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Choose the Right Valuation Method for Your Business

 

If you’re looking to sell your company, to attract investors or simply to find out your net worth, it’s important to obtain an accurate valuation of your business. There are several ways to do this, each with its own advantages and risks. Here’s a look at how to conduct a business valuation, and the biggest pitfalls to avoid.

 

Gather all of the information you need
For an objective and accurate valuation, start by gathering as much information about your business as possible. The type of information you need will depend on which valuation method you choose.

 

If your valuation will be based on assets, you need to do a complete audit of both tangible assets (such as buildings, employees, cash and machinery) and non-tangible assets (such as goodwill or intellectual property). You must also list any liabilities – that is, anything that subtracts from the business’s value, such as debts or legal rulings.

 

For a valuation based on business earnings, you need detailed financial information such as cash flow statements, debts, annual turnover and profit and loss statements – ideally dating back at least three to five years.

 

Potential buyers or investors will want to know whether your business will make money in the future. Including all information, such as sales reports and forecasts, customer profiles, marketing plans and competitor analyses, will make the process more transparent.

 

Consider the valuation method
As with a valuation of any asset, the big challenge in valuing a business is reconciling what you think the business is worth and what a buyer may believe it’s worth.

The true value of your business is the amount someone is willing to pay for it.

 

Let’s look at the two most common ways that experts determine a business’s value.

 

Asset-based valuation
This method adds up the value of the business’s assets and subtracts its liabilities. It takes into account tangible assets such as cash, equipment and property. It should also include any intangible assets – that is, non-physical items that also generate revenue, such as goodwill and intellectual property.

 

Goodwill can include anything from the location of the business to brand recognition, staff performance and the number and quality of customer relationships. Liabilities are items such as bank debts and payments due.

 

An asset-based valuation is often used when the business has underperformed and goodwill is low. Whatever the case, it’s important that your valuation doesn’t overvalue your business assets, as it can bring unwanted attention from government regulators. The Australian Securities and Investments Commission (ASIC) is now publicising audit results that uncovered irregularities in financial reporting. This has resulted in asset write-downs across a number of high-profile companies.

 

Valuing business assets is often a complicated process, guided by the valuer’s past experience in selling and evaluating businesses in the same industry.

 

Earnings-based valuation
If your business is expected to grow, a prospective buyer will be interested in both its existing assets and any profits it will generate. There are two popular methods for valuing a business in this context:

-Return on investment (ROI): also referred to as capitalised future earnings, this considers the annual ROI a buyer can expect from the business after purchasing it. For example, if the business is generating profits of $100,000 per year and is offered for sale at $500,000, the ROI associated with the sale is 20 per cent.

-Earnings before interest and tax (EBIT): This is where the business’s annual earnings before interest and tax are multiplied by a number based on its expected future profitability and growth potential. For well-established businesses that have shown consistent solid performance, this multiple might go as high as six – so a business with an EBIT of $200,000 might sell for as high as $1.2 million.
Every industry has its own formulas and rules of thumb for calculating a business’s current market value. The Australian Bureau of Statistics (ABS) can be a valuable source of information for checking the reliability of these valuation methods.

 

Cash flow and other considerations
It’s important to remember that income and cash flow are not the same. How quickly do your customers pay their bills, relative to outgoing expenses? If your earnings look good on paper but cash flow is a problem, this must be factored in.

Another consideration is the impact of change of ownership. If you left the business tomorrow, could a new owner maintain the critical customer relationships and processes? In other words, how much of the business is inseparable from its current owner? This could apply to any number of key people who work in the business.

Finally, does technological disruption have the potential to affect your business’s value? Most companies can update their systems and processes to keep up with the latest technologies. In some cases, however, losses are inevitable – cloud computing, for example, has affected many traditional hardware and software businesses.

 

Want to know more?
No business valuation method is perfect, and it’s worth remembering that your business is worth whatever someone is prepared to pay for it. Whatever you decide, getting expert advice is essential – and that’s where we can help. Speak to us today to clarify your situation and make sure you’re working from up-to-date advice and information.

Compensation From The ATO

With all the media attention around the ATO’s alleged rough treatment of the small business segment. Many of these small business owners may think that they have a case for compensation from the ATO for everything that they have been through. Although is getting compensation from the ATO even possible? The answer it turns out is yes, but it is very limited in scope.

