Posts Categorized: News

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.

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.