Q&As to consider if and when you have an investment property

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How important is it to get the right advice before buying a rental property?

Getting the right advice is imperative. You can read hundreds of articles about the benefits of owning a rental property, but it is important to conduct a property analysis and consider all factors including your current and future situations.

What are some of the factors that people need to consider if and when they have a rental property?

Consider instances where you go down to one income and how it will affect your ability to pay all the bills. If your rental property is untenanted for 10 weeks, how will you cope with the lack of income? Also, consider property being damaged either by natural disasters or current tenants and if interest rates continue to rise above and beyond your means.

How can investment property owners alleviate the risks involved in owning their properties?

They can mitigate all these risks by having landlord and building insurance for damages, ensure they have income and life insurance and making sure not to buy a property at your maximum borrowing capacity.

What does a negatively geared property mean?

Negative gearing can be achieved by having a property that costs you in interest, rates, insurance etc. more than what you receive in rental income. For tax purposes, depreciation and building write-off on the property also reduces your profit to a negative figure ensuring you do not pay any additional tax.

There are many other factors to take into account when considering an investment property. Always seek advice to determine if it’s the right investment for your financial circumstances by speaking to your accountant or financial adviser. Call Plant & Associates on 1300 783 394 to receive your FREE initial consultation.

Posted in Investments, Property

Protecting your finances and planning your estate after retirement

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In a previous article we wrote about Centrelink deeming income.  In particular, the structure used to hold your assets can result in you being eligible for some Centrelink payments that you would not be eligible for if your assets are not structured correctly.

 Most readers of this article will be either close to retirement or already there.  Everybody will have different tax and financial needs but something everyone will have in common is protecting your assets no matter how big or little they are.

 At a time where your loved ones want to grieve, they do not want to be worrying about where your will is and sorting out your finances.  In addition, you have worked hard to amass what little or grand assets you have so don’t let them go to waste.

Prepaid Funerals

Whilst these are not a tax deduction they are also not classed as an asset by Centrelink.  Therefore if you have some cash sitting around, prepaying for your funeral reduces the burden on family, locks in a price at today’s rates and reduces your assets with Centrelink potentially making you eligible for some further benefits.

 Wills and super

Most people either do not have a will, or it is not up to date.  Do you know where your will is?  Remember your superannuation may not form part of your estate and as such you may need a binding death nomination within your super fund.  Did you know that you can reduce the amount of estate taxes paid by ensuring the right person is the beneficiary of your super?  This can apply to the rest of your assets too.

 Access to bank accounts where only one signatory

Do you have a bank account where your spouse is not a signatory?  Does that account get used to pay the bills?  If so, your family could potentially have difficulty in paying your bills when the account is frozen once you are no longer there to access it.  An enduring power of attorney can be put in place to avoid this issue.

 SMSF

If you have a Self Managed Super Fund and you are individual trustees, your fund becomes non-complying upon the loss of one of the trustees.  This can be avoided by having the executor of your estate step in but also through having a corporate trustee.

 Insurance

Ensuring you are adequately covered and the right entity holds the insurance is vital.

 Investment Properties

As per our previous article on deemed income, holding the property as an individual is generally the best way to go unless you are a property tycoon.  However there are pros and cons of holding the property in a trust or a company.  When to sell is another commonly asked question.  Timing is very important when it comes to selling an asset that may have a capital gain as it makes a difference to the amount of tax you have to pay.

 As you are reading this article you may be thinking of a number of questions.  Give us a call for a free consultation to discuss these matters in more detail or alternatively sign up to our monthly email newsletter by providing us your email address. These monthly editions give advice, tips and up to date information on current and emerging laws.

Posted in Retirement, Super

Funding your retirement

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 Whether you still have a while to go until you retire, are considering retiring now, or you are retired; you may find the following articles interesting.

 Centrelink deemed income

Biggest mistake most people make, is underestimating how much money they will need to retire comfortably and not putting enough away.  The pension from Centrelink certainly won’t be sufficient if you plan to buy birthday and Christmas presents as well as eat and pay the general cost of living. You can certainly forget about travelling and other holiday plans. 

When considering your eligibility for a pension, did you know that Centrelink consider both your assets and your income in determining how much pension you will qualify for. In some circumstances they may also deem you have earned an income even if you haven’t.