 

Since the ABC Four Corners program aired allegations of misconduct in some of ATO’s dealings with small businesses, the Inspector-General of Taxation has revealed that complaints to his office has increased significantly. For many of these small business owners, thoughts of justice and compensation may be at the front of their minds. Although getting compensation from the ATO is technically possible, in reality, it is limited in scope and a great deal of supporting information is required for any claim.

 

To apply for compensation, businesses will need to complete the “Applying for compensation form” on the ATO website. The form requires some basic information (such as business name, TFN, address) as well as questions relating to why you think you’re entitled to compensation from the ATO. Once the form is received, the ATO’s service standards indicates that it will be acknowledged in writing within 7 business days of receipt, and initial claims should be processed within 56 days.

 

Broadly, claims for compensation is assessed in two ways, either compensation for legal liability (eg negligence) or compensation under the scheme for detriment caused by defective administration (CDDA Scheme). 

 

The claims are considered by officers in the ATO’s General Counsel and the decision makers are independent of the area which originally dealt with the taxation matter. If it is determined that compensation of either type (ie legal liability or CDDA) is not appropriate, small businesses may still be eligible for an “act of grace” payment.

 

If you’re intending to apply for compensation, you should know that the compensation scheme is very narrow and only financial losses with a direct connection to ATO’s actions will be allowed. This includes for example, reasonable professional fees, interest for delays in providing funds in some cases, and bank or other administrative fees incurred due to the ATO’s actions. Losses relating to the following will not be considered:

 

-claims for personal time spent resolving an issue;
-claims for stress, anxiety, inconvenience;
-claims for delay in receiving funds from the ATO where statutory interest was paid;
-claims for costs associated with complying with the tax system including costs associated with audits, objections and appeals, even where it is found you complied with your obligations;
-costs of putting in a claim or conducting a claim for compensation; and
-claims for taxation or other Commonwealth liabilities with substantive review rights that can be or could have been pursued.

 

Further limiting the scheme is the need to provide concise details of the actions of the ATO that you consider have caused your loss supported by evidence. The ATO considers that a claim or allegation that is expressed too “generally or broadly” is difficult to assess and that an allegation no matter how serious or how strongly it is expressed is not evidence itself. Therefore, to be successful at the limited range of compensation available, you will need to provide documentary evidence to support your allegations and detail the financial losses that were suffered (such as invoices or statement of accounts from professional advisers or banks).

 

If you’re unsuccessful in your compensation claim you can apply for an internal review in cases where you can provide new or relevant information in support of your claim. Otherwise, you may also apply to the Inspector-General of Taxation to investigate the ATO’s handling of your compensation claim. Whilst the Inspector-General does not have power to overturn or vary an ATO decision, they may make recommendations to the ATO about how the claim was handled.

 

Ready to pursue a compensation claim?

If you think you have a legitimate compensation claim that qualifies under the scheme, contact us today, we can help you sort out what information you need and make an application to the ATO on your behalf.

Independent ATO Review For Small Businesses

 

The ATO has started a 12-month pilot program for independent ATO review for small business disputes in response to the recent negative media attention it has received. While the pilot only encompasses income tax audits in two States (Victoria and South Australia), the ATO will have the option to expand the program to all areas of tax and businesses depending on the pilot’s success.

 

In response to the media attention around ATO’s alleged harsh treatment of small businesses, the ATO has responded by extending its independent review function regarding tax disputes to certain small businesses via a pilot program from 1 July 2018. Prior to the pilot program, the opportunity for such a review only applied to companies with an annual review of more than $250m.

 

The idea of the pilot program was first floated by the Commissioner of Taxation at a Senate Estimates hearing as a means of restoring confidence in the system and the ATO.

 

“With the intention over time that businesses, regardless of size, have access and rights to a fit-for-purpose review prior to finalisation of audit”.

 

With that in mind, from 1 July 2018, the ATO has started a 12-month pilot limited to small business disputes involving income tax audits in Victoria and South Australia. Small businesses in other states and territories will have to wait for the outcome of the pilot to see whether the system will be implemented nationally.

