Posts Categorized: Tax

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.

 

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.

Beware of the $1,600,000 pension cap

Beware of the $1,600,000 pension cap. If you thought it was straight forward, then think again. 

It’s complex and the costs of getting it wrong are high as evidenced by:-

  • You have to monitor your position. You have to know the balance of your transfer balance cap (your amount in pension mode) against the general transfer balance limit (the allowable limit).
  • If you exceed your transfer balance cap at 30th June 2017, you will receive an excess notice which will require you to pay tax and withdraw sufficient monies to get beneath the general transfer balance limit. Doing nothing is not an option if you currently exceed or may exceed your transfer balance cap. Thankfully our SMSF clients will know where they are at with our real time SMSF reporting system and will be able to take prompt action. Those with public funds may know their balance as of the day before but will find it, to say the least, difficult to bring themselves sufficiently under their cap as redemptions can take weeks to process.
  • Many with their own super fund may well know the value of their super interests.  But what if the fund’s assets include  assets that aren’t valued daily such as properties?  One needs to have a very good understanding of the value of all fund assets.  And keep in mind that Melbourne property prices posted double digit growth for 2016.
  • You need to be aware that the very useful estate planning tool of reversionary pensions may no longer be such a wonderful solution. The reversionary pension will count against your transfer balance cap – although one has 12 months grace in pulling money out as a lump sum.
  • The growth in your pension assets doesn’t count against your transfer balance cap. Think carefully about what assets you keep / put into pension mode.
  • And here is a real nasty one. If you exceed your transfer balance cap, then you will be denied taking advantage of any further increases in the cap. So when it increases from $1,600,000 to $1,700,000,  to $1,800,000 and so on, you will be denied these increases if you have ever exceeded your transfer balance cap.

These are just some of the issues to be addressed well before July 2017.

Inaction can be the worst action.

With the removal of the accountant’s exemption as from June 2016, accountants can no longer provide any form of financial planning advice.  The only way for you to properly address your situation is to obtain financial planning advice and do so from a financial planner who understands these complex tax rules.

So what are the ins and outs of the $1,600,000 pension cap?

July is now not that far away and by then the amount of monies you can have pension mode will be limited to $1.6 million. So what are the ins and outs of the $1,600,000 pension cap?

The $1,600,000 will be indexed in $100,000 increments. It will also be recorded and tracked like a general ledger account with various transactions and events either adding to or reducing the balance.

Items that will count against the balance include:-

  • The balance of any pension account as at 30 June 2017.
  • Reversionary pensions commenced between 1 July 2016 and 30 June 2017 (and which will be subject to a separate blog).
  • Superannuation pensions started after 30 June 2017.
  • Reversionary pensions started after 30 June 2017.
  • Excess transfer balance earnings (a.k.a. the penalty for exceeding a pension cap).
  • Reversionary death benefits (and which will also be subject to a separate blog).
  • Defined benefit income streams (as rare as they are these days).

Items that will reduce one’s balance include:-

  • Amounts converted back into accumulation mode.
  • Structured settlement contributions (being personal injury payments).
  • Losses due to fraud.
  • Transactions voided under the Bankruptcy Act.
  • Family Law superannuation splits.
  • Pensions that fail to comply with the standards (with the most typical occurance being a pension that ceases as the minimum pension has not been made).

It is important to note that the pension payment will not be reduced by:-

  • Pension payments.
  • Investment losses – although the government’s 364 page Explanatory Memorandum contemplates the impact of another 2008/2009 financial meltdown. Paragraph 3.103 states at the government will review the impact of the transfer balance in the event of a microeconomic shock that substantially affects retirement incomes. It is only a stated intention to review – it doesn’t say they will do anything and doesn’t say how big a shock it has to be.

The superannuation changes are complex (as evidenced by a 364 page explanatory memorandum) and require many to properly review their affair and to do so well before July.

In this blog, we have simply outlined the technicalities of the new pension cap. In future blogs we will explore various aspects of this in more detail as well as addressing some of the other more significant super changes. 

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

The new $1,600,000 pension cap

The new super rules first announced in this year’s Budget and passed by the Senate last month will include a new limit as to how much money one holds within pension mode. As from June 2017, there will be a $1,600,000 pension cap (which will be indexed in $100,000 lots). 

The threshold will be calculated as the accumulated amounts one has commuted into pension mode less any commutations. Pension payments do not reduce your limit.

If Fred was to move part of his super accumulation balance into pension mode in June 2016 and do so with $1,600,000, he will not be able to move any further monies into pension mode until the threshold is indexed to $1,700,000. If that $1,600,000 grows to $3,200,000, he is entitled to keep that within pension mode.  That’s great.  On the flip side though, if it falls to $800,000, then that will be doubly unfortunate as Fred will not be able to top up.

Those in pension mode are going to have to think very seriously about what assets they put into pension mode and when they do so.

There is also another issue here in that if Fred only put $800,000 into pension mode in June 2017 and thereby only use half of his threshold, he can then only top up with $50,000 when the threshold increases to $1,700,000. It’s a strange system and careful planning is required.

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

Christmas and tax

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.

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 the vast majority of clients use and which delivers more favourable outcomes.  It is beyond the scope of this briefing to address 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:-

  • If 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 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 DJ, musicians, 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.  Please keep this in mind when completing the 2015/16 FBT Questionnaire in early April 2016. 

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.

 

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.

 

GST

  • 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.  

 

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

 

New concessional contribution limit

The super changes first announced in this year’s Budget were passed by the Senate on Wednesday 23rd November. With that we will now have a much lower concessional (deductible) contribution limit from July next year.

The limit for the current 2016/17 financial year is $35,000 per annum for those aged 49 or older on 30th June 2016; $30,000 for those younger.  The limit for everyone will fall to $25,000 as from the 2017/18 year.  And with the non-concessional limit then also falling to $100,000 (subject to transitional and bring forward rules), many people will have to re-calculate how they are going to accumulate sufficient capital upon which they can retire.  Long gone are the days when one could rectify years of no planning for retirement by making concessional contributions of around $100,000 over a few years.  Retirement planning need to now start at an earlier age.

Thankfully one of the positive changes ignore by the press is one that allows those that have been out of the work force for an extended period to make catch up on contributions in excess of the annual limit. They 10% employment income test will also be removed.  It’s not all bad news.

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

New non-concessional contribution limits

The super changes first announced in this year’s Budget were passed by the Senate on Wednesday. With that we now have a much lower new non-concessional contribution limit; that being the after tax contributions one can make into their super fund which are not taxed when received by a super fund – that is those monies that go into a super fund tax free and which come out tax free.

The current limit is $180,000 per annum but that will fall to $100,000 from July 2017. And with the concessional limit then also falling to $25,000, many people will have to re-calculate how they are going to accumulate sufficient capital upon which they can retire.

The bring forward rule will remain. That rule allows those under 65 to make three year’s worth of non-concessional contributions in one year whether that be from an inheritance, windfall or proceeds from an asset sale.  In the future, this means that no more than $300,000 can be contributed in any one year.  The limit to 30th June 2017 remains at $540,000 but is subject to what has already been described by some as an unusual and complicated transitional rule.  Whilst the limit may remain at $540,000 for this financial year, it will be less for those who under contributed in 2015/16 or do so in 2016/17.  Make sure you understand what your limit is before making any non-concessional contributions before 30th June 2017.

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