Posts Categorized: General

Important SG super & payroll reminders

With the end of the March quarter comes some important SG super and payroll reminders.

Friday 28th April is the end date for satisfying Super Guarantee (SG) super obligations for the March 2023 quarter.

But beware as some of the clearing houses have a submission and payment deadline well before then.  May be even next Tuesday!

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
  • Bonuses that are only in respect of overtime
  • Bonuses that are ex-gratia but have nothing to do with hours worked (which is harder to satisfy than what you might think)
  • Employees carrying out duties of a private or domestic nature for less than 30 hours in a week (such as nannies)
  • On quarterly remuneration greater than $60,220
  • Non-residents performing work for an Australian business outside Australia

If your payroll system has been set up correctly then it will perform these calculations for you.  We would welcome the opportunity to assist you with this and if need be refer you to a good book-keeper.

SG 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 become personal debts of directors.

So if you haven’t paid your employer super obligations already, we recommend doing so today!

We take this opportunity to remind you of the following matters:-

  • The SG rate is currently 10.5%.
  • We are currently following up any employing clients who have not returned their 2023 FBT questionnaire.  You can read more in our email to employers of 31st March.
  • Single Touch Payroll disclosures will be increase under what is called STP2.  Your software provider will have and will continue to be in touch about what needs to be done – but please note their extensions are about to run out and you soon need to be fully compliant.
  • Be very wary of this as STP2 permits Fair Work Australia to follow up any non-compliance, particularly in respect of under paid wages.
  • Please be mindful that there is no longer a $450 threshold.

As always, we welcome your calling us to ask any question you may have.

80,000 – I don’t think so

How many are we being told will be affected by the excess upper tax?  We are constantly told 80,000.  80,000 – I don’t think so.

Today Money Management published worrying findings from the Financial Services Council (SFC).

FSC’s modelling has shown that each of the following will breach the $3,000,000 threshold by the time they are 65:-

  • A 55 year old earning $220,000 with a current super balance of $1,400,000 (not even half of the threshold).
  • A 45 year old earning $150,000 with a current super balance of $650,000.
  • A 25 year old earning $1000,000 with a current super balance of $35,000.

That 25 year old could be a IT professional as per FSC’s example – but it will also catch all those tradies working their socks off at the moment.

Seems to me that saying this proposed extra super tax will only hit very few is grossly misleading.  In fact I question how many more than the often repeated 80,000 will exceed this threshold come 2025/26 – estimates I have read so far start at 500,000 – but it could be many more than that.

 

Think you may not be caught by the excess super tax – then read on

Think you may not be caught by the excess super tax – then read on.

The announcement as to levying extra tax on those people with total super balances over $3,000,000 has certainly caused a stir.

Treasury has already worked out how the system will work (contrary to what the Deputy Prime Minister said on the Friday morning TV news).

So let’s explore how quickly people will start to pay this tax given the threshold will not be indexed.  And to put it into perspective let’s first look at the time value of money.

$3,000,000 may sound a lot today – but you could buy family home in many parts of Melbourne 30 years ago for less than $100,000.

And look at it this way:-

  • In 2013 Labour was floating exempting the first $100,000 of a super pension being paid from an accumulation (not to be confused with the extremely generous defined benefits that politicians and senior public servants received – which have escaped the current round of fire).
  • In 2016, the then reigning Liberal government introduced a Transfer Balance Cap (TBC) of $1,600,000 – being an indexed maximum amount you could have in pension mode). $1,600,000 earning a modest return of 6% would equate to almost $100,000.

So it can be said that even though 3 years apart, both parties had a similar idea as to what a reasonable super balance in retirement capped out at.

So what are those amounts worth today?

The $1,600,000 was indexed to $1,700,000 from 1st July 2021.  Whilst that took 4 years, it has only taken another 2 years for inflation to jack it up to $1,900,000 which it will be from 1st July 2023.  So what will it be by 1st July 2025?  Very possibly at least $2,000,000 but more likely $2,100,000 the way inflation is running.

$3,000,000 may sound like a lot but the time value of money means it is worth a lot less than what most people think.