 

The pilot only concerns disputes involving income tax audits and will not consider GST, superannuation, FBT, fraud and evasion findings, and penalties and interest. It will also not apply to small businesses that do not complete a consent to extend amendment period to allow the review to take place, or in cases where the relevant notice of assessment or amended assessment has already been issued.

 

Eligible small businesses with an audit in progress in the participating States will be contacted directly by their case officer and offered the opportunity to participate in the pilot. An offer of independent review will also be included in any audit finalisation letter issued if the small business is eligible. If your small business would like to take up the offer of an independent review, you will need to email the ATO within 30 days of the date of the audit finalisation letter, and clearly outline the specific issues you dispute from the audit decision.

 

Once your request has been submitted, an officer from the Review and Dispute Resolution area will contact you to discuss your request and other options available for the issues raised. Should you decide to proceed with the independent review, it will be conducted by an officer from the Review and Dispute Resolution area that has not had any involvement in your audit. They will consider the documents setting out both parties’ positions and schedule a case conference with the audit officer and yourself within a month of receiving your review request.

 

The conference will allow all parties to assist the reviewer in understanding the facts and contentions. The reviewer will then consider the positions of each party and prepare recommendations as to the outcome. The outcome will be communicated to both the taxpayer and the audit officer, and the audit team will finalise the audit according to the independent reviewer’s recommendations.

 

Want to know more?

If you run an eligible small business and would like to participate in the pilot, we can help you prepare an outline of specific issues disputed from the audit decision and guide you through the process. We can also help you review the other options available to you to see whether they may suit your business better. Contact us today.

Cash is No Longer King: Moving Your Business out of the Cash Economy

EFTPOS, payWave, Apple Pay, Android Pay, PayPal – electronic payment is increasingly the transactional method of choice. But cash still feels good in the hands, and is seen by many as the “real currency,” particularly in times of financial crisis. So why is it no longer king? The ATO is cracking down on businesses and individuals who – whether deliberately or by accident – fail to declare their cash income or use cash to avoid paying employee benefits and the appropriate rates of tax.

 

Historically, many Australian businesses have favoured the cash model and, regrettably, also favoured non-disclosure of “cash-in-hand” earnings and outgoing payments. Cash is untraceable, an attribute that has seen it play the role of an accomplice in the “black economy” and allow the production of wealth and avoidance of tax and employment laws to be hidden. This costs the Australian economy an estimated $15 billion in lost taxes and welfare payments each year. Not everyone who uses cash does it to get around the rules, of course, but all cash-only businesses are now under greater government and ATO scrutiny.

 

We take a look at what this means for your business, including why you might need to transition to a non-cash model.

 

Who is the ATO targeting?
The ATO has been investigating many small service sector businesses that use a cash-in-hand model. In its sights are cafes and restaurants, carpentry and electrical services, hair, beauty and nail specialists, building tradespeople, road freight businesses, waste skip operators and house cleaners.

 

Typically there are three types of problem player in the cash economy:

-businesses and people who don’t understand the law;
-businesses and individuals who deliberately avoid their tax obligations; and
-people who use cash payments to hide income, to avoid losing Centrelink payments, or who are breaching visa restrictions.

Through its extensive data-matching programs, the ATO can now easily create a profile of a business in any geographic area and compare its income, profit margins and level of profitability with similar others. This means that if you’re not providing the whole story in your records and tax returns, the ATO will be able to pick up on the gaps and you may face penalties.

 

 

Benefits of a non-cash business model
There are many benefits of a non-cash model that can help your business to grow, such as:

-access to tax incentives that you might not have been aware were on offer if your cash activities mean you have been, even accidentally, not accurately declaring your full income;
-more and happier customers – many people expect to be able to pay, even for small items and services, with a card or smartphone;
-increased access to your market through the digital world – you could consider adding an online aspect to your business;
-the clear visibility of your business’s financial health that comes with electronic payment and recordkeeping facilities; and
-avoiding possible penalties for tax debts and allegations about improperly documented or underpaid employee entitlements.

 

Further incentives to move away from cash are on the horizon. As part of its terms of reference, the Federal Government’s Black Economy Taskforce will look into possible tax and other incentives for small businesses that adopt a non-cash business model.

 

How can you transform your business?
We understand that changing a business model requires planning and time to implement, but whatever your circumstances, we can help your business to transition to a non-cash model.

