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Are You Caught Out By The Age Pension Assets Test?

The stricter Age Pension assets test came into force more than a year ago, but it is probably only now that the impact of this change is being felt, especially by middle-income wage earners. This could put you in a situation where if your assets are at a certain level, you won’t qualify for the Age Pension. It is thought that this could affect up to 300,000 retirees. Here we look at current thresholds to keep in mind.

 

The Self-Managed Superannuation Fund Association (SMSF) has expressed concern that the changes to the Age Pension asset test rules (since 1 January 2017) may be actively discouraging middle-income earners from saving to be self-sufficient in retirement. Could this apply to you? It is worth looking at your situation closely to see if the changes do affect you.

 

If you earn what is considered to be an “average” income you will most likely be caught by the asset test. But what is a middle-income? Individuals with an average taxable income of $46,000 in 2017/2018 fall within this category and could also be hit with an increase in tax rate of 3.2 per cent by 2021/2022.

 

Currently, the Age Pension assets free area for a single homeowner is $253,750 and $380,500 for a homeowner couple. For non-homeowners it is $456,750 (single) and $583,500 (couple). The Age Pension begins to phase out at $3 per fortnight for each $1,000 of assets over the relevant assets test threshold.

 

The table below outlines the current and proposed thresholds for the full Age Pension:

If you are:                                                      Homeowners                    Non-homeowners
Single                                                            $253,750                                $456,750
in a couple, combined                                    $380,500                               $583,500
illness separated couple, combined             $380,500                                $583,500
one partner eligible, combined                     $380,500                                $583,500

Source: Australia Department of Human Services https://www.humanservices.gov.au/individuals/enablers/assets

 

The table below outlines the assets test thresholds for the part Age Pension:

If you are:                                                     Homeowners                   Non-homeowners
Single                                                           $552,000                                 $755,000
in a couple, combined                                 $830,000                                 $1,033,000
illness separated couple, combined           $977,000                                  $1,180,000
one partner eligible, combined                   $830,000                                 $1,033,000
Source: Australia Department of Human Services https://www.humanservices.gov.au/individuals/enablers/assets

 

Taper rate

If you are a home-owning couple, for example, who have superannuation assets of between $380,500 and $830,000, the taper rate creates a “black hole” (equivalent to 7.8% a year), reducing your pension entitlement at a rate exceeding the income you can earn from your super balance above the asset free area. This may provide an incentive to shift investments to excluded assets such as the family home.

 

Plan your future

The SMSF Association believes that a more appropriate mechanism to integrate superannuation and Age Pension means testing would be a move to a single means test that applies a deeming rate to financial and non-financial assets, getting rid of the assets test altogether.

Melbourne-based SaveOur Super group has engaged in a debate with Assistant Treasurer, Michael Sukkar, on this issue. Sukkar has said that the Age Pension is “not supposed to support retirees with a higher level of assets to maintain their capital base”. Instead, the steeper taper rate is meant to “encourage people to draw down their savings more rapidly”. While this debate may not lead the current Government to change super and pension rules, it is good time to contact us. We can help you to assess your assets and plan well for your retirement.

Meaning Of Independent: Financial Advisers

 

The terms “independent”, “impartial”, or “unbiased” or similar terms can only be used to describe financial advisory businesses that meet certain conditions under the Corporations Act. Such conditions include not receiving commissions or volume-based payments. The independence of financial advisers is an important issue for both consumers and investors, and may sway decisions about investments as well as choice of advisers. Therefore, ASIC continually monitors the financial advice industry and take steps to intervene when it discovers false claims.

 

With all the media coverage around the negative behaviour of many large financial advisory firms and their affiliates, you may be forgiven for wanting to deal with a smaller, perhaps more independent financial adviser in the future, but what exactly does “independent” mean in in terms of financial services?

 

Under the Corporations Act, a person who carries on a financial services business or provides financial advice is prohibited from using the terms “independent”, “impartial”, or “unbiased” or any other term “of like import” in relation to the business or service, except where the person meets certain conditions. This condition is continually monitored by ASIC and it does take steps to intervene when it discovers false claims.

 

In one recent example, ASIC required four financial advice companies to cease and amend false claims of independence that could mislead consumers. The claims were made on websites and in some cases, in the marketing materials of the companies.

 

ASIC said it “will continue to publicly name advisers who do not comply with their obligations…and where appropriate, take action to enforce the obligations…and to ensure consumers are not mislead about the nature of the service they are receiving”.

