Posts Categorized: Tax

How do you find lost super?

The ATO has reported that at 30th June 2017, there was $18,000,000,000 of lost super within 6,300,000 lost super accounts.  That’s an average of almost $3,000 per account!  So how do you find lost super?

Whilst super funds hold lost uncontactable and lost inactive accounts, the ATO holds unclaimed super monies.

You currently have two ways to find lost super:-

  1. Complete and send off the Searching for Lost Super form – which you can access at https://www.ato.gov.au/Forms/Searching-for-lost-super/
  2. Log into your or open a myGov account – https://my.gov.au/LoginServices/main/login?execution=e1s1

Most of these unclaimed super accounts tend to belong to younger people. Perhaps you may wish to check whether your kids know where all their super is.  Or perhaps they should just lodge an enquiry anyway – they have nothing to lose and the application won’t cost anything.

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

 

Downsizing the family home

In our 2017 Federal Budget briefing party, we outlined the proposed downsizing the family home super concession. The proposal is designed to increase housing stock by encouraging retirees to move out of their family home earlier than they may otherwise do.

The intention is that from 1st July 2018, those aged over 65 can take up to $300,000 and contribute it into super (where the tax rate is lower than the first personal marginal tax rate).  There is no maximum age limit and no work test need be satisfied.  Any such contribution is non-concessional (meaning it is not a taxable contribution).  It also doesn’t count against one’s non-concessional contribution limit.

Couples can both utilise this even where a property is only one person’s name.  This means that a couple can contribute up to $600,000 between themselves.

However, it seems as though the Greens and Labour are against this initiative. We will keep you posted of whether this proposal is legislated and in what form with all of the conditions.  We also remind you that the proposed start date is still seven months away.

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

Estate planning lessons

Last Wednesday, we ran a seminar which explored estate planning, at home aged care solutions, ways to deal with family members suffering from dementia and the various types super death benefit nominations. We had an almost full house despite the stormy weather and despite the fact that we last ran an estate planning seminar just two years ago.  We are so pleased that so many saw the wisdom to learn, and for some, re-visit key estate planning lessons.

Simply put, estate planning is the process of ensuring that the right assets get to the right people in the most efficient manner.

This process requires the consideration of both state and federal laws (such as Capital Gains Tax).

The process also considers that the following assets which must be addressed separately as they do not come into an estate and therefore cannot be dealt with by a will:-
  • Jointly owned assets.
  • Assets held within a discretionary trust.
  • Superannuation (unless addressed via a death benefit nomination).
  • The beneficial owner of a life insurance policy.

Although a will is usually the main estate planning tool, it is just one of many estate planning tools.

Sadly, less than half of the population have a will; these people are said to die intestate. I say sad as intestate provisions, even with upcoming changes to the way default provisions will distributes assets, rarely deliver anything close to an optimum outcome.

It is my personal belief that one has a moral obligation to ensure one has an effective will as:-

  • Those left behind at a time of grieving prefer to have a set of instructions to follow. They also prefer not to second guess what you would have preferred.
  • It prevents disputes. I know of cases where improper estate planning has ended in court costs of over $300,000. One should also read this as years of delay and family members that no longer speak to each other.
  • It ensures family complexities are best handled such as second marriages, kids getting divorced or having addictions such as drugs, spending or gambling as well as protecting inheritances being claimed by business creditors.
  • It greatly diminishes the likelihood that someone will be able to contest an estate.

Estate planning is your opportunity to ensure your life’s work, sacrifice and your intended legacy is carried out.   The more complicated your structure, the more professional assistance you will require from lawyers, accountants and financial planners.  It may cost money to properly implement but it can save a great deal more in the long run.  And it is the right thing to do.

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

$20,000 asset write-off

The $20,000 asset write-off is due to end on 30th June 2018.  Thereafter, small businesses will return to the old system of only being able to write-off the cost of an asset costing less than $1,000.

June will soon be here so best to start planning as to what you need to buy. Best also to keep out an eye for any specials in the meantime.

And don’t leave it too late. There will no doubt be a rush in June and perhaps there might some inflated prices for some assets as there was in 2009 with the 50% investment allowance.  There are also other traps to be aware of.

Won’t to know more? Then go to our previous blogs at:-

http://www.mrsaccountants.com.au/20000-asset-write-off/

and

http://www.mrsaccountants.com.au/20000-asset-write-off-part-2/

We will also be happy to answer any questions you may have. Call us on 9899-7511.

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

 

17 things you must have addressed

So what are the 17 things you must have addressed?

