Posts Categorized: News

Top 11 tax planning tips for 2022

So here we are in the middle of June with business owners understandably looking to save tax.

There are a raft of legal ways to either permanently save tax or obtain timing advantage.  And in tough and volatile times like this, what could more be important than not letting your cash reserves unnecessarily leak.

In light of recent tax changes there are some new considerations.  And for others, common strategies take on greater importance.

On Thursday 18th June we will explain the top 11 tax planning tips for 2022.  You can book your place by clicking here.

And our webinar will also feature Bobby McKeown who will take you through all the important must do actions that all employers must implement before July.

With so much to learn and for you to act upon we look forward to seeing you on Thursday.  All you need to do is to invest 25 minutes of your time from 5:30pm.

How does the super co-contribution work?

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.  So if you wish to target the full $500, you will need to contribute $1,000.

To be qualify, 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 coming from employment and/or a sole trader business.
  • Be less than 71 at the end of the financial year.
  • 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 $56,112.
  • Have paid a non-deductible contribution into superannuation from after tax money by 30thJune 2022.  This means the contribution must be made from a personal or joint bank account.
  • Not be a temporary visa holder.
  • Lodge a Tax Return for the year ending 30thJune 2022.
  • The maximum co-contribution for a personal contribution of $1,000 is $500 if your combined assessable income is under $41,112.  Thereafter it progressively reduces by 3.333 cents for every dollar in excess of $41,112.  There is no entitlement if your combined assessable income exceeds $56,112.
  • Not have contributed more than your non-concessional cap.
  • Have a total super balance under the Transfer Balance Cap (between $1,600,000 and $1,700,000).

If you want to find out what you might be entitled to, click on the following link to the ATO’s calculator here

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 2022 Tax Return with the information provided by one’s super fund(s).  Consequently, most co-contributions will not be credited until at least January 2023.
  • If your super is with a public or employer superannuation fund, you will need to ensure they accept such contributions.  You also need to obtain the appropriate form.
  • You will need to make your contribution well before 30th June.  For those with your own SMSF, 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.

What is best for you depends on your circumstances and take into account a large number of considerations.

You should therefore seek financial planning advice to ensure such a contribution will work as intended and is in your best overall interests.

How to maximise your position through PROPER tax planning

Proper tax planning done well is pivotal to maximising your position.

Our process takes into account:-

  • Opportunities to be taken up
  • Issues that need to be rectified
  • Attend to a variety of must do compliance tasks
  • Recommendations to improve your tax position (both in current and future years).
  • And also takes into account various government benefits such Family Tax Benefit and Senior Health Concession Card.

Our 5 page checklist ensures you don’t miss out on the good stuff you are entitled to.  We also ensure you avoid the bad stuff.

Our 5 page checklist is our internal process.  What our clients are issued with though is report which clearly sets out what:-

  • Our recommendations are.
  • You need to implement (both before and after 30th June).
  • The financial benefit will be to you.
  • Your tax payments for the next year.
  • All in plain English and easy to read (and re-read).  It’s not some short email or quick conversation.  It is all set out in an easy to read report.

Are you concerned that your accountant doesn’t have the same robust process to ensure you are better off?  We welcome the opportunity to discuss your situation with you.

And you may also wish to join me on Thursday morning as I deliver a presentation on proper tax planning.  It’s a Zoom meeting that concludes at 8.30am so it won’t break into your working day.  Please email me if you would like the details so I can register you.

The latest on the ATO’s attack on trusts

May I start by reporting that there has been a welcome shift by the ATO away from its controversial quantum shift in how they would regard trust distributions.

There are a great number of unfortunate ramifications that could flow from the ATO’s attack on trusts – in particular extra taxes, interest and penalties.  Got your attention?

But amongst all the possible outcomes, there is one key matter to factor in going forward.   If your trust distributes to an adult child or company, then that amount must be paid to them AND they must keep evidence that they used those monies for their benefit.