 

 

So, what are the conditions that a financial services business have to satisfy to use terms such as “independent”? Basically, these restricted terms can only be used if the business does not:

-receive commissions (other than commissions that are rebated in full);
-volume-based payments (ie forms of remuneration calculated on the basis of the volume of business placed by the person with an issuer of a financial product); and
-other gifts and benefits from product issuers which may reasonably be expected to have influence.

 

In addition, the business is expected to operate without any direct or indirect restrictions relating to the financial product and be free from conflicts of interest that may arise from relationships with product issuers (which might reasonably be expected to influence the person). It is ASIC’s view that words such as “independently owned”, “non-aligned”, “non-institutionally owned”, and other similar expressions must also satisfy those conditions.

 

If you go to a financial adviser that holds themselves out to the “independent” or the like, you can expect them to not receive commissions, volume-based payments or have conflicts of interest. However, “independent” financial advisers are still able to receive asset-based fees without affecting their ability to use restricted terms.

 

Independent financial advisers would also be more likely to have an open list of products in their approved product list (APL) and have an easy process to recommend a product that is not on the (APL) should you wish to invest in those particular products. Any restrictions whereby an off-APL process is not easy to access would be considered to be a restriction and therefore, the financial services business would not be permitted to use a restricted term such as independent.

 

Looking for a financial adviser?

The independence of financial advisers is an important issue and may sway decisions about investments as well as choice of advisers. If you’re looking for a financial adviser that’s independent, remember to look out for the use of restricted terms. If you’re after some simple financial advice around your super fund or just some general advice, an accountant with a limited AFSL licence may be able to help. Contact us today to find out more.

Payroll Reporting: A Touchy Subject

If you are an employer the way you report payments, such as salaries and wages, pay as you go (PAYG) withholding and superannuation is changing from next year. The ATO will need you to report these payments directly from your payroll solution in real-time, at the same time as you pay your employees. This is known as single touch payroll (STP) and is intended to simplify business reporting obligations. It comes into effect in 2018 or 2019, depending on the size of your business. Are you ready for this change and how will it affect you? We can help you to prepare for the move to STP.

 

The introduction of single touch payroll (STP) is in line with the Government’s “digitisation agenda”, to make reporting more streamlined, but many small businesses will feel an extra compliance burden. Those who work in remote areas of Australia may be at a disadvantage as Single Touch Payroll reporting will require a strong internet connection.

 

In a straw poll conducted by Accountants Daily (between 5 September and 14 October), almost 90 per cent of accountants and advisers said that their clients were not ready for the shift to single touch payroll.

 

The Institute of Public Accountants (IPA) chief executive officer, Andrew Conway has said: “While initially STP delivers little benefit to small business, we acknowledge that other benefits exist such as transparency over superannuation guarantee payments.”

 

For small and micro businesses – those who employ less than five people – implementing STP by the deadline will take considerable incentive and support. The IPA supports the notion of a phased and targeted incentive approach as proposed by the Government, along with the consideration of a partial offset of costs. However, Mr Conway said the IPA would “like much more detail” to ensure small businesses are not impacted adversely by the implementation of STP. We will keep you posted on updates to this area.

 

How will this change affect you as an employer?

The change to STP means that employers won’t need to complete payment summaries at the end of the year as these will have been reported in real time throughout the year. If you have a payroll solution (software that you use in order to pay employees), you will need to update this or make sure it is updated by your service provider. If you do not have a payroll solution, you can speak to us about how to find the best solution for your business. We may be able to report using STP on your behalf. The first 12 months of STP will be considered to be a transition period, during which time you could be exempt from an administrative penalty for failing to report on time. There are other exemptions, including if you operate in an area with an unreliable internet connection or you are classed as a substantial employer for only a short period during the year (for example, if your employees are seasonal).

 

How about if you run a small business?

Mr Conway said the IPA’s concern is for 70,000 small businesses that will struggle to implement STP without help and support. If you do not use digital software for your payroll you may also need our help to adopt new technology.

 

What does it mean for employees?

With the move to STP, employees will be able to log on and make sure they are being paid the correct amount for their superannuation contributions so “this level of transparency is most welcome”.

 

What is the timeframe?