 

Where should you start? With your recordkeeping. This means accurately recording every sale and purchase in your accounting software, providing a receipt whenever you make a sale and collecting an accurate invoice whenever you make a purchase. This will give you a clear audit trail to prove that you are declaring all income. Talk to us about your particular activities and needs – we’re here to help you plan, and can provide advice on what you’ll need to do to ensure the best outcomes for your business.

Growing Your Super

 

Are you nearing retirement or just want to put a little extra away for the future without putting a strain on your household budget? Contributing to superannuation might be your best bet. There are two main ways to boost your super balance, salary sacrificing super (if your employer has made that option available) and personal super contributions.

 

The end of the financial year is nearly upon us, and there is no better time than now to get your financial plans in place for next year. If you’re nearing retirement or just want to put a little extra away for the future, contributing to superannuation might be your best bet, this is especially true if you’re female. Research has previously shown that women retire with an average of $120,000 less in their superannuation than men due to a combination of the gender pay gap, taking time off paid work, and working part-time.

 

There are two main ways to increase your super balance without putting too much strain on your weekly household budget, salary sacrificing super (if your employer has made that option available) and personal super contributions.

 

Salary sacrificing super

Put simply, salary sacrifice is an arrangement where you forego part of your salary in return for your employer providing the amount sacrificed into super. You should beware that your salary sacrificed contributions are considered to be contributions from your employer (eg if you decide to salary sacrifice 5% into your super your employer would only legally have to contribute 4.5% instead of the 9.5%).

 

Therefore, before you commence any salary sacrifice arrangement, it is advisable that you and your employer clearly state and agree on all the terms of the agreement. This may involve an explicit agreement between you and your employer that specify that they continue to pay the minimum super guarantee amount ignoring any salary sacrifice contributions you may make.

Salary sacrifice is a tax-effective way to boost your super, as the sacrificed component is not counted as your assessable income for tax purposes (provided the salary sacrifice arrangement itself is “effective”) and hence is not subject to PAYG withholding tax. Although there are no limits per se to salary sacrificing superannuation, any sacrificed amounts are counted towards your annual concessional contributions cap. Therefore, tax-effective salary sacrificing arrangements are effectively limited to the concessional contributions cap.

 

Personal super contributions

Personal super contributions are the amounts you contribute to your super fund from your after-tax income (ie take home pay). These contributions are in addition to the compulsory super contributions your employer makes and does not include any contributions made through salary sacrifice arrangements.

 

Prior to 1 July 2017, only self-employed people could claim a deduction for personal super contributions, but from 1 July 2017, most people (regardless of their employment arrangement) are able to claim a full deduction for personal super contributions they make to their super until they turn 75. However, if you’re between the age of 65 and 75, you will need to meet the “work test” to be eligible to claim the deduction.

 

If you have made a personal super contribution and want to claim a tax deduction, you will need to complete and lodge the form “Notice of intent to claim or vary a deduction for person super contributions” with your super fund and have this notice acknowledged in writing by your fund. You will need to do this before you lodge your tax return for the income year in which you are claiming a deduction for.

 

Interested in making a personal contribution?

Would like to make a personal contribution and claim a deduction for tax time? Or maybe you would like to find out whether or not you qualify for the work test? Whatever it is, from setting up an effective salary sacrifice arrangement for the next financial year, to other strategies to make the most of your super, we can help you avoid all the pitfalls and get it right.

 

Your Business Website: Are the Costs Deductible?

 

Setting up, maintaining and modifying a business website can involve significant costs. When considering whether spending related to a website is tax deductible, business owners need to take into account Taxation Ruling TR 2016, which sets out the Commissioner of Taxation’s views for the purposes of the Taxation Administration Act 1953.

 

Taxation Ruling TR 2016/3 discusses the deductibility of expenditure on a commercial website (as generally applies to income years commencing both before and after 14 December 2016). It is a significant ruling that has the potential to affect every business in Australia that has a website.The first issue the ruling addresses is to identify what qualifies as a “commercial website”. The Commissioner’s view is that a commercial website is one used in the course of a business, irrespective of whether it is used directly to produce income.