As Benjamin Franklin once rightly noted, the only things certain in life are death and taxes. We most certainly help all of your client with the second matter. We also do our best to guide clients to undertake proper estate planning as it is something that will eventually affect everyone..

Simply put, estate planning is the process of ensuring that the right assets get to the right people in the most efficient manner.  It requires thought and consultation.

So, will your estate planning ensure the best outcomes?

If you haven’t addressed the following points, then your estate planning is likely to lead to less than optimal outcomes, possible disputes and be more financially and emotionally costly to administer.

So have you understood and considered:-

  1. My Will still reflects my wishes and considers my current assets, extended family and any entities that I have established or control.
  2. I have taken steps to prevent inheritances falling into other people’s hands due to divorce, bankruptcy, drug and gambling debts.
  3. Everyone knows where my Will is.
  4. There is proof that my last Will was written at a time when I had the mental capacity to make such decisions.
  5. I have clearly set out which personal items and family heirlooms are to be left to whom.
  6. Dying intestate (without a Will) really does matter as it rarely provides an optimal outcome.
  7. I still wish that my named executor/executrix is to administer my estate.  Are they still alive?  Are they capable of administering the complexities of my estate?  Are they still living in my home town?  Do they know they are the named executor/executrix?  What if they reject the appointment?
  8. I understood and have considered all Capital Gains Tax implications including utilising existing capital losses which may otherwise be lost.
  9. I understand that a Will dictates what happens to assets that are owned by an individual.  I therefore understand that assets owned jointly as joint tenants, the owner of life insurance policies and my superannuation cannot be dealt with by my Will.
So want to know what the other 8 matters are? You can check back for Part 2 to this blog topic or attend our upcoming seminar.

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

 

How do you claim your mobile and internet costs?

So how do you claim your mobile and internet costs? You have to be careful as the ATO is quite strict.  In fact they are even more onerous than for car claims.

Any expenditure is deductible:-

  • To the extent that it relates to earning income, and
  • Can be proved (or in ATO language, can be substantiated).

So how do you substantiate mobile and internet deductions?

  1. There is a safe harbour method for phone claims. Under this method, you can make an estimate if your phone claim is less than $50 and is based off rates of 25c for calls from landlines, 75c from mobiles and 10c for texts.
  2. Where phone and internet usage is itemised on a bill, then you can claim a % based off a 4 week analysis of your bills. Identifying work calls is easy. What isn’t so easy is analysing the data downloaded as a percentage of total downloads.
  3. Where usage is not identified on a bill(s), you need to keep a register for 4 weeks.

One could argue that this too onerous as one can keep a log book for a car in one year and use it for as many as the next four years – provided there has been no major change in the pattern of ravel such as change of job and house. But we don’t write the rules – it is our duty to explain them to you so that you can legally claim everything you are entitled to.

So what if you have a bundled plan? The ATO requires apportionment determined by:-

  • A supplier’s breakdown,
  • Based on the relative cost if they were purchased separately, or
  • A breakdown based off a comparable supplier.

In addition to keeping bills and diary records, it is also advisable to keep any acknowledgment from your employer. As a side issue, the ATO has taken the approach with travel claims to contact a taxpayer’s employer directly asking them whether there was a legitimate and deductible approved trip.

It doesn’t matter how genuine your claim may be, if you can’t substantiate it, the ATO will deny the claim (and possibly charge both interest and penalties).

Please e-mail accountants@mrsaccountants.com.au if you need a diary record register and declaration to evidence your phone and internet claims.

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

PAYG Instalments options

PAYG Instalments are income tax payments paid during the year by companies, super funds and individuals.  In respect of individuals, it is levied on income not taxed upon receipt with common examples being interest, dividends and trust distributions.  It is not assessed on wages or capital gains.  With the September BAS being the first one for the year, one can choose how to calculate your PAYG Instalments.

We usually prefer that clients use the instalment amount method.  In the majority of cases, it will not result in an over-payment that can so often arise under the instalment rate method.

In some cases though, the % rate method may enable one to pay a lesser amount.  If the instalment income is nil or negligible in the first couple of quarters or much less than the year before, then no or little tax will be paid.  A significant payment will only be required at such time as income is received.

It is critical with PAYG Instalments (and indeed GST Instalments) that any downwards or indeed upwards variation be made cautiously.  If a variation results in the instalments paid being 15% less than the actual liability then the ATO will issue a fine.

Please do not hesitate to call us should you wish to discuss your own situation.

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

Small business restructure rollover

As we announced in our 2015 Federal Budget briefing, small business restructure rollover relief has been available since July 2016. It has been a welcome initiative as one never knows how a new business will perform.  Despite the best planning and expectations, an accountant often wishes they had recommended a different structure when reality becomes known.