No wonder predictions are 500,000 mum and dad Australians will breach this cap come 2025/26.  And how many by 2030?  Roll forward to 2055 and it could be an alarming number (noting how house prices have inflated from 30 years ago).

So what does this mean to Fred who retires at the start of 2025/26 with $2,000,000 in super?

Fred (with a life expectancy of +/- 20 years) makes a downsizing contribution from the sale of his home of $300,000 (downsizing being a policy supported and widened successively by both parties).

Good investing could see his super earn 4% franked dividends and with growth of 5.25% – the return would be 11%.  In this case, Fred will start paying this extra tax from the 2029/30 year – it has only taken 5 years to fall into the system!  He started at only 2/3rds of the threshold but has breached it within 5 years.

And what if Fred is solely in accumulation for personal reasons?  Well he will fall into the system from the fourth year.

And what does this mean for the 2029/30 year?  In the first year the tax will only be $860.

But by 2038 the tax has grown to $27,221.  Seems a lot of tax to me particularly if the supporting assets haven’t been sold – and may even fall in value.  Roll forward another 5 and 10 years and the numbers start becoming eye watering (noting that one is taxed on the growth even if the assets aren’t sold or subsequently fall in value – think PayPal’s fall from its highest price to when it delisted).

And what about Jack who has $2,000,000 in super today?

Jack retires at age 65 in 2025/26 at which time he makes a downsizing contribution in addition to three years of making maximum super contributions (net of 15% tax).   Well Jack has the honour of being levied the excess tax from 2026/27.  Fred has started with $2,000,000, followed the rules, but is subject to this new excess tax from just its second year!

It is misleading to say this only affects 80,000 Australians.  As every year goes by, an increasing number of Australians will have their retirement savings eroded by this tax.

It will be interesting to see modelling of how many current 25 year olds will fall into the system by the time they reach age 65.

 

Upcoming interest rate rises

It seems all the pundits are now predicting not only a rate rise next Tuesday of 0.25% but another 3 such rises during the year.  For many newish homeowners, this means the base rate of 4.1% is well above the 2.5% interest stress test under which they gained their loan.

So what does this mean to your personally and/or your business?

One number I have heard is that there are 110,000 households in Melbourne suffering mortgage stress.  And that is no surprise when you consider that the repayments on a $750,000 loan have already increased by $1,300 per month.  And if they increase by another 1%, then those repayments will increase by a further $480 per month.  It s scary to contemplate what that current number of 110,000 will grow to.

You can find out more and be given actions you can implement in our webinar tonight at 5:30.  We will also explore 4 other key areas to plan and protect against in 2023.

You can book your place at https://tinyurl.com/bdvxtvmn

5 key actions in 2023

There are always challenges but we seem to currently have our fair share.  We currently see 5 key actions required to navigate 2023.

The question is what are you going to do about them?  Are you going to let them control you?  Or are you going to protect yourself from them to ensure your business or yourself personally doesn’t suffer?

We see 5 risk areas to navigate in 2023:-

  1. Cyber crime & computer safety.
  2. Inflation.
  3. Interest rates (and cash flow).
  4. Technology.
  5. Protect personal wealth that is otherwise exposed.

The degree to which these 5 risks affect you may be different to others and may be one or two don’t affect you.  But doing nothing is rarely the best option.  We therefore encourage you to attend our upcoming webinar on Tuesday 31st January at 5:30 during which we explore these risks – and more importantly, the 5 keys actions you can implement in face of them.

You can reserve your place by clicking here.

And as we are passionate about helping small businesses, we welcome your extending this invitation to family, friends and business colleagues.

 

SG deadline reminder

I trust you had an enjoyable festive season – and back into it we go!  So here is a quick SG deadline reminder.

Friday 27th January is the end date for satisfying your Super Guarantee (SG) super obligations for the December 2022 quarter.

Please make sure you do not confuse this obligation with the December quarter BAS.  The December quarter BAS automatically has a one month extension to 28th February to all.  There are no extensions for reporting and payment of SG super.