But let me set the scene before exploring those developments

As you will have read from our client emails on 1st and 21st March, the ATO announced, to put it mildly, a totally unexpected shift in the way they would regard trusts distributions.  Moreover, they announced their right to retrospectively adjust taxable income and levy fines and interest as they saw fit.  Going retrospectively back all the way to the 2014 financial year!

In doing so, the ATO were disregarding a court case they lost before the Federal Court.  They somehow think they are above the law and can ignore court decisions.  And even though they are now appealing that decision to the High Court, they have not fully withdrawn.

They still hang their hat on a 2014 fact sheet.  Fact sheets are not law.  They are not legislation.  They are not binding on taxpayers and tax agents.  But the ATO are defending themselves on this as a legislative line in the sand – and doing so even though they have done nothing about it in the following 7+ years.

So what as the initial reaction?

It has caused a storm of anger amongst accountants and lawyers.  And accounting bodies and professional firms have been lodging submissions in numbers not seen before.

It even resulted in the Federal Treasurer Josh Frydenburg visiting my accounting discussion group the week before last.

Even though it does happen, I can’t tell you of a single instance where a professional body or firm has lodged a submission to a public tax ruling.  It happens but one never hears about it.

This is different.

There was such a howl that the initial submission date of 8th April was extended to 29th April.  And it came last week that it had been extended again.  Certainly Frydenburg made no comment as to extension on 27th April.  No-one seems to have heard about a further extension until late last week when the IPA announced they had lodged a submission (perhaps they were late and accommodated out of courtesy?).

Where are we at now?

Whilst this new approach hasn’t been dropped (noting that the High Court has yet to hand down its position) the ATO have a least back pedalled.

Three comments of note made by the ATO Deputy Commissioner Louise Clark are that:-

The ATO is not concerned when profits from the family business are distributed to members of the family who work in the management of the business and then that family member chooses to reinvest the profits in the business.

The ATO will not be pursuing taxpayers who entered into arrangements between 1 July 2014 and 30 June 2022 where, in good faith, they concluded that section 100A did not apply to them based on the previous 2014 guidance.

“I want to reassure the community – we won’t have a retrospective element. We stand by our 2014 guidance for this interim period,”

They are only words.  There are still inconsistencies in the ATO’s position.  The law has remains the same and has not been changed.  They are still taking a very aggressive position not supported by law and 43 years of practice.  But at least we have some movement towards normality.

So what happens next?

We await the High Court’s decision.

It is not unreasonable to expect nothing changes before they decision is handed own.  But the reality will probably be that the ATO will finalise their ruling as they see fit.

Please be assured that professional accounting bodies will continue to seek what is fair and reasonable.

In the meantime, we at least have the comfort that prior years and indeed 2022 will not be under the microscope as first announced.

But from July 2022, it will be a different world if the ATO only gets part of what they decreed back in February.

 

This is far from settled but we do welcome your questions.

 

Why getting your FBT exposure right is so critical

So why getting your FBT exposure right so critical?

Before we answer that question, I will answer the base question of what is a fringe benefit.  A fringe benefit is anything provided by an employer to an employee other than by wage/salary and super.

As such it includes such things as:-

  • Passenger cars
  • Car parking
  • Entertainment
  • Selling firm’s goods at a discount
  • Providing accommodation
  • Paying any employee bill whether that be school fees, mortgage, health club membership and so on.

And this leads to the understanding of how to address your FBT exposure.

To avoid over-paying FBT and not coming unstuck in an audit you need to:-

  1. Determine whether you the employer are exempt (charities, public hospitals) or subject to a reduced rate (private schools).
  2. Determine what fringe benefits you have provided to whom
  3. Assess whether an exemption or concession applies to that type of benefit.  There are some special rules which benefit small businesses.
  4. Calculate the taxable value
  5. Then, and this what most people get wrong, determine whether the employee is better off making a contribution to reduce the fringe benefit rather than pay FBT tax (which is equivalent to the highest marginal tax rate).
  6. Prepare and lodge the FBT Tax Return.