 Take for instance Bob. He retires with some investments in a trust account.  Centrelink will deem him an income on top of the trust profits, therefore reducing his pension to almost nothing.  However, if Bob transfers the investments into his personal name instead of the trust account, Centrelink will ignore any income from the investment and just deem a percentage of income. Although Bob will need to declare his income in his own personal tax return, there are however, various tax offsets available once you reach pension age and in most cases they are sufficient to cover the tax you would have had to pay on your taxable income for the year. 

 The deemed income rules also apply if you have some money in superannuation and you have reached the preservation age. Even if you elect not to drawdown a pension from your super fund, Centrelink will deem you to have received a % as income.

 There are ways around this and it is important to see an accountant and financial planner to ensure that your affairs are set up to your advantage.  In addition, there are Centrelink staff who will come and talk at your event to show you how to get the most pension from Centrelink.

Transition to Retirement

Are you are 55 years or older and working but are considering retirement soon?  You can effectively sacrifice a large portion of your salary into your super fund, thus reducing the tax you pay, then drawing down a tax free pension from your super fund that tops up your disposable income.

 Consider Jane age 55, earning $50,000 in gross income. She pays tax of $8850 plus 1.5% medicare levy leaving net $41150. If she puts $20,000 into her super fund, she will reduce her gross income to $30,000.  She will only pay $3600 tax leaving $26400 net income. She then takes a pension of $14,750 so that she still has net income of $41150.  Jane’s super fund pays tax at 15% on the $20,000 contribution ($3000) meaning total tax paid is $6600. This is a total saving of $2250.

 There are many different strategies available to save you tax and put more money into your retirement. Act now and speak to your accountant or financial adviser.

 Centrelink can assist:

Your local Centrelink office usually has an adviser available to sit down with you and assess your eligibility for a full pension. They can advise you on what you are entitled to depending on your current financial position, your assets and liabilities. Contact your nearest office for an appointment with one of their appointed advisers.

*Please note Centrelink cannot give financial advice and cannot guide you on what investments you should acquire.

Posted in Centrelink, Income, Retirement

Withdrawing money from your company – Div 7a – Importance of Tax Planning Accountants Beenleigh

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Division 7A of the Income tax Assessment Act (ITAA36)

It is common knowledge that where a private company makes a loan to a shareholder or their associate a potential deemed dividend issue arises under Division 7A.  The shareholder has until the due date of lodgement of the tax return to repay the loan in full or enter into a loan agreement.
If a loan agreement is entered into, the taxpayer has until the end of the first year after the year the loan was made to make a repayment.
The minimum yearly repayment is calculated on the balance of the loan using the benchmark interest rate and the term of the loan.  However, where the loan has a payment made prior to lodgement day then the interest is pro rata’d.  In addition, the payment made before the lodgement date does not count towards the minimum yearly repayment

Example

Reducing loan balance for pre-lodgment day payment.
On 15 august 2009, Viking Pty Ltd made a $100,000 loan to Annie, a shareholder in the company. The loan was made pursuant to a loan agreement that satisfied the requirements of S.109N Annie had made no repayments as of 30 June 2010.
However, she repays $25,000 on the 15 December 2010 which is prior to the company’s lodgment day of 1 March 2011.
What is the closing balance of Annie’s loan as at 30th June 2010?
Because S.109E(3) allows the $25,000 to be taken into account, the closing balance of the loan as at 30June 2010 is not the $100,000 she originally borrowed but $75,000 (ie, $100,000 – $25,000)
What is the MYR that Annie must make by 30th June 2011
Based on the closing balance of the loan and the other variables contained in the formula in S.109E(6) the MYR is $14,1111. However, if the MYR were based on $100,000 it would be $18,815. Note that the benchmark interest rate for 2011 is 7.4% p.a.

Example

Correctly calculating interest in year two of the loan 

Valerie is a shareholder in Aromas Pty Ltd the company’s lodgement day for the 2010 tax return is 1st March 2011. The following loan transactions occur.

Date                       Transaction                DR                    CR                     Balance

1st Aug 2009          Loan To Valerie           $50,000                                           $50,000

1st Sep 2010          Repayment                                         $10,000                  $40,000

1st June 2011        Repayment                                           $5,000                   $35,000

30th June 2011      Interest                         $3,055                                          $38,055

What amount if the MYR for 2011 based on?