These rules allow a small business to transfer active assets from entity to another and do so without attracting an income tax liability. Assets include depreciating assets, stock and other active assets used in the business.  Rollover relief is not available on passive assets (including loans to shareholders).  Assets transferred will retain their original Capital Gains Tax (CGT) status in the new entity.

One needs to be mindful or wary of:-

  • The restructure must be a genuine to qualify for this relief.
  • After the transfer, there must be no change in the ultimate economic ownership of the assets transferred.
  • Only a small business can use these rules (which means group turnover must be less than $10,000,000).
  • These ATO rules provide relief from income tax; there may be GST implications.
  • There might also be state government stamp duty issues.
  • Tax is deferred under these provisions until such time as the assets are sold. It might be that a business may be better off by re-structuring under the Small Business CGT concessions.

Despite sounding relatively simple, these are complex provisions that should only be used after a full examination of all of the options and implications (as we have done with a number of clients). 

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

What does the ATO think about Labor trust reform?

What does the ATO think about Labor trust reform?  Well, it looks like Labor’s proposal to tax trust may be just that – a proposal.

The Age on Friday 25th August reported the ATO’s Deputy Commissioner of Taxation Mr Chris Jordan speech to the Vodafone National Small Business Summit.

The Age reported that Chris Jordan said “There’s a whole lot of reasons to pass through capital gains tax discounts and to be able to have discretion as to income and protect assets. It’s hard one.  It is a real difficult nut that one.  I think there have been a few goes at it over the decades.” 

I hear three things in these comments:-

  1. It’s difficult to address (and doing so may have unfair consequences).
  2. Income splitting is fair and reasonable (and in any case can be achieved through an array of means other than trusts).
  3. And perhaps most importantly, asset protection is a driving reason as to why people elect to use a trust structure.

Mr Jordan also went on to say that “Many small businesses and farmers were using complex arrangements they didn’t understand.”   This has certainly been our experience.  I could write an essay on this topic but simply say that most clients need help to understand trust structures and thereby put in place effective wills.

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

 

Labor’s proposal to tax trusts

The following was an article within our August edition of Tips & Traps.  It has been re-posted here due to the article in The Age on Friday 25th August (which will be subject to a separate post).

Bill Shorten recently announced Labor’s policy proposal to tax trust distributions and do so at a flat rate of 30%. Presumably this will mean trusts would pay tax on their income and then grant a 30% credit on any beneficiary distribution – thus a trust distribution would carry a tax credit just as company dividends do now.

It is only an announcement of intention. The next election is not due until the back half of 2019.  If they win that election, legislation would then have to be drafted and passed through both parliamentary houses.  Usually, but not always, such big ticket items are announced within a Federal Budget (which is delivered in May).  One would therefore expect that if this becomes law, it would do so no earlier than for the year ending 30th June 2020.

In his announcement, Shorten said they were targeting barristers, investment bankers and other high net worth individuals. It was also made clear that it was not intended to apply to:-

  • Special disability trusts.
  • Deceased estates.
  • Charitable trusts.

Whilst certain taxpayers were targeted in the announcement, there did not appear to be any practical acknowledgement that most trusts run small businesses; it is estimated that this accounts for two-thirds of all trusts. Many of these are tradies, farmers, retailers, manufacturers and every other sort of business within the Australian economy.

Presumably to avoid double taxation, the tax payable by the trust will be a refundable tax credit. If so, the total tax paid on trust profits won’t change – it is just a question of how much the trust pays (being 30%) and what an individual will pay (if their marginal tax rate is higher than 30%) or be refunded (if their marginal tax rate is less than 30%).

Some closing thoughts:-

  • The Rudd called Henry Tax Review recommended no such changes to trusts (nor were any announcements based targeting certain occupations).
  • The early part of the second Howard government explored taxing trusts but desisted when it became clear that it would be counterproductive to economic growth.
  • It was also thankfully acknowledged that a common driver in setting up a trust is asset protection. Our experience has been that if someone is as wealthy as that targeted by Shorten, they are far, far more concerned about protecting say a $1,000,000 property than what marginal tax rate they pay on the net rental income.
  • If they really wanted to be serious about collecting a fairer share of tax, there are other things that could be targeted. They could for example attack husband and wife trade partnerships (both political parties have been too scared to do so and despite having the power in the personal services income laws to deal with unrealistic income splitting) or look through arrangements where a high income earner funds a property bought in their spouse’s name.

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