Please note that super clearing houses take up to 8 days to pass the money through to the super fund.  It therefore means that processing and payment to the clearing should be made as soon as possible.

And please make sure you have been calculating super at 10.5% since it increased on 1st July 2022.

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

We also take this opportunity to remind you of the imminent migration to Single Touch Payroll 2 with its extra reporting requirements.  Please do not hesitate if you would like an introduction to a payroll specialist.

We welcome any questions you might have.

 

How to avoid making Christmas too taxing

Entertaining and providing gifts at Christmas time to staff, customers and suppliers is a cost of doing business.  However, there are some important FBT, GST and income tax considerations and outcomes to keep in mind.

As an employer, you need to be careful at what you provide at Christmas.  The rules are complex and the costs of getting it wrong can prove very expensive.

We will outline some of the more common scenarios and what to be careful of.

Under-pinning the implications are the following key points:-

  • Christmas parties, entertainment and gifts are all treated under entertainment tax rules.
  • FBT applies to benefits given to employees.
  • There are no FBT implications on entertainment and gifts given to customers, clients and suppliers.
  • There are three methods under which an employer can quantify the taxable components of any entertainment expenditure – in fact there are 38 permutations depending on who is entertained where, how and with whom.  We will largely address the actual method which is the one used by most small businesses (as it usually results in the best outcome).  It is beyond the scope of this briefing to address the 12 week log method and we will only touch upon the 50/50 method where relevant.
  • Christmas comes but once a year and to the best of my knowledge and experience does so on 25th December.  Nevertheless, the ATO treats Christmas parties and gifts as being what are called minor, infrequent and irregular benefits.
  • Such minor benefits are FBT exempt where they cost less than $300 (including GST) provided the actual method is used to quantify entertainment.

The Christmas party

Where entertainment is calculated under the actual expenditure method (which is the most common method for small businesses):-

  • A Christmas party is held on-site on a work day, the whole cost for each employee will be an exempt fringe benefit.  So too will the spouse’s cost provided the cost per spouse is less than $300.  No income tax deduction can be claimed for the cost of the party including that in respect of any family members that may attend.  Taxi travel to or from the workplace (not both ways) will be exempt from FBT and not tax deductible.
  • If a Christmas party is held off the work premises, then the whole cost will be exempt from FBT provided the party costs less than $300 per person (employees and their spouses).  No income tax deduction can be claimed for the cost of the party including that in respect of any family members that may attend.
  • If an external Christmas party costs more than $300 or more per person then the total cost is subject to FBT.
  • The cost of any entertainment provided during the party (whether that be at the work premises or outside) will be exempt if it costs less than $300 per head – for example a DJ, musician, clown and comedian.
  • The cost of entertaining clients, customers and suppliers is not subject to FBT and is not tax deductible.
  • If any exemption is exceeded then FBT is payable.  Consequently, an FBT Tax Return must be lodged and FBT paid (the FBT tax rate being the same as the top marginal tax rate).  Please keep this in mind when completing the 2018/19 FBT Questionnaire in early April 2019.
  • All other entertainment during the year will be subject to FBT on a case by case basis.

 Where entertainment is calculated under the 50/50 method:-

  • 50% of the cost will be subject to FBT and this portion will be tax deductible.  The other 50% will not be subject to FBT and will not be tax deductible.  An FBT Tax Return must be lodged and FBT paid.
  • Only taxi travel from home to the venue will be FBT exempt and not deductible for tax.
  • 50% of all other entertainment during the year will be subject to FBT.

Gifts

The following gifts are exempt from FBT and are tax deductible:-

  • Hampers, bottles of wine, gift vouchers, a pen set costing less than $300 (inclusive of GST).

The following gifts are subject to FBT and are not tax deductible:-

  • Tickets to a sporting event or theatre, holiday, accommodation, etc.

The GST treatment of gifts is:-

  • The GST component of any tax deductible portion can be claimed back.
  • The GST component that relates to the non tax deductible portion can’t be claimed.

 

Please do not hesitate to call us should you have any queries.