$40,000. The $10,000 repayment on 1 September 2010 is counted as it was made before ‘lodgment day’ the MYR is $7,526.

Has Valerie made the MYR?

YES. Both the $10,000 and $5,000 repayments made by Valerie during the 2011 year are taken into account. As the total payment of $15,000 exceeds $7,526 the MYR is covered.

What is the closing balance of the loan for the 2011 year?

To work this out it is necessary to calculate the interest charge for the year. Note, interest does not begin to accrue until 1st July 2010. The benchmark interest rate is 7.4% p.a which is 0.020273973% per day.

When do the new dividend rules apply from?

The rewritten s.254T applies to all dividends declared on or after 28th June 2010, it will not apply to dividends declared before this time but paid on or after 8th June 2010.

Posted in Asset Protection

Profit – How to improve your bottom line?

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Profit – not something every business has, so how can you get it and improve it?

  1.     Raise your prices. You’ll be surprised how few complaints you’ll get about a 5% price increase.
  2.     Sack a customer. Think about abandoning demanding customers who eat up too much time for too little reward.
  3.     Drop a product from your range. Most companies carry products or services that are just not working or cost too much to produce.
  4.     Change your bank. There’s plenty of big and small financial institutions out there, so shop around for the best deal.
  5.     Put your printed materials online. Posting documents such as manuals and brochures on your website saves on printing, storage and postage.
  6.     Change suppliers. China, India, Vietnam and Thailand are full of companies that can supply products cheaper than in Australia. If you can’t beat the importers, join them.
  7.     Put lots of information on your website. This will help reduce the amount of time you spend on the phone answering customer queries.
  8.     Bill customers promptly. Get your invoices out as quickly as possible to get them back faster.
  9.     Create incentives for creditors to pay faster. Offer a small discount to clients prepared to pay within a week and your cash flow will improve.
  10.  Weed out slow payers. Before taking on a major customer, check their credit worthiness and references. Bad debts are bad news.
  11.  Use email. Cut postage costs by migrating customers to email.
  12.  Cut your inventory. Don’t tie money in the warehouse. Get that money out there working for you. Or better still, get it back in your wallet.
  13.  Consider different property options. Moving out of the city can save you a bundle on rent.
  14.  Barter. Look for companies with which you can exchange goods and services. It keeps cash in your pocket and helps you network at the same time.
  15.  Add a new product or service to your range. Then bundle the new product or service with your new offering and watch revenue grow.
  16.  Pay your bills online. It saves on cheque fees and postage costs.
  17.  Consolidate your loans. Multiple loans mean multiple sets of fees. Consolidate and save.
  18.  Change your phone company. Communications — particularly mobile phones and internet — can be expensive. Review your supplier and don’t sign a contract longer than 12 months unless you’re sure prices aren’t going to fall.
  19.  Do things out of season. Conference facilities, hotels and airline flights are cheaper at certain times of the year. Plan around this and save.
  20.  Negotiate. It makes some people uncomfortable, but haggling is a perfectly normal part of doing business.
  21.  Shop around. You can find a cheaper price for everything if you look around. The bigger the expense, the more shopping you need to do.
  22.  Advertise online. Online advertising is relatively cheap and its effectiveness is much easier to measure.
  23.  Check your invoices. Don’t just pay up blindly — make sure none of your suppliers are over-charging you.
  24.  Take advantage of discounts. You love prompt payers and so do your suppliers — take advantage when companies offer discounts to customers that pay quickly.
  25.  Recycle. Reuse marketing materials such as promotional signage and displays.
  26.  Find a purchasing partner. There are some things every business needs, like stationary and cleaning products. Team up with another business and use your combined buying power to get discounts.
  27.  Standardise and simplify. Big manufacturers try to standardise every process in their business so it is done right every time. Less mistakes means less wastage.
  28.  Clean up. Tidy your work environment so staff waste less time dodging obstacles and finding lost files and spend more time attending to customers.
  29.  Survey your clients. Find out what they like about you and what they don’t like. Decide where you should invest your time and energy.
  30.  Cut your labour costs. People are typically a business’s biggest expense. Weed out underperforming or unnecessary staff.
  31.  Outsource. In some industries such as manufacturing, outsourcing production of some products or components can save big dollars.
  32.  Form a joint venture. Many companies are too small to compete for large contracts. Find businesses with complimentary products or services and bid together.
  33.  Make an acquisition. Buying another company is a quick way to grow revenue. The key is managing the integration.
  34.  Go global. Australia is a relatively small market and taking your business offshore can open huge sales opportunities. There are even government grants available to help with the costs.
  35.  Buy second-hand furniture and fittings. A slick office never made anybody any money. Keep it neat, tidy, functional and cheap.
  36.  Do some R&D. Research and development can be expensive but new products don’t make themselves. Take a punt and trial something new.
  37.  Copy. So what if you didn’t have that great idea first? If you see something that works, incorporate it into your business.
  38.  Be extra nice to your customers. The cheapest and most reliable form of advertising is word-of-mouth.
  39.  Say no. Some jobs are marginally profitable or high risk — don’t be afraid to avoid them.
  40.  Go upmarket. Customers are prepared to pay for high-quality products. Make sure you are seen as the premium alternative and price products to reinforce this.
  41.  Steal top staff from a competitor. Luring a proven employee with a big salary may end up being cheaper and less risky than hiring and training new staff.
  42.  Improve your reporting systems. Knowing how each department and sales person is performing on a weekly basis helps highlight your strengths and weaknesses.
  43.  Focus. Work out exactly what your business is good at and concentrate on it. If you stop trying to be all things to all people, you’ll improve your competitive advantage.
  44.  Cut out the middle man. See if you can source products directly from the manufacturer at below wholesale prices.
  45.  Extend your trading hours. Staying open a bit longer can be a good way for retailers to bring in extra revenue.
  46.  Examine your logistics. Big companies regularly restructure their supply chains to improve profitability. Look at your transportation arrangements and eliminate double handling and delays.
  47. Benchmark your business. Compare your departments to each other. Compare your business to competitors. Compare your company to those in other industries. Then decide what sort of returns you should be getting and make a plan to get there.
  48. Develop and maintain your customer database. Selling to your existing clients is far cheaper than trying to find new ones. A good database is a big asset you must exploit.
  49. Change electricity suppliers. Energy companies are targeting small and medium businesses so take advantage and get a better deal.
  50. Monitor and manage staff workflow. If employees are getting through their work quickly, assign them new or extra tasks. You may even find you’ve got more staff than you need.
Posted in Business