Single touch payroll will be compulsory for employers (including those in a wholly-owned group) with more than 20 employees from 1 July 2018. If your business has less than 19 employees, you have a bit longer, but you will need to get on board by 1 July 2019, subject to legislation. If you are unsure about whether you are a “substantial employer”, the advice is to do a headcount of all of your employees who are on your payroll on 1 April 2018; a total headcount includes all full-time, part-time, casual employees, those based overseas, absent employees and seasonal employees, not just your full-time equivalent (FTEs).

 

Want to find out more?

You may not feel ready to meet your compliance needs in relation to STP. You could qualify for a deferral (due to circumstances beyond your control) and you will need to make a request for this. Contact us to discuss the changes to payroll and what you need to do to make the transition seamless.

Is Insurance Always Super?

Taking out insurance is all about minimising financial risk, but is having insurance with your super compulsory, or can you make a choice? We look at what basic cover might include and some of the pros and cons of having insurance through super.

 

Many super funds offer basic insurance to you as a benefit of being a member. It is often difficult enough to decide which super fund to join, but understanding what insurance cover you need, and what you don’t need, adds yet another layer of complexity.

 

It is a good idea to find out more about how you are covered and what that cover includes.

 

Depending upon your individual circumstances, you may not need the default level of insurance you are given automatically within your super fund, or you may need more.

 

For instance, if you are in your early twenties and single, your insurance needs will probably be less than someone who is 45 and has a family.

 

Paying for insurance through super will reduce your super balance though, as premiums are deducted from your fund at source. The Insurance Superannuation Working Group reported recently that paying for unnecessary insurance premiums is eroding the savings of younger members “to the amount of up to $9,000 in some cases”. As a result, one particular super fund is offering ‘opt-in’ insurance to those under 25, and others may follow.

 

What type of insurance is on offer within super?

Insurance within super can be broken into three types of cover:

Income protection (IP) insurance – this cover protects you if you are temporarily unable to work due to short-term illness or injury.
Total and permanent disability (TPD) insurance – this cover will protect you if you suffer serious illness or disability and as a result are not able to work again.
Life insurance (or death cover) – will protect your family/beneficiaries if you die in service; payment can be paid gradually over time or via a lump sum.

 

Benefits of insurance through super

-Insurance premiums through super may be less than those outside. Super funds can get a discount on premiums due representing a number of people, under a ‘group’ policy and this discount will be passed on to you.

-Your insurance premiums within super will come out automatically without you having to manage the process.

-You may not require a health check before you are accepted for insurance within super.

-You should have a choice about the amount for which you are covered.

 

How about the disadvantages?

-You may be paying for insurance that you just don’t need.
-Paying insurance will reduce your super balance.
-The cover may be limited, eg minimum life insurance cover.
-You may not be able to move your insurance cover if you change your super fund or your employer’s contributions stop.
-Life insurance through super ends at retirement age (usually 65 or 70) and then you will need cover outside of super.

 

Who are your beneficiaries?

Should the unthinkable happen and those close to you need to make a claim, insurance that is paid out to dependants is tax free, whereas any pay-outs to non-dependants are subject to tax. If you do have life insurance and other cover, make sure you are clear to nominate your beneficiaries, those you most wish to benefit if you die in service.

 

What happens if you decide to consolidate or switch super funds?

If you are thinking of consolidating more than one super fund, or indeed switching funds, do check what this might mean in terms of your insurance cover. It might be possible for you to transfer the cover, but you need to know this first. Your situation may be more complicated if you are over the age of 60 or if you are suffering from a medical condition.

 

Opt-in life insurance?

It may be possible to avoid paying life insurance in super altogether in future, as the new approach of funds offering insurance as an opt-in choice could become more widespread. However, if you take this route your decision needs to be weighed up carefully.

 

Want to understand insurance options better?

Speak to us about your individual circumstances, what insurance you already have, and if it this is the right amount of cover for you. It is important that you review the insurance you have throughout your life, too, as your circumstances change.

Taxable SMSF Assets Double: Is Your Fund Affected?

New research has shown the transfer balance cap and reduction of tax concessions for transition to retirement pensions have achieved their policy outcome and made more SMSF assets taxable. This may be considered bad news for the SMSF sector, however, one ray of sunshine to emerge from the research is the policies’ unintentional outcome of improving gender imbalance in SMSF assets and balances. Find out whether your SMSF has been affected and how strategies could be implemented minimise the impact.

 

It’s been a little over a year since the dual changes of the pension transfer balance cap and the reduction of tax concessions for transition to retirement pensions were implemented by the government. Recent research has indicated that these changes has achieved their policy outcome by making almost 25% of previously tax-free SMSF assets lose their status and become taxable.