 

The ruling explains that such a website is an intangible asset of the business, consisting of software installed on a server or servers and connected to the internet. Software provided on the website for installation on the user’s device is not considered part of the website, but the content available on that website is part of the website (unless the content has an independent value to the business). Hardware, such as a business server or computer, and the right to use the domain name are not considered part of the website.

 

In terms of how expenditure on a commercial website is treated, the website is not a depreciating asset, except to the extent it can be classified as “in-house software”. Accordingly, the ruling focuses on the deductibility of expenditure under s 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997). Under this provision, tax deductibility depends on whether the expenditure is revenue or capital in nature.

 

The ruling explains the treatment of a range of common types of business website expenditure, including:

 

–acquiring or developing a website: this type of expenditure is capital in nature;

 

–maintaining a website: this expenditure is revenue in nature, and includes expenditure on modifying the website, as long as the modifications do not alter the website’s functionality, improve its efficiency or extend its useful life (in which case the expenditure may be capital instead) – this capital/revenue distinction is a matter of “fact and degree” according to the ruling; spending on a routine modification with minor enhancements is more likely to be considered revenue, but spending on substantial modifications or changes as part of a program of work is more likely to be considered capital;

 

–periodic operating, registration, web hosting and licensing fees: this type of expenditure is deductible over the period the expense relates to (eg a year’s hosting fees are deductible over that 12 months);

 

–software: if the software qualifies as “in-house software”, the special depreciation rules in Div 40 of ITAA 1997 apply, but if it is not “in-house software”, the expenditure’s tax treatment depends on the nature of the asset – the ruling states that the cost of periodically licensed “off-the-shelf” software is a revenue expense; and

 

–regular upgrades to existing website software: this type of expenditure is generally considered “operational” in nature and is therefore deductible.

 

Under the ruling, a business’s social media presence is a capital asset, and separate from the business’s website, but if the cost of setting up the presence (eg a profile page) is trivial and the profile is maintained mainly for marketing, the expenditure is revenue in nature. The Commissioner’s view on other considerations are also set out, including the cost of domain names, the cost of leasing a website, and the possibly depreciable status of any copyright held by the website owner.

 

Although labour costs are usually on revenue account, they may be of a capital nature if there is a direct link between the employee or contractor in question and a capital asset, for example where the employee or contractor is engaged to develop a business website.

 

Finally, if expenditure on a commercial website is not deductible under s 8-1 of ITAA 1997 or the capital allowances rules, then the capital gains tax (CGT) regime will recognise it as part of the cost base of a CGT asset. It is unlikely that a deduction will be available under the “blackhole expenditure” provision in s 40-880 of ITAA 1997.

 

Need to know more?

The ruling makes it clear there are plenty of factors to take into account when establishing if you can claim the costs of setting up and running a website for your business. If you want to know more, contact us to talk about how the ruling could affect your business’s tax deductions.

 

Is Online Shopping About To Get More Expensive

Buying online could soon get more expensive. Previously, purchases under the $1,000 low value threshold were exempt from GST. However, years of pressure from vocal Australian retailers has spurred the Government into passing legislation to collect GST on all purchases from 1 July 2018.

 

According to research conducted by the National Australia Bank, in 2017, Australians spent a total of $22.7 billion online of which about only one fifth was with foreign online retailers. What Australians spent with foreign retailers equated to around 1.5 per cent of retail sales by “bricks and mortar” retailers, which in the grand scheme of things is not all that significant. The recent legislation has been passed by the Government as a way to curb the exponential growth of foreign online retailers and to stop GST leakage.

 

The Government has opted for a vendor collection model, which means that foreign online retailers, such as Amazon and eBay, will be liable for the GST on goods sold to an Australian consumer.

 

Foreign online retailers are only required to collect GST where they make sales to Australians of more than $75,000 per year. This exempts small sellers of goods to Australia; however, most large foreign online retailers will easily meet the threshold.

 

What does this change mean for Australian consumers?

Some foreign vendors may choose to absorb the cost of the GST rather than passing it on to the consumer, but they will still need to include the GST component in the price of their goods and periodically remit this to the Australian Tax Office (ATO).

 

Some other online retailers may choose to pass on the GST component to the Australian consumer, which means the overall price of the product that you buy, could increase.

 

At this stage the large online retailers have not given any indications as to what they will do. It is also not known how the Government will enforce this largely voluntary payment model on retailers situated in foreign jurisdictions.