Tax Refunds – Accountants Beenleigh

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Tax Refunds – Accountants Beenleigh and Nerang (Plant and Associates) wish to protect their clients whilst ensuring they receive the Tax refunds they are entitled to.  With a strong emphasis on educating clients, from the Gold Coast to Brisbane, they proactively write blogs, and contact clients before an issue can arise.

Tax refunds are, for many people, a sacrosanct part of the tax system. Many people just simply assume they will get a tax refund at the end of the year after they lodge their tax return. – Article by Terry Hayes

In fact, rightly or wrongly, many people and businesses rely on getting a tax or GST refund, so any delay in getting one can create problems.
While many people (and companies) will get refunds, the oft-heard cry “Where’s my tax refund?” may take on a new meaning after recent changes to the law.

The changes have provided the Tax Commissioner with a new discretion to withhold what are called “high risk” tax refunds pending refund “integrity checks” of a taxpayer’s claim. The refunds affected include income tax and/or GST and some other taxes.
I outline below how the new law works.
The new discretion is intended to allow the Commissioner to consider the correctness of the information provided by the taxpayer before refunding an amount. It is not intended that the Commissioner use this discretion to withhold a refund merely where he and the taxpayer disagree about how the law applies to the facts.
In deciding whether to withhold a refund, the Commissioner must have regard to a number of factors, including, but not limited to:

