actuarial tasks and tax refunds from imputation credits will fall with large funds no longer having 100% of their income being tax free.

If you are affected by these and indeed other super changes, you are best supported by:-

  • An accounting firm who can provide you with real time numbers for your SMSF (as Maggs Reid Stewart Pty Ltd can).
  • Financial planning advice from a licenced financed planner (as accountants are prohibited from advising you on what actions you should undertake). So Maggs Reid Stewart can’t advise you as to what to do, but Maggs Reid Financial Planners Pty Ltd can.

 

The $1,600,000 pension cap

The most complex of the super changes are in respect of the $1,600,000 pension cap & associated CGT relief rules.

If you have more than $1,600,000 in pension mode come July 2017 then the ATO will force you to:-

  • Withdraw the excess amount,
  • Pay a penalty tax,
  • Lose any entitlement to Capital Gains Tax relief, and
  • Not allow you to access any future indexation increases in the transfer balance cap?

So what do you need to do? There is no one right answer for everyone as what is best for you depends on your individual circumstances and goals. It is, to say the least, tricky as there are a number of inter-related decisions to be made.

Following the removal of the accountants’ exemption, an accountant can only make factual statements about tax law and limits. Advice as to amounts to be held inside and outside pension mode, amounts to be contributed and assets to be sold is financial planning advice. Such advice is only given by way of a Statement of Advice (financial plan). It will soon be July and with many seeking advice and with strategies to be formulated and implemented, the time to act is now.

A super asset protection story

I have just read an interesting super asset protection story.

Most people understand that super is a low tax rate environment and one of the strongest forms of asset protection. The extent of that asset protection now seems to be much stronger than previously thought.

Put simply, one can have their pants sued off, but one’s super will be protected except for last minute contributions made to defeat creditors.

In the case of The Trustees of the Property of Morris (Bankrupt) v Morris (Bankrupt) 2016, a widow received two lump sum payments out of her late husband’s super.  Her late husband was a bankrupt and she was also declared bankrupt after his death.  It was held that those lump sum amounts could not be paid over to her trustee in bankruptcy and shared with creditors.  So the asset protection of super lasted beyond the deceased’s lifetime as the lump sums were held to be a crystallised interest in his super fund.  Arguably this protection would also extend to reversionary pensions and binding death benefit nominations.

Perhaps this court case is a timely reminder of the benefits of super when recent changes have some re-evaluating how much they hold within super whilst others may find it harder to accumulate super given the upcoming reduction in the contributions caps.  As has always been the case, a specialist estate planning lawyer can guide you through all of the important matters.

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

Debts, snails & the ATO

One has two obligations to the ATO – lodge any required return and pay any associated tax. Those in financial trouble or difficulty often fail to do both.  This is a pity as the ATO is quite reasonable in dealing with paying off taxes owed. 

If you are in financial difficulty, you should ensure that the activity statement or return is lodged on time. If they are lodged late, then late lodgement penalties will be levied and the ATO will be far more reluctant to agree to any deferred payment arrangement.

Non-lodgement is particularly an issue for employers as unreported and unpaid PAYG withholding (tax from wages) and SG super become a personal liability if they remain unreported and unpaid for three months. The ATO routinely issue what are called Director Penalty Notices (DPN) and actively chase amounts owing.

A word of caution though. Entering into a payment arrangement with the ATO could be a breach of your loan terms or possibly even your franchise agreement.

The ATO may reverse fines for late lodgement of a Tax Return(s) where there are extenuating circumstances. In an article in The Age on 13th February 2017, a list was provided of reasons that the ATO rejected as not constituting extenuating circumstances and which included:-

  • Snails eat our mail, so your lodgement demand letter must have been eaten.
  • I had a fight with my wife and she works my tax agent so I couldn’t meet with him.
  • My client can’t lodge because she is currently of the North Pole.
  • I could lodge my 2003 Tax Return because suffering from trauma from a serious car accident I had in 2007.

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

Simpler BAS reporting

Simpler BAS reporting? Sounds too good to be true doesn’t it?  

The ATO has been in consultation with tax bodies, industry associations, small businesses and accounting software providers. The end result is that one will soon be able to choose to only report:-

  • G1 – Total sales
  • 1A – GST on sales
  • 1B – GST on purchases

But does this really save time and cost?

It depends.

If your accounting processes are basic then it probably will.

But for most people, it won’t constitute any real saving.  With modern accounting software and by implementing automated bank feeds and perhaps even integrated point of sale systems and other modules, it has become much easier to run an up to date and accurate accounting system.  From such a system, completing a BAS is no harder than running a couple of reports after undertaking some checks.  Preparing an accurate BAS should be no more than a by-product of a reliable and up to date accounting system.  So reporting less on a BAS doesn’t mean much.

If running an up to date accounting system is a challenge or impractical, then I suggest that the simpler BAS option may not be the best option. If you struggle to run accurate accounting records, then having fewer labels to won’t actually amount to much.  Perhaps the better solution is to utilise GST Option 3 where one pays a fixed amount as advised by the ATO.  Then, when the year end financial statements and Tax Return have been finalised, an annual BAS / GST Return can be prepared (within which credit is given for the quarterly GST instalments paid).

I suggest that for most, a Simpler BAS is only simpler in name.

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

Can I deduct the cost of a website?

Can I deduct the cost of a website?  This has always been a good question but an even better one now that the ATO have re-defined their position.

The ATO released TR2016/3 just before Christmas. A TR is a tax ruling which is binding on taxpayers and the ATO.  They are only issued for big ticket items. 

The ATO had previously issued a tax ruling in 2001 but withdrew it in 2009 due to the changing nature of websites.

So what is the ATO’s stance now?

No matter how basic, the costs to acquire or develop a website are deemed to be capital. This means they are progressively depreciated.  However, an immediate deduction can be claimed where the purpose and life of the web page is intended to be short – say like a short term sales campaign.

Initial website expenditure may also be deductible where it is paid for periodically under a licence fee model.

Domain name registration fees and website hosting costs are deductible when expended.

So what about maintaining a website?

Such costs would generally be deductible provided they aren’t in respect of significant modification. The ATO states that significant modification would not include:-

  • Persevering the website.
  • Doesn’t alter the functionality of the website.
  • Doesn’t improve the efficiency of the website.
  • Doesn’t extend the useful life of the website.

One common question is in respect of adding another on-line payment method. This would be considered to not being a significant modification and can therefore be deducted in full.

Social media posts are generally deductible due to their immediate short term nature.

We welcome any question you may have.

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