 

One thing is certain, if you’ve been putting off an online purchase under $1,000, it would probably be wise to get in now.

Avoid an ATO Audit: Your Essential Guide to Small Business Benchmarks

The Australian Bureau of Statistics recently estimated that unreported business income totals around $24 billion, or 1.5% of our nation’s gross domestic product. To reduce the amount of money circulating under the radar, the ATO constantly monitors the cash economy to ensure small business owners report all of their income. Small business benchmarks are one set of tools the ATO uses to do this. Understanding how the benchmarks apply to your business can help you keep the right records and avoid an ATO audit.

 

Small business benchmarks explained
Small business benchmarks are financial ratios the ATO uses to compare the performance of your business against similar businesses in your industry. It calculates them from the income tax returns and business activity statements of over 1.3 million Australian small businesses. The ratios include figures such as cost of sales, labour, rent and materials, given as percentages of business turnover.

If your business falls outside the benchmarks, you may be flagged for an ATO audit. However, benchmarks can also be useful for finding out how your small business compares to others in your industry, and whether you could benefit by reviewing your business costs or prices.

 

Small business benchmarks can be a valuable resource for small business owners who want to optimise their pricing and overheads. They can also be the best way to ensure that your business is audit-proof.

 

How small business ratios are calculated
Small business benchmarks reflect the financial performance of businesses with turnovers of up to $15 million, across over 100 industries. Each benchmark ratio is published as a range to account for the variations between businesses that arise from factors such as business models, locations and regions.

 

Three different turnover ranges are provided for each industry. For instance, if you own a courier business with annual turnover of $250,000, the applicable business ratios are in the $150,000 to $300,000 range.

 

The ATO identifies a key benchmark ratio for each industry. In the catering industry, for example, this ratio is cost of sales to turnover; for courier services, it is total expenses to turnover. The ATO considers this ratio the most accurate indicator of cost of sales or expenses versus turnover.

 

A detailed overview of how small business ratios are calculated can be found on the ATO website.

 

Industry classifications
The ATO will use the business industry code and the business activity description in your tax return to determine your industry benchmark. Key words in your business activity description and trading name also tell the ATO which industry subgroup(s) your business falls into.

 

A business can fall into more than one industry subgroup, which allows for the fact that some businesses have diverse product lines. For instance, if you run a meat and poultry retailing business, its performance should be compared against benchmarks for both the meat retailing and fresh poultry retailing industry subgroups.

 

When you receive your tax information from us, it’s important to check that the industry code and description in your tax return accurately reflect your type of business. If not, you should let us know immediately to have it changed.

 

Types of benchmarks: performance versus input
There are two types of benchmark that the ATO monitors.

 

Performance benchmarks
These benchmarks use a number of different ratios to check your business’s performance against other businesses in your industry. They help the ATO identify any businesses that may not be reporting all of their income. Performance benchmarks include:

-income tax ratios such as cost of sales to turnover, total expenses to turnover, and rent to turnover; and
-activity statement ratios, including non-capital purchases to total sales, and GST-free sales to total sales.

 

Input benchmarks
Input benchmarks apply to tradespeople who purchase their own materials to perform jobs for household customers. These benchmarks show an expected range of income based on the total cost of labour and materials used.

 

They are calculated from information provided by trade associations and other industry participants. For example, the West Australian Solid Plastering Association helps the ATO set input benchmarks for plasterers who work with domestic customers.

 

Benefits of small business benchmarks
Any business owner who has experienced an audit knows it can be a stressful experience that will often stretch on for months. Looking at small business benchmarks can be an effective way to check that your tax records accurately reflect your business’s income and costs.

 

As well as helping the ATO monitor the cash economy, input benchmarks can help sole traders set their prices. For example, a painter can check how their current prices compare against the industry’s per-square-metre or per-hour price benchmarks, which are based on information that Master Painters Australia provides to the ATO.

 

Keeping track of your business
It’s important to check your benchmarks regularly throughout the year. The best way to do this is to review your financial ratio reports – talk to us if you’d like more information about how to obtain them.

 

It’s also a good idea to talk to us about how your business is performing against your industry’s benchmarks. This should be analysed when we prepare your tax return at the end of the income year, or at the end of every BAS quarter if you are registered for GST. If any figures are outside the benchmark ranges, we can give you guidance on how to fix the problem.