 

To recap, a pension transfer balance cap of $1.6m applied from 1 July 2017 to limit the total amount of accumulated superannuation that can be transferred to the retirement phase, where the earnings on assets are tax-exempt. The transfer balance cap is indexed but adjustments are unlikely to occur until at least 2023-24.

 

The ATO uses the concept of a transfer balance account to track each person’s net pension amounts against their transfer balance cap. Where an individual’s transfer balance accounts exceed their transfer balance cap, the ATO will issue a determination requiring the excess amount to be removed from retirement phase.

 

In addition, these excess transfer balance amounts are subject to tax, initially at 15% but increasing to 30% for breaches in subsequent years.

 

Similarly, the tax exemption on earnings for pension assets supporting Transition to Retirement Income Streams (TRISs), also known as transition to retirement pensions (TTRs) was removed from 1 July 2017. From that date, earnings from assets supporting TRISs were taxed at 15% instead of 0%. TRISs have traditionally been used by individuals who have reached their preservation age but do not want to retire.

 

According to recent research, at June 2018, one year after the sweeping superannuation changes came in, SMSF asset value in accumulation phase was approximately $422bn. This was a 90% increase from March 2017 (before the changes) when asset value in accumulation was around $222bn.

 

Based on simple modelling (not taking into account of contributions tax, deductible expenses, and rebates), assuming a modest return of 5% on assets for the 2018 income year, this increase of SMSF asset value in accumulation phase would result in $3.2bn worth of tax on SMSF earnings. This equates to a $1.5bn increase from the 2017 year.

 

However, it’s not all doom and gloom for the SMSF sector after the changes, one ray of sunshine in the research is that the changes have led to new strategies being implemented which significantly improved gender imbalance in SMSF assets and balances. Two of the most notable strategies used include:

-contributions splitting which involve a member of an accumulation fund splitting superannuation contributions with his or her spouse to equalise their total superannuation balances to counter the $1.6m transfer balance cap.
-recontributions strategy which involve withdrawal and recontributions to a spouse’s superannuation account to equalise total superannuation balances up to $1.6m each (subject to the non-concessional contributions limits).

 

Are you affected?

Is your fund affected by this? Talk to us today, we may have a strategy to help you reduce the taxable proportion of your SMSF assets. Alternatively, if you’re thinking of commencing a TRIS we can help you navigate the tricky laws around this area and make sure you get the maximum benefit from your hard-earned superannuation.

Super Guaranteed

Paying the right amount of super to your employees can at times be a complex exercise, with the threshold changes in the recent years and the contribution base which changes every year according to indexation factors. With the rise of the gig economy there’s also a grey area as to whether a certain person working for you is actually an employee or a genuine contractor. Find out what your super obligations are this year.

 

Are you paying the right amount of super for your employees? It’s that time of the year again, where the Australian Bureau of Statistics (ABS) release the indexation factors that are critical in determining various superannuation thresholds. While the super guarantee is still frozen at 9.5%, the maximum contribution base will increase to $54,030 per quarter (or $216,120) for 2018-19. Employers are not required to provide the minimum super guarantee for the part of employees’ wages above the maximum contribution base.

 

Besides the part employees’ wages above $216,120, you as an employer, are required to make minimum contributions of 9.5% of an employee’s ordinary time earnings by quarterly due dates to their nominated superannuation funds if you pay the employee $450 or more (before tax) in a calendar month. This is irrespective of whether an employee is full-time, part-time, casual, a family member, company directors, those who receive a super pension or annuity while still working, or temporary residents.

 

You should note that the ATO considers certain contractors that are paid mainly for their labour to be employees for super guarantee purposes. This is the case even if the contractor quotes an ABN. According to the ATO, you as an employer must make super guarantee contributions of 9.5% on what you pay your contractors if they are paid:

 

-under a verbal or written contract that is wholly or principally for their labour;
-for their personal labour and skills which may include physical labour, mental effort or artistic effort; or
-to perform the contract work personally.

 

If you’re not paying the right amount of super for your employees and some contractors, beware, the ATO uses sophisticated data analytics to identify employers at high risk of non-compliance. 

 

It also takes a differentiated approach to compliance and penalties depending on the compliance history of the employer and how actively they engage to meet their superannuation obligations. Therefore, it pays to be in the good books of the ATO as they may take a more accommodating approach should your business have any discrepancies in super guarantee payment to your employees.