  • the likely accuracy of the information provided – things like comparison to industry benchmarks, and size of refund claimed relative to the taxpayer’s turnover may be
    indicators;
  • the impact of withholding the refund on the taxpayer’s financial position. Information relevant to this factor may include evidence of financial hardship for the taxpayer, such that it would compromise the taxpayer’s business viability. The ATO may need to evaluate the impact of a decision to withhold a refund on the taxpayer’s immediate cash flow, solvency and borrowing needs. The size of the amount claimed may also be a relevant consideration in the context of the particular taxpayer’s circumstances;
  • whether withholding the refund was necessary for the protection of the revenue;
  • any complexity that would be involved in verifying the information e.g. arrangements, involving multiple supply chains and multiple entities;
  • the time for which the Commissioner has already retained the amount. The ATO acknowledges that undue delay in an investigation considered in the light of new information may in some cases be a factor against retaining the refund;
  • It  should be noted that no single factor is to be determinative and the applicability of each factor will depend on the specific circumstances of each case.
  •  the likelihood that there is fraud or evasion, or intentional disregard or recklessness as to the operation of a taxation law.

If the Commissioner decides to withhold a refund, he must inform the taxpayer within a short initial period (14 days for a RBA (Running Balance Account) surplus or 30 days for other credits). If the taxpayer is not informed, the amount must be paid by the day after the end of that period.

The changes will particularly affect the situation where there is an entitlement under any taxation law to the refund claimed upon lodgment of a return or other information provided by the taxpayer. This would include income tax returns for full self-assessment taxpayers (mainly companies and super funds), original or revised BASs (applying to tax periods starting before July 1, 2012), and BASs under the indirect tax self-assessment system that applies to tax periods starting on or after July 1, 2012.
Prior to the changes in the law, there was no legislative provision which allowed the Commissioner to retain a refund to check the validity of the claim, even if the Commissioner suspected it might have been incorrect.

The ATO recently released draft guidance to its staff on when it would be reasonable to exercise the Commissioner’s discretion to delay a refund amount.
Taxpayers can make a request under the Freedom of Information Act for documentation about the Commissioner’s decision to withhold a refund. The ATO will therefore keep a record of the reasons it has for withholding the refund.

Taxpayers can also seek a writ of mandamus against ATO staff to compel the release of a refund if an amount is withheld based on irrelevant factors, so the Commissioner is very conscious of the need for his staff to maintain complete and accurate records of the reasons for withholding any refunds.

ATO’s obligation to inform taxpayers

If the Commissioner decides to withhold a refund, he is required to inform the taxpayer:

  •   in the case of a running balance account surplus, by the running balance account interest day (which will generally be 14 days after giving the Commissioner the notified information);
    or
  • for other credits, within 30 days of the taxpayer giving the Commissioner a notice containing the amount claimed.
The Commissioner says his obligation to inform taxpayers may be satisfied in a number of ways, including by telephone, electronic mail, post, and text message. Don’t let that mobile phone battery run flat!
Where the Commissioner is unable to contact the taxpayer, he will be taken to have satisfied the obligation to inform the taxpayer by serving a document to the taxpayer’s preferred address for service of notices.
Taxpayers can object to the Commissioner’s decision to withhold a refund. The right to object arises 60 days (plus any applicable extensions) after the last day on which the Commissioner is required to inform the taxpayer of his or her decision to withhold the refund.
Where possible, the ATO has indicated it will advise taxpayers of the reason why a refund has been retained at or before the time of objection period in order to allow taxpayers to consider their reasons for lodging an objection.
If the Commissioner wishes to withhold a refund beyond the initial period of time (i.e. generally 14 or 30 days), the Commissioner must inform the taxpayer before that period ends. The continued withholding of the refund after this period is subject to an objective test of reasonableness.

When an amount must be refunded

The Commissioner may only withhold a refund until it would no longer be reasonable to require verification of the information that has been provided by the taxpayer e.g. where new information is available to the Commissioner.
Terry Hayes is the Editor-in-Chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions
Contact Plant and Associates at their Beenleigh office or Nerang and ensure you stay off the ATO radar.  admin@plantandassociates.com.au
Posted in Business

Small Business tax help

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Plant and Associates Accountants Beenleigh and Nerang specialise in small business.  They take the pain out of the accounting, taxation and business side of your business.  Contact them for assistance today.  admin@plantandassociates.com.au

Small businesses need tax help – Article by Terry Hayes

So what else is new you say! That heading won’t shock any SME. The question is where to get that help. The SME’s adviser or accountant is one obvious source, but the ATO is another very valid so
Australia has almost three million small businesses, employing about one in five of the workforce. Small businesses therefore represent a large target sector for the ATO. Little wonder when you consider a survey by American Express earlier this year revealed a staggering 39% of small businesses keep their tax receipts in a shoebox!
Not surprisingly, the ATO does try to help, especially where a small business is just starting. Some of the guidance materials it can provide include:

  •  a checklist for people starting a new business;
  •  information about tax assistance visits by the ATO;
  •  tip and fact sheets about a range of business topics; and
  •  an easy-to-use small business tax calendar to plan and manage business tax obligations.