The reality is that all too many employers get this wrong as the ATO is successful in making an adjustment in 50% of FBT audits.  That’s every second audit!

And don’t think the ATO doesn’t think this is a big audit target. 

A couple of years ago, they recorded the number plates of all utes parked at an AFL game at the MCG.  Those plate numbers registered to companies were then cross matched with lodged FBT and Income Tax Returns.  The ATO had a field day!  And perhaps are doing the same again now that we are returning to the footy and other activities post covid.

So what should you do?

Well for our clients we run through a checklist to make sure all benefit s provided are identified.  We will then work through (a) quantifying the benefit before (b) determining the most efficient manner of dealing with the benefit and then (c) lodge an FBT Return (we do this even if the taxable value has been reduced to nil as the ATO have therefore issued an assessment and then only have two years to audit.

And with that I return to the question of why is getting your FBT exposure right is so critical?  As you will now be able to appreciate there is more than answer to this question:-

  • It is a key ATO audit area.
  • If it is wrong in one year, the ATO will start auditing all years.
  • With the FBT tax rate being the equivalent of the highest marginal tax rate, the tax can be significant.
  • The ATO readily applies both interest and penalties.
  • The audit clock will start clicking once an FBT Tax Return is lodged – after that the ATO can’ t go back further than 3 years.

And this year due to covid work backlogs, the ATO have extended the FBT Return lodgement date by 4 weeks to 27th to June if lodged by a tax agent. But don’t leave it to then – lodge now and get the audit clock ticking!

Do you have any questions?  We would welcome the opportunity to discuss them with you.

 

How does the 2022 Federal Budget affect you?

So how does the 2022 Federal Budget affect you?

What do you stand to gain?

What do you stand to lose?

We have written our tips and traps newsletter as to how the 2022 Federal Budget affects the typical small & medium sized business as well as individuals.

You can access it by clicking on Budget 2022 Tips & Traps

In coming weeks we will be amending our pre year end planning checklist accordingly.  We so look forward to the valuable process of ensuring clients take up all benefits and avoid any pitfalls.

Whilst we will be on the front foot proactively guiding our clients, we welcome any questions you may have.

2022 Federal Budget

Please find attached a briefing paper outlining the various announcements within the 2022 Federal Budget.  This will shortly be followed by a more detailed tips and traps analysis.

It is important to remember that a Federal Budget is only a series of announcements.  The announcements still await being passed into law even if the starting date was stated to be Tuesday night.  That said, the fuel excise reduction legislation was passed yesterday.

Moreover, we have an election just weeks away and very possibly a change of government.  Labor has already stated that they intend to hand down their own Budget later in the year should they win the election.

I take this opportunity to highlight what I believe are the 6 most important announcements that affect most clients.  Not all of these may affect you personally and other announcements may, but these are the 6 with the widest impact:-

  1. Cost of living support through the $250 cost of living payment and the $420 increase in the Low and Middle Income Tax Offset.
  2. I must admit that even with low interest rates, I didn’t see this one coming given prevailing share and property prices – an extension of the 50% minimum pension reduction for the 2022/23 year.
  3. 20% extra deduction for small business expenditure on digital adoption expenditure.
  4. 20% extra deduction for skills and training expenditure.
  5. 50% reduction in the fuel excise tax for 6 months.
  6. Covid test expenses paid by employees and employers will be tax deductible and employers will not be subject to Fringe Benefits Tax.

And as far as I can read so far, there was no announcement as to another extension of the instant asset write-off.  So this means that after 30th June 2023, small businesses will not be able to deduct in one year the full cost of any asset they buy; noting that cars are subject to a limit.  It will be some time before supply chains revert to pre-covid norms, so best to start planning any asset purchase sooner rather than later.  And remember, this means that any asset purchased must be installed ready for use before July 2023.