 

Important Director Identification Number (DIN) update

This has no doubt been caused by their phone systems being in meltdown.  But finally we have some logical relief in having to apply for a Director Identification Number (DIN).

A DIN is required for all directors including those of trustee companies and trustees of self managed super funds.

A director is issued with a unique number irrespective of how many directorships are held.

Thankfully we finally have some common sense relief.

Those that were a director before November 2022 need not apply for a DIN if:-

  • The sole or all companies of which one is a director are liquidated before 1st
  • The sole or all companies of which one is a director are deregistered before 1st
  • A deceased director (you would think this exemption would have bene in place for the start particularly given one of the stated aims of this system is to eliminate phoenix activity).
  • Directors who have ceased due to losing capacity.
  • Director who resign all directorships before 1st December.  Please note though that it appears there is a carve out for this for those who try and re-appoint themselves after 30th November.

If you haven’t applied as yet for your DIN, please do so immediately.

The fine for not doing so is $13,200 and it will be recorded as a criminal offence.  It remains to be seen what relief may be given – but don’t rely on that.

Need to no more?  Then either call us or check this earlier blog (and related articles).

How you can make sure that your super doesn’t go to the wrong people

How you can make sure that your super doesn’t go to the wrong people?  It’s a question anyone with super should ask themselves.  Even if your balance is low, a life insurance payment can create a whole new scenario.

Peoples biggest 2 assets are almost always their family home and their super.

Your Will dictates who is to get our home if it is owned entirely in your own name.

If it is owned jointly with your partner, then they will get your half should you pre-decease them; in other words it doesn’t form part of your estate.

Your super though is held in trust for you.

If your super is with a public fund (industry, retail, employer and so on) then it is up to their board trustees to decide who is to receive your super in the absence of a complying death benefit nomination.  The trick is to have the right form of nomination in place.

When it comes to self managed super funds, it can become of whole lot trickier.  Not only do you need the right form of death benefit nomination in place, but you must be wary of the trust deed.  As they are generic in nature, they don’t reflect your wants or desires.  Moreover, they can confer general powers which are open to be used in inappropriate ways depending on how the cards fall.

In an upcoming 30 minute webinar we will explore:-

  • The various advantages and disadvantages of the 3 types of death benefit nominations.
  • Where your super can best be directed to be paid and associated tax benefits.
  • Recent court cases where a typical super fund trust deed left the door open for the wrong person to claim the super (with legal fees often into the hundreds of thousands).
  • Our new solution.

The webinar will be held from 5:30pm on Wednesday 30th November.  You can register by clicking on the following link – https://us02web.zoom.us/webinar/register/WN_Ov2inp73QdG955M_Bhk9Jg

And as we are passionate about helping people to become more successful and secure, we welcome your extending this invitation to family, friends and business colleagues.

 

Does your firm comply with Privacy Laws?

Does your firm comply with Privacy Laws?  The recent Optus and Medibank privacy hacks have been alarming.  They are also a clarion call to assess how your firm collects, holds and protects data.

And clearly what will happen next is that both laws and expectations will tighten.  And tighten they will as our privacy and security requirements lag major countries and in particular Europe.

 

So what must you do?

Firms with group turnover in excess of $3,000,000 must comply and adhere to the 13 principles as set out the Privacy Act.

You can read more about those principles here

But those that handle Tax File Numbers (like tax agents) or medical records must adhere to these principles no matter what their turnover is.  Credit reporting firms are also automatically covered by the Privacy Act.

 

So what does this mean you need to do

Not by all means a complete list, some of the key activities you should undertake are:-

  • Consider what data you actually need.
  • Consider how your team should best ask and collect personal data.
  • Consider what data you hold is sensitive.
  • Consider how long you should keep that data.
  • Consider how you are going to keep that data – such for how long, is it going to be encrypted, who has access to it.
  • Consider where you store data.
  • Undertake regular cyber training.
  • Adequately train team members on all requirements.
  • Review regularly!
  • And take out cyber protection insurance – we say this last as prevention is better than cure.

Please ask us if you would like a referral to a suitably qualified technical expert or cyber insurer.