The ATO also contacts businesses that register for pay-as-you-go withholding when they take on staff for the first time or register for GST when their turnover exceeds the $75,000 threshold, to help them get it right from the start.Recently, the Tax Commissioner said that, in collaboration with local councils, industry associations and other government agencies, the ATO offered assistance to small business operators in western Sydney.

In one example in Penrith, the sister-in-law of a couple operating an earthmoving transport company attended an ATO seminar and got the couple to ask for an assistance visit. The couple in their first year in business earned $100,000 with the turnover increasing to around $2.6 million in the second year.During the visit, the ATO discussed the company’s need to move from cash to accrual accounting; how to better plan its cashflow; and how to manage its tax liabilities associated with much higher levels of income.

In another “good news” story, after reading an article in a Darwin newspaper about small business assistance visits on offer, a builder who registered for an Australian Business Number and for GST in July 2000 “because he thought he had to”, sought an ATO assistance visit as he had a significant amount of unopened mail from the ATO, causing him “sleepless nights”.

As he had operated his business for only a short period and was an employee for the rest of the time, the ATO helped him tidy up his un-lodged quarterly business activity statements. He also cancelled his GST registration, which he no longer needed.
The ATO also uses what are known as Taxpayer Alerts to provide early warning of arrangements it is concerned about. Recently, the Commissioner says the ATO has seen small business involved with deemed dividend schemes, labour hire arrangements (splitting income from personal services through the use of a discretionary trust ), research and development abuse, and foreign trust arrangements (foreign based discretionary trusts used to avoid taxation on Australian sourced income).

Employee vs contractor

There are, of course, regular problem areas. One of those is the issue of whether someone is an employee or a contractor. Disputes about this are becoming more common, especially in light of increased action by Fair Work Australia, and I have written on a number of occasions about this issue.In a very recent case, Fair Work Commissioner Jones ruled that a specialist Microsoft software consulting firm had 15 employees, finding two alleged contractors were, “as a practical matter”, employees. Therefore, the firm was not exempt from unfair dismissal claims nor could it avoid an obligation to make redundancy payments as per the Fair Work Act 2009. I’m sure this won’t be the last of the employee vs contractor cases that we will see.
In 2011-12, the Tax Commissioner said from its audits the ATO collected details of approximately 51,000 payments made to around 41,000 contractors, about 18,000 of which were individuals. The ATO found that 48% of businesses that engaged contractors were wrongly treating individuals as contractors. These workers were legally employees but were missing out on employee entitlements such as superannuation. To help SMEs, the ATO has an Employee or Contractor homepage on its website.

Information matching

The Tax Commissioner said the ATO’s information matching program is expected to match over 600 million transactions in the current year (up from 538 million in the 2011-12 income year). He said commensurate with the increase in information matching, the ATO also expects an increase in the number of discrepancies identified. According to the Commissioner, discrepancies detected by ATO information matching increased from 266,000 in 2007-08 to over 540,000 in 2011-12.Specifically in relation to small businesses, the Commissioner said the records of more than 10,800 taxpayers were matched in 2011-12, and identified businesses not reporting correctly through undeclared income or overdue returns. He said the identified discrepancies raised more than $40 million in liabilities.For example, by working with other agencies such as the Department of Climate Change and Energy Efficiency, the ATO was able to identify a government grant of $200,000 that was not declared by a taxpayer. Further information from the Department of Human Services highlighted the same taxpayer had also received a disability support pension, at the same time.