Super Shortfall for Women: Take Control with Some Simple Steps

How can superannuation be considered universal when it appears to discriminate against half the working population? With recent changes to the eligibility rules for spouse/partner contributions to super (brought in on 1 July 2017) it seems that policymakers are waking up to the shortfall in women’s superannuation. We look at some of the key causes that may affect you, and what actions you should consider taking in relation to your super.

 

It may not be the super system itself that is unfair to women, but rather that it doesn’t extend to “unpaid” or temporary/casual work, including domestic work mostly undertaken by women, or seek to cover those in less formal working roles. Whatever the cause, a disparity exists: A recent 2017 survey by HILDA (Household, Income and Labour Dynamics in Australia) found that women retire with an average super balance of $230,907 compared to men, who, on average, retire with double this amount. One in three women is heading towards retirement with no super, or a very small fund.

There are a number of factors that contribute to this shortfall, notably the gender pay gap, and the reality that women are far more likely to spend time out of work in comparison to men, to work part-time, to bring up children, or to care for elderly or sick relatives. The universal Superannuation Guarantee (SG) system was conceived 25 years ago, based on income from full-time, dependable employment.

In addition to this women tend to live longer than men, meaning that planning and looking after their super is essential.

Are you a woman aware of a shortfall in your super? Have you reviewed your super recently? If so now might be a good time to look at some practical strategies to boost your super, whatever your age.

 

Start super early

Even if you don’t have much capacity to put aside extra money for retirement, there is still a lot you can do to maximise your retirement benefits. No matter how small, compounding savings over a long-term horizon can produce substantial benefits.

If you can, plan early because having an adequate amount in your super by retirement age (current retirement age in Australia is 65, rising to 67 by July 2023) is dependent on growth of the fund over time. The earlier you start saving in super, the longer time your fund will have to accumulate. Saving for retirement is tax-effective via super as there is a lower rate of tax charged on super contributions, and from the age of 60 you can withdraw your super without paying tax.

Your employer should contribute 9.5% of your salary or wages to super if you are in full-time employment, or even part-time employment. An employer will usually select a default fund on your behalf, but you can choose your own nominated fund if you wish.

 

Find lost super

You may have lost track of a super fund, for example, if you have worked on a part-time basis or you have moved house, changed your name, or lived overseas. You can check this and track your entire super from your MyGov account:https://www.ato.gov.au/Individuals/Super/Keeping-track-of-your-super/#Checkyoursuper.

 

Know your super/grow your super
It may be difficult to keep up with detail of changes made to super, but it’s critical that you know the value of your own super as a starting point. Once you have located what super you have, you can check your balance/s, how much is being contributed, what investments are being made and any insurance that is in place. You can also add to your fund by making additional payments, either through salary sacrifice made directly from your employer, or by my making your own non-concessional contributions (after-tax super contributions).

 

Time out?
If you take time off to care for someone or to have a child, keep in mind that this will affect your super. You can use the career break super calculator to work out how taking time off will affect your super balance. If at all possible it is worth continuing to pay into your super while you are not working.

Individuals with total super balances less than $500,000 can make additional concessional contributions for unused cap amounts from the previous five years, starting from 1 July 2018. This will be a handy measure for those with a capacity to make “catch-up” contributions to boost their super.

Spousal/partner contributions – tax offset – change to eligibility
A tax offset of 18% up to $540 is currently available for any individual, married or de facto partner, contributing super on behalf of a recipient spouse/partner whose income is up to $37,000. Eligibility rules were extended from 1 July 2017 by the Government to increase this amount from $10,800. However, this offset is gradually reduced from income above $37,000 and disappears completely at income above $40,000. Individuals who are receiving such a contribution must be under 70 and if aged 65 to 69 must meet a work test.

A Government co-contribution up to $500 is also available for individuals with total incomes up to $36,813 for 2017–2018 (phasing down for incomes up to $51,813).