 

However, employers who are unwilling to meet their super guarantee obligations should expect the ATO to take firm compliance action including the imposition of penalties such as the super guarantee charge, a Part 7 penalty (up to 200%) for late lodgement of the super guarantee statement or failing to provide information when requested, and an administrative penalty (up to 75%) may also apply for an employer who makes a false and misleading statement.

 

Need help?

If you’re having issues with working out the right super amount to pay to your employees or if you would like to determine whether that person working for you is considered to be an employee or a genuine contractor, we can help.

Got Clearance To Sell Your Home?

 

Did you know that if you’re selling your home you may need a capital gains withholding clearance certificate from the ATO? If you don’t, you may find a chunk of the sales proceeds from your home going to the tax man. The online process to obtain the certificate is quick and simple. Make sure you don’t get stung and get the certificate early.

 

In the market to sell your house? Before you call in the real estate agents and home stylists, you probably know that you’ll need to have a contract of sale handy. Did you know that you may also need to get a capital gains withholding clearance certificate from the ATO? This certificate allows ATO to identify whether withholding is required from the sale of Australian property and applies to any property where the contract price is $750,000 or above.

 

In the current market conditions, the $750,000 threshold means the need to obtain the clearance certificate would apply to the majority of real estate sales in capital cities and some larger regional centres around Australia. If you’re an Australian resident selling your home or investment property, applying for a certificate means that the purchaser will not have to withhold 12.5% of the purchase price. The online application process with the ATO is simple and requires only a few personal details, such as name, DOB, address, and TFN, in the case of an individual applicant.

 

For company applicants, name, TFN and ABN information are usually required. For trusts and superannuation funds, if the entity that has legal title to the asset is the trustee (in its capacity as either a company or an individual), then the trustee should apply for the clearance certificate using their own TFN or ABN (ACN can also be included as an attachment to the application).

 

It should be noted that even though the clearance certificate does not have to be provided to the purchaser until on or before the date of settlement (to ensure no withholding occurs), the online form should be lodged as soon as possible as it can take up to 14 working days to process.

 

If you’re a foreign resident and you’re selling a property in Australia, you do not need to complete a capital gains withholding clearance certificate as it doesn’t apply to you and you will be subject to the 12.5% withholding. However, you can apply to the ATO for a variation of the withholding rate in certain circumstances or make a declaration that a membership interest is not an indirect Australian real property interest and therefore not subject to withholding.

 

Just signed a contract to purchase a property for over $750,000? You should check with your conveyancer or lawyer that the vendor has provided the capital gains withholding clearance certificate or a declaration specifying that withholding isn’t required before settlement. Otherwise you must withhold 12.5% of the contract price of the property and remit the amount to the ATO upon settlement of the property.

 

Confused?

If you are selling your property, we can help you obtain your clearance certificate as well as outline any CGT consequences of such a sale and whether any exemptions are available. We can also help you determine whether you are a foreign resident if you’re unsure. Before you embark on perhaps one of the biggest financial decisions of your life contact us to ensure everything is as safe as houses.

Downsize to Boost Your Super

From 1 July 2018, people aged 65 or over will be able to make additional non-concessional contributions of up to $300,000 from downsizing their home subject to certain conditions. This is in addition to the concessional and non-concessional contribution caps. However, this measure may have unintended consequences if you plan on applying for the Age Pension, so wholistic retirement planning is needed to take advantage of the measure while minimising the downsides.

 

Now all the kids have all flown the coop and you’re left with an empty nest, it might be a good time to consider downsizing to pursue that ultimate retirement dream; fishing beside a river, surfing every morning, or getting up to that fresh country air. Your dream could be one step closer with the measure to allow people to make additional super contributions from the proceeds to selling their home.

 

From 1 July 2018, people aged 65 or over will make able to make additional non-concessional contributions of up to $300,000 from downsizing their home subject to certain conditions:

-the principle place of residence must have been held for a minimum of 10 years and located in Australia;
-contribution must be an amount equal to all or part of the capital proceeds of sale of an interest in a qualifying dwelling in Australia;
-any capital gain or loss from the disposal of the dwelling must have qualified (or would have qualified) for the main residence CGT exemption in whole or part;
-contribution must be made within 90 days of disposing the dwelling (a longer time period may be allowed by the Commissioner);
-a choice is made to treat the contribution as a downsizer contribution and the complying superannuation fund is notified in the approved form of this choice either before or at the time the contribution is made; and
-the contributing individual has not previously made downsizer contributions or has had one made on their behalf, in relation to an earlier disposal.