Small business benchmarks

Controversial as they may be, the Commissioner said ATO statistics indicated that approximately 90% of small businesses in benchmarked industries fell within a benchmark ratio. However, he said around 76,000 businesses reported income that was significantly below those benchmarks.To address this issue, Mr D’Ascenzo said the ATO wrote to around 30,000 small businesses regarding the benchmarks in 2010-11. He said around 17% (or over 5,000) of the businesses have since started reporting income commensurate with the benchmarks, thereby lowering their risk profile with the ATO.

Compliance and prosecution

The Commissioner said in the last financial year, the ATO’s compliance activities in the small business sector yielded around an additional $1.97 billion in taxes collected. He said that year also saw a decline in the number of returns and statements lodged on time for small businesses, as well as fewer income tax return liabilities paid on time. No doubt the general state of the economy was influential in that.

The Commissioner also said small business debt with the ATO increased in the last financial year to 61.4% of the total ATO collectable debt. The ATO believes this increase mostly reflects the cashflow impacts of the challenging economic environment. Despite the challenging economic conditions for small business, the Commissioner said the ATO will continue to support those businesses that are viable.
However, the Commissioner warned that the ATO undertook over 28,000 of what he called “firmer and legal recovery actions” in the small business sector in 2011-12. The ATO also conducted over 11,800 compliance reviews of self-managed super funds (mainly micro enterprises) raising tax liabilities of around $21.9 million.
Future ATO improvements for small businesses
Future technological improvements are planned to the interactions of small businesses with the ATO. By 2013, the ATO is aiming to allow small businesses to access and update their obligations online. By 2014, the ATO aims to allow small businesses to complete obligations using a mobile device and track their dealings online. Then by 2015, the ATO will aim to have integrated payment services, personalised options, and cross-channel authorisation solutions for small businesses.
With our complex and ever-changing tax laws, complying with them is not easy. That’s why around three-quarters of Australians use a tax agent. But there are ways SMEs can obtain the information they need to make tax compliance easier.
The Tax Commissioner says the ATO acknowledges that running a small business is not always easy and that behind every small business are people. He said, “We’re all human and we don’t always make the right choices, or circumstances sometimes make it extra difficult for us”. For people trying to do the right thing, he said the ATO will try to get them “over the line” where it can. A good adviser/accountant wouldn’t go astray either.

Terry Hayes is the Editor-in-Chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.

Posted in Business

Refund option for excess superannuation contributions

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The refund option for excess superannuation concessional contributions up to $10,000 is now law following Royal Assent to the Tax Laws Amendment (2012 Measures No 1) Bill 2012.As a result of the new law, eligible individuals will have a once-only option to have 85% of their excess concessional contributions up to $10,000 released from their superannuation fund to the Commissioner and assessed as income for the financial year in which the contribution was made. The individual will effectively pay tax on refunded excess concessional contributions at their marginal tax rate (less a 15% refundable tax offset for the tax already paid by the fund on the contributions), rather than the potentially higher excess contributions tax (ECT) of 31.5% (in addition to the 15% contributions tax for the fund).

While the refund option will provide some welcome relief in limited situations, it also presents another layer of complexity with further pitfalls for unsuspecting taxpayers.

Eligibility for refund option

The new refund option will only be available for excess concessional contributions in respect of 2011-12 or later years, and only for the first year. However, it will not provide any relief for taxpayers who exceed the concessional cap by more than $10,000 or for breaches before 1 July 2011. To be eligible, the individual must also lodge an income tax return for the relevant income year within 12 months of the end of that year.

The Commissioner will provide eligible individuals with a choice, via a notice of offer, to have the excess concessional contributions released from their superannuation fund to the Commissioner and assessed as income at their marginal tax rate. The Commissioner is expected to provide these notices of offer at a similar time to the current letters he sends to individuals prior to making an ECT assessment

Access to tax credit may be denied

Once the choice to refund is received from a taxpayer, the Commissioner will provide the taxpayer’s superannuation fund with a compulsory release authority for 85% of the amount of excess concessional contributions. If a superannuation fund pays an amount to the Commissioner in accordance with a release authority, the taxpayer is entitled to a tax credit equal to that amount.