 

Consolidate
While you can often choose the fund into which super is paid, you may already have more than one super fund. Look into consolidating your current super funds if this is the case because contributing to one super fund, rather than many different ones, will mean you spend less on fees (as each super has an administration fee). It is also is easier to keep track of one fund. Key things to consider when choosing a fund are the long-term average returns of that fund and the fees that are charged – make sure you are comfortable with both. Before switching funds, it is also important to consider any insurance implications. Some funds require new members to undergo a medical test before insurance benefits are granted, while other funds may automatically offer transferring members insurance under a group life policy.

 

Strategy for self-managed super fund – get advice

You may not be in a job where your employer pays your super, or you might want to manage your own super fund. If so, you could consider a self-managed super fund (SMSF). This is a legal structure (regulated by the ATO) with the specific purpose of providing for your retirement. There are similar rules and restrictions to ordinary super funds so it is important to seek advice about whether an SMSF would suit your situation, how to set up your own fund and investment strategy going forward.

 

Talk to us
Please contact our office to discuss your circumstances and find out how we can assist further. We may be able to help you with advice on investment strategy, or put you in touch with those who can.

 

Tax Scams: Don’t be a victim

Tax scams are real and taxpayers need to be vigilant about bogus calls, text messages and emails from scammers. Some scammers go to great lengths to deceive taxpayers, including impersonating government representatives on the phone, sending fraudulent emails and even creating fake websites. It’s important to stay informed about what the latest scams look like, and know what questions to ask so you can avoid being scammed.

 

The ATO warns taxpayers to always watch out for scammers. Each year, the ATO receives a growing number of reports from the public of new phishing scams – it detected over 17,000 scams during the first half of 2017. Not only do scammers try to steal money, they also try to steal identities. The Government has identified several cases of misuse of stolen personal information that have led to fraudulent income tax returns, as well as GST, superannuation and welfare frauds.

 

Scammers are becoming more sophisticated in their attempts to defraud the public and trick people into handing over money, their tax file numbers and other personal information. A recent stratagem is to telephone people, displaying an official-looking ATO number as a caller ID so the victim feels confident enough to engage with the scammer and will provide personal information – this type of impersonation is known as “spoofing”. Sending emails containing links to bogus websites that mirror the official ATO website is also still a popular scamming method.

 

The typical story is that a fraudster contacts a taxpayer out of the blue claiming that the taxpayer has overpaid taxes and is entitled to a refund. The fraudster often asks the taxpayer to pay an “administration” or “transfer” fee to obtain the refund. They may also ask for the taxpayer’s personal details, including financial details such as bank account information so that the “refund” can be transferred. If the taxpayer hands over money, chances are that it is never seen again, and no transfer is forthcoming.

 

Another tactic is when fraudsters phone to demand that people pay allegedly unpaid taxes. The ATO is aware of one such aggressive scam where taxpayers are threatened with arrest if they do not pay a fake “tax debt” over the phone. Scammers may also demand payment in gift cards, such as iTunes or prepaid Visa cards.

 

Scams are most prevalent during tax time, but it’s important remain vigilant for them throughout the year.

 

If you receive an email, a text message (SMS) or an unexpected phone call from “the ATO” claiming that you are entitled to a refund, that you owe taxes or that you must confirm, update or disclose confidential details like your tax file number, delete the message (do not click any links or download any attachments) or hang up the phone.

From time to time, the ATO itself will send emails, text messages or official social media updates to advise you of new services. However, the ATO’s messages will never request personal or financial information by SMS or email, and its representatives will never ask you to pay money into a personal bank account.

 

If you receive a call, an email or an SMS and are concerned about providing personal information, you can call the ATO on 1800 008 540 (8 am to 6 pm, Monday to Friday), forward the suspicious email to ReportEmailFraud@ato.gov.au or check your myGov account for any message from the ATO. You can also contact our office for more information if you have concerns.

 

You should practise the same level of vigilance in relation to calls and emails from people who claim to be from other government bodies, such as state revenue authorities.

 

Document verification service for businesses
The Government has developed an electronic Document Verification Service (DVS) for business use. The DVS helps businesses to protect themselves against identity crime and makes it easier for businesses to meet their regulatory obligations to verify customers’ identities. The DVS allows businesses to verify information on Australian-issued driver licences, passports, visas and Medicare cards “in real time” directly with the issuing agencies. The system is not a database and does not store any personal information. All DVS checks must occur with the informed consent of the person involved. Further information is available on the DVS website at http://www.dvs.gov.au/.

 

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