Posts Categorized: Tax

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.

SG super reminder

Friday 28th January is the end date for satisfying your Super Guarantee (SG) super obligations for the December 2021 quarter.

Please note that super clearing houses take up to 10 days to pass the money through to the super fund.  It therefore means that processing and payment to the clearing should be made no later than this Friday.

And please make sure you have been calculating super at 10% since it increased on 1st July 2021.

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 welcome any question you might have.

The 5 key things to implement in 2022

Hard to be believe this year is almost over!  It has been a tough year for many.  But that said, the economy has performed surprisingly well, we have high vaccination rates and statements from our leaders that we are not going back into lockdown.

It seems as though we can relax over the Christmas break with a degree of calm.

The Christmas break is a great time to take a breath and re-asses your work and personal life.

But having started work on the back of the 1983 recession and worked through the ealry’90’s recession, not to mention the GFC, the 1997 Asian crisis and other such events, the effects of covid will play out for a couple of years yet.  We are not out of the woods yet.

In light of the uncertain times that lie ahead, on Wednesday 12th January we will explore 5 key things to address and implement in 2022

  1. Re-evaluate how covid has changed your business and moreover how your business needs to adapt. In particular we will explore who is now your customer target base and how to find them.
  2. Amend your STP payroll reporting to not fall foul of Fair Work Australia obligations.
  3. Making a profit is the goal but the oxygen to a business is its cash flow. We will explore how to better manage and improve your cash flow.
  4. With a federal election looming, take up any advantage under existing tax laws.
  5. Being in business carries the risk of getting sued. We will examine key asset protection strategies to protect the wealth you have worked hard to generate and/or inherited.

You can reserve your place at this 45 minute webinar by clicking here

And as we are passionate about helping small business owners through these difficult times, we welcome your passing on this invitation to family, friend and business associates.

Payroll reporting deadlines

With the progressive roll-out of Single Touch Payroll, year end finalisation deadlines are tightening.  It’s not like the “good old” Payment Summary days were one had to the 14th August to return the stationery.  Employers are now required to complete the Single Touch Payroll finalisation step by 14th July.

Thankfully though two extensions are available this year:-

  • In response to demands caused to business owners, 31st July

  • For closely held employees (family members) 30th September

Those larger employers that are subject to Pay-roll Tax are due to certify the 2020/21 remuneration by 21st July.  This is not just a matter as in addition to wages, salaries, commissions, directors fees, bonuses and so on, Pay-roll tax is also payable on:-

  • Superannuation

  • Some fringe benefits

  • Payments to certain contractors (including some corporates).

Whilst 28th July is the end date for paying the June quarter SG super, payments through clearing houses can take up to 10 days.  We therefore recommend that the June quarter super be processed no later than Friday 16th.

We welcome any question you may have about these matters.

Important SG super changes

As you will have read in our Budget analysis and no doubt been notified by your software provider, please ensure that you are calculating SG super as from July at 10%. 

It is opportune to remind you that SG is payable on what is called Ordinary Times Earnings (OTE).  OTE is not calculated on a number of items including overtime and some bonuses.  You can read more here.

And in closing just a reminder that the removal of the $450 monthly; threshold is due not to be removed until 1st July 2022.

Payroll processing is complicated.  Moreover errors can prove costly.  We are therefore pleased that Xero now interacts with KeyPay (QuickBooks Online has used a limited version for 5+ years).  Please ask us if you would like a review of your payroll system.