However, a superannuation fund will not be required to comply with a compulsory release authority if:

  • the superannuation interests held by a fund is less than the release authority amount, or
  • if the interest is a defined benefit interest, or
  • if the interest is supporting a superannuation income stream

As a result, the release authority exemptions will operate to deny the taxpayer access to a tax credit. In addition, the release authority exemptions will not affect the Commissioner’s refund determination which will remain on foot to include the excess concessional contributions in the taxpayer’s assessable income.

Therefore, a taxpayer will need to consider whether she or he may need to access the refund option on any excess concessional contributions before commencing a superannuation income stream from that superannuation interest. Once an income stream is commenced, it will effectively prevent the taxpayer from receiving a tax credit (via a release authority on that interest) if he or she accepts a refund offer for excess concessional contributions

Posted in Super

SMSF – insurance

SMSF – insurance

The SIS Act changed to require, for the 2012-2013 financial year and beyond, that:

  • 1. trustees of self managed superannuation funds (SMSFs) consider insurance for their members as part of the fund’s investment strategy;

This does not mean that life insurance must be included in every Fund but it does mean that the Investment strategy should show that the matter has been appropriately considered.

  •  2. money and other assets of an SMSF be kept separate from those held by a trustee personally and by a standard employer-sponsor or an associate of a standard employer-sponsor;

 This has always been the case but is now an operating standard which gives the ATO greater enforcement powers.

  •  3. SMSF assets be valued at market value for reporting purposes.

 This formalises a previous ATO guideline that we have always abided by.

 Given that points 2 & 3 should already have been in place for most Funds it will be the need to consider life insurance which will cause the most activity as the majority of Fund investment strategies will probably require alteration. Auditors will require that Investment Strategies comply.

www.plantandassociates.com.au

07 55965758

Posted in Super

Budget and Cashflow

 

Crunching the numbers can really add up, Article by Adam Kennedy

When doing a budget it pays to know what matters most to you and your family

 CASE STUDY

 Like many Australians I hold Home & Contents insurance to protect against a major financial loss (namely my home asset).  This makes my bank happy too.  Recently I did some research and budgeting analysis on general insurance premiums and why they had risen so much over the past few years.  I took the time to call my general insurer to ask about the levels of cover mainly on the home portion of the poli

I was astounded to learn the following:

  • The insurer in the event of total home destruction had the option to tell us who we used to build with again depending on whether the home was originally built by a mass provider or private builder (this effects the price of the new construction greatly if you know anything about the building industry.
  •  The policy indexed each year by quite significant amounts far greater than the cost increases of some building companies and building supply products.
  •  The insurer would only provide an insurance payout to an amount that would replace our original home using today’s market costs despite us having held considerably higher levels of cover thanks to indexation on the policy.
  •  Reducing the cover back to today’s actual replacement value saved us approximately $40 per month alone.
  • Increasing the Excess from $250 to $1,000 reduces the cost of most home and contents policies by 50% to 70% all other things being equal.  That’s amazing!  After all who would claim for the cost of a broken window knowing that the repair is under your excess anyway?
  •   If you can afford to pay annually, do it, even if it means putting it on a credit card and paying the premium off over 3 months.  You can save 15% or more in some cases.

The Real Important results for Australian families

 The above analysis combined with smart budgeting techniques saved us $122 per month!!!  No, that is not the important thing, but it’s a start.  According the insurer and my calculations and research on building costs we are still 100% covered for loss of our home.

 This level of saving allows the average male or female aged 35-40 to hold $250,000 to $300,000 of life and trauma cover.  Alternatively it would quite easily fund most of (if not all) a comprehensive income protection plan for most people of that age.

 Australians are obsessed with spending money on things to impress people they don’t know or like.  Almost everyone spends huge premiums each year on cars 4 years older or more that are worth a fraction of their replacement cost.  What many don’t realise is why they are happy to pay good money to protect a material asset for fear of losing it what they don’t realise is without adequate personal insurance in place they risk loosing far more or the lot.

 By thinking outside the square it is possible to improve your position beyond what you first may have thought possible.  Money is a finite thing but its how you spend what you have that’s important.

 We realise times are tough for many Australian families, small business owners and workers.  Spending time on your own budget and family protection costs you nothing but your time.

 If you are having trouble working out how to protect yourselves without forgoing other necessary needs or wants feel free to give our office a call or pass our details on to somebody you know who is risking it all.

Posted in Insurance