 

The advantage with downsizer contributions is that the contribution is neither a concessional nor a non-concessional contribution, so if you have already reached your concessional or non-concessional contributions caps for the year, you are still able to make a contribution through the downsizer scheme, provided you meet all the conditions.

 

If you and your spouse jointly own a home, and decide to downsize, you can both benefit from this measure. For downsizing the same home, you and your spouse could potentially contribute a maximum of $600,000 into your individual super funds or SMSF. The other advantage with this measure is that the restrictions on non-concessional contributions for people with total superannuation balances above $1.6 million will not apply. Therefore, the total superannuation balance of the individual will also not affect their eligibility to make a downsizer contribution. However, any downsizer contributions will still be subject to the $1.6 million pension transfer balance cap.

 

Does this measure seem too good to be true? Well, there is also the Age Pension side you should be aware of. Currently, the family home is totally exempt from the Age Pension assets test, however, downsizer contribution may count towards the Age Pension asset test and any changes in your superannuation balance as a result of using this measure may also count towards the Age Pension Asset test.

 

Want the whole picture?
Need advice on how you could potentially take advantage of this measure and need to know what the downsides are? We can provide you wholistic advice for your planned retirement to make sure you realise your dreams.

 

 

 

Beware Of Clothing Deductions This Tax Time

Beware of work-related clothing and laundry expense claims this tax time, the ATO is cracking down on individuals making unsubstantiated and exaggerated claims. It has reminded taxpayers that only uniform, protective or occupation-specific clothing that you are required to wear to earn your income can be claimed as work-related clothing. In addition, laundry expenses can only be claimed in relation to the reasonable laundering (washing, drying and ironing) of work-related clothing and not normal clothing.

 

Have you previously claimed work-related clothing expenses and laundry expenses in your tax return? You should beware this tax time because the ATO is cracking down on clothing and laundry expenses. According to the ATO, clothing claims went up nearly 20% over the last 5 years and last year around 6 million people claimed expenses totalling nearly $1.8bn. In addition, around a quarter of all clothing and laundry claims were exactly $150, which is the threshold that requires taxpayers to keep detailed records.

 

Assistant Commissioner Kath Anderson said: “[we] are concerned that some taxpayers think they are entitled to claim $150 as a ‘standard deduction’ or ‘safe amount’, even if they don’t meet the clothing and laundry requirements…just to be clear, the $150 limit is there to reduce the record-keeping burden, but it is not an automatic entitlement for everyone”.

 

So what can you claim under work-related clothing and laundry expenses? First of all, work-related clothing must be for uniform, protective or occupation-specific clothing that you are required to wear to earn your income, and you must be able to show that you have spent the money. Normal clothing such as suits and dresses cannot be claimed as work-related clothing. This is the case even if you have been told by your boss to wear a certain colour (ie white shirt and/or black pants), or items from the latest fashion clothing line, or if you bought the item specifically for work and do not wear it anywhere else.

 

If you’re claiming expenses for laundry, you should note that you can only claim laundry expenses for work-related clothing (ie uniform, protective, or occupational specific clothing). Again, normal clothing does not count. To calculate the laundry expense (including washing, drying and ironing), the ATO uses the figure of $1 per load if the load is made up only of work-related clothing, and 50c per load if you include other laundry items. If you claim laundry expenses for work-related clothing, you may be required to show how often you wore the clothing including evidence of number of shifts and weeks worked per year.

 

To assist in weeding out dodgy work-related clothing expenses and laundry expenses this tax time, the ATO will be using sophisticated analytics on every tax return to identify unusual claims. This includes comparing taxpayers to others in similar occupations earning similar income. If a “red flag” is raised by the analytics, the ATO will investigate the amounts claimed, which may be as simple as checking whether you are required to wear uniforms, protective clothing, or occupation specific clothing with your employer. The ATO warns those taxpayers who are unable to substantiate their claims should expect to have them refused, and may be penalised for failing to take reasonable care.

 

Want to find out more?

Are you required to wear work-related clothing and not sure how to calculate a claim? Or maybe you have laundry expenses for work-related clothing and are unsure what the reasonable amount to claim is? We can help you navigate the treacherous waters this tax time.