As I said, we will come back to you with a more detailed tips and traps analysis.  In the meantime, I leave you to read the attached briefing paper and moreover welcome any questions you may have.

You can access our briefing paper by clicking here.

Next Director Identification Number (DIN) requirement

We have made aware in past blogs of the staged requirement for directors to apply for and hold a Director Identification Number (DIN).

As of Monday night, we now enter the next DIN stage.

From Tuesday 5th April, a first time director of an Australian company must have been issued with their DIN before they apply to become a director.

Those directors that were directors before November 2021 still have until October 2022 to apply for their DIN.  But please don’t leave it until the last minute, particularly if you want to apply by paper!

Warning

Those first time directors since October 2021 have 28 days to apply for their DIN.  Those that have not applied for one are now being actively reminded.  It is good that there has been a gently, gently approach as the fines are eye watering.

Please find following the DIN registration link.

https://www.abrs.gov.au/director-identification-number/apply-director-identification-number/verify-your-identity#phone-application

Due to privacy reasons, we are prohibited from applying on your behalf – yes it does seem odd given we apply for personal Tax File Numbers and handled passports and drivers licences when applying for various state covid grants.

That said, we welcome any query you may have.

You may also wish to view our past blogs on DINs.

Director Identification Number (DIN) Update

It is a while since we posted our initial blog on this new requirement.  With that in mind, it is now time for an update and reminder.

A phase-in registration process started late last year under which all Australian directors are required to have applied for their Directors Identification Number (DIN).

You can read more by clicking here

But the critical requirement is adhering to the timetable of when you must apply for your DIN:-

  • If you were a director by 31st October 2021 – by 30th November 2022
  • If you become a first time director after 31st October 2021 but before 5th April 2022 – within 28 days of appointment.
  • After 4th April 2022 – before appointment.

The original wording of this timetable was, to say the least, poorly phrased and confusing.  Thankfully, it has now been clarified.  It is now crystal clear that a person who was a director before November 2021 has until October 2022 to apply for their DIN.

Last year when applying for state grants we had to gain and upload copies of sensitive documents such as passports and drivers’ licenses.  We therefore fid it odd that we are not permitted to apply for clients.  It is also odd from the viewpoint that many clients will be unable or uncomfortable in applying.

That said, the paper application form is now available – you can find it at click here

It remains unclear how those will be able to apply where they don’t hold certain key documents.  Same too where one has documents issued in their middle name, incorrectly spelt versions and the like.

And please remember to notify us when you have been issued with your number.

Why is planning so important?

Why is planning so important?  No doubt you had numerous ideas over the summer break on ways you can improve your business in 2022.  Don’t let that impetus and initiative slip away!  The medium by which to bring those thoughts together and generate results is to bring everything together in a business plan.

And new year planning could not be more important given how covid affects us all.

Planning requires thought, analysis and decisions to be made in context of other factors and considerations (and not in isolation).  Planning requires clear thinking, rather than knee-jerk reaction, and forces you to take a breath.  It is no coincidence that those businesses that plan tend to be more successful.  It is that focus that also ensures that key people work on the key tasks and aren’t consumed by dealing with what were really unimportant but neglected matters that have become urgent.

In preparing for battle I have always found that plans are useless but planning is indispensable.
Dwight D Eisenhower
(And he should know as he was in charge of D-Day)

Some think it requires you to lock yourself away for days on end.  It doesn’t.  It will however take time as will the on-going reviews of performance.  Planning gives you a roadmap and series of goals to measure yourself against.  It also gives not clarity but also focus to your employees.  Don’t lose those ideas you had!  Set aside time to properly formulate a plan and put it into writing.

We have all the tools and experience to guide you through this process.

We also have the systems to both measure your success and hold you accountable in reaching your goals.

And what better way to identify key areas of focus for 2022 by attending our upcoming webinar – 7 key things to implement in 2022.  You can register your place by clicking here.

A good plan is like a road map.
It shows the final destination and
usually the best way to get there.
H J Judd