Starting a Small Business? Don’t Become a Statistic

There is something irresistible about starting a small business that has captured our collective imaginations, with small businesses making up 97% of all Australian businesses. But unfortunately, over half of these fail within the first three years. So how can you stop your business from becoming a statistic?

 

Regardless of what type of business you are planning – be it an online or home business, or a start-up with grand plans for expansion, it is easy for a fledging business to be swept up in the excitement of the early days, while neglecting some of the less compelling factors that are essential to success. We take a closer look at the essential financial and tax factors to get your business off the ground and keep it running.

 

The top reasons small businesses cease trading are due to under-capitalising, poor cash flow management, and failing to undertake adequate market research. Whilst there is a lot of helpful information online, nothing replaces getting expert advice on how all the facets of the business will interact – from financing, tax management, supply chain costs, and market fluctuations.

 

Before starting your business talk to us about the following:

Running a financial health check

Prior to seeking investment, taking out a loan, or redrawing against an existing mortgage or other loan, it is important to have a clear picture of your financial status. Do you have debts? What are your living expenses? What about personal spending? How much do you spend on eating out, travelling, and discretionary purchases? What are you prepared to go without to budget for a leaner life? We can help you take stock and then plan.

 

Researching financing options

There are a variety of finance sources available: such as bank loans, credit cards, public donation platforms – crowdfunding, angel investors, venture capitalists, lump sums for redundancy payments or inheritance, and borrowing from family or friends. All of these options have different pros and cons in relation to costs (eg, for a credit card) and risk (eg, putting your house up for security). It is wise to choose carefully as your choice of funding will have an impact on your personal finances now and down the track.

 

Up and running?

Once you have established the business we can help you to manage the following:

Taxes

There are a number of costs that are tax deductible when you set up a business, including a number of incentives to help small businesses, but these will vary depending on your circumstances.

 

Capital costs

A capital cost is incurred where you purchase an asset that allows you to produce income. It could take the form of buying equipment, but it could also be costs for creating an e-commerce platform. Such costs are not usually tax deductible, unless they can be depreciated over a number of years, or if you qualify for the simple depreciation rules for small business. For instance, if your business has a turnover of less than $10 million you can instantly write off assets costing less than $20,000 each, which means an instant boost to your cash flow.

 

If you purchase an asset worth more than $20,000, you are able to place the cost in the “small business general pool” to claim depreciation over time. Whilst you don’t get money back instantly, it can benefit you in that depreciation rates for the pool are generally higher than the rates for individual assets. And, if the value of the pool drops below $20,000 you can claim it as an instant write off.

 

Note: Capital costs of educational course fees are not eligible for deduction because the qualification was required to set up the business, eg, to train as a doctor, or to become a fitness instructor.

 

Fees and other costs

You can also claim the following:

-lawyer and accountant fees for professional advice on starting a new business;
-government fees paid in the formation of the business structure, ie ASIC;
insurance;
-borrowing fees and other costs associated with setting up the business structure, aside from government fees, can be claimed as a tax deduction over a five-year period.

 

If your business meets the annual turnover test of $20,000, and the start-up and the running costs are higher than your income, the loss may be deductible against other income you earned in the financial year.

 

GST and funding sources

Financing sources also have different indirect tax implications. For instance, crowdfunding – most commonly used by start-ups who need seed capital – is gaining popularity in Australia. The GST treatment of crowdfunding for a promoter operating in Australia may vary according to the following factors:

-the model adopted and what supplies (if any) are made to the funder;
-whether the promoter is registered for GST, or required to be registered;
-whether the promoter makes supplies that are connected with Australia; and
-whether the funder is in Australia.

 

Providing a service?

Are you running a personal service business (PSB), or earning personal service income (PSI), or both? These attract different tax rules and it’s essential that you know which rules apply, but identifying your PSI/PSB status accurately can be complex.

 

Hiring employees?

If you are considering hiring staff you will be responsible for meeting a number of obligations, such as:

-withholding of taxes from wages and reporting and paying these amounts to the ATO;
-pay superannuation for eligible employees (including contractors in some circumstances);
-register, report and pay fringe benefits tax (FBT) if you provide your employee with fringe benefits, (eg, car, travel, or meal expenses) which are paid to employees as part of, or in addition to, their wages.

There are naturally many other factors to consider when starting your own business, but we can help you to build a sustainable enterprise by taking care of those, less exciting but critical elements, leaving you to focus on future plans.

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