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Will I Qualify For The Age Pension?

 

As we start to think about retirement, one of the first questions many of us ask is “Will I qualify for the Age Pension?” To help you understand your eligibility, we outline the basic thresholds that apply under the different means tests and what types of assets and income sources are included.

 

Knowing whether you’ll be entitled to the Age Pension is an important part of your retirement planning. Once you reach Age Pension age (66 years from 1 July 2019), you’ll also need to pass two tests: the assets test and income test. If your eligibility works out differently under the two tests, the less favourable result applies.

 

Assets test

If you own your own home, to qualify for the full pension your “assets” must not be worth more than $258,500 (for singles) or $387,500 (for couples). For non-homeowners, these limits are $465,500 and $594,500.Above these thresholds, you may qualify for a reduced pension. However, your entitlement to the pension ceases if your assets are worth more than $567,250 (for single homeowners) or $853,000 (for couples). For non-homeowners, these limits are $774,250 and $1,060,000.

 

So, what “assets” are included? All property holdings other than your principal home count, less any debt secured against the property.

 

There are also special rules for granny flat interests and retirement home contributions, so get advice before moving into these accommodation options.

Investments like shares, loans and term deposits or cash accounts all count, as do your share in any net assets of a business you run and part of the market value of assets in any private trusts or companies you’re considered to “control”.

And once you reach Age Pension age, your superannuation is also included. This includes your accumulation account and most income stream accounts.

 

How you structure your investments could make a big difference. Consider the following tips:

-Selling the family home can significantly impact your assets test position. For example, if you sell and put the proceeds into superannuation, that wealth will become subject to the assets test.

-Paying more off your home mortgage may improve your assets test position. For example, if you meet a condition of release you might consider withdrawing some superannuation benefits and using these to pay down your mortgage.

-Be careful when “gifting” away assets, including selling assets to your children below market value. The value of gifts in excess of $10,000 in a financial year, or $30,000 across five financial years, will count towards the test.

 

In any case, before changing your asset structure you should ask: does it make financial sense to rely on the Age Pension? You may be better off building investments that will generate a higher income for you in retirement.

 

Income test

If you earn up to $172 per fortnight as a single (or $304 as a couple), you can potentially receive the full pension. Above this, your pension entitlement will taper down before ceasing at income of $2,024.40 per fortnight for singles and $3,096.40 for couples. A “Work Bonus” allows pensioners to earn up to $250 from employment per fortnight without it affecting their pension.

 

The income test is broad and includes any gross amounts you earn from anywhere in the world. As well as your income from employment (above the Work Bonus) or business activities, the test also includes things like investment income (eg dividends, trust distributions and rental income), superannuation income streams and even a share of the income in any private trusts or companies you “control”.

 

Your income from certain financial assets is “deemed” at a certain rate. If your actual earnings from these investments exceed the deeming rate, the excess doesn’t count towards the income test. The deeming rules apply to assets like listed shares and managed investments, savings accounts and term deposits, and many superannuation accounts.

 

Plan for a secure retirement 

Contact us to start your retirement planning today. We’ll advise you on the most beneficial way to approach your income from superannuation, the Age Pension and other investments to help you achieve the best retirement outcome.

SMSFs Vs Other Types Of Funds: Some Issues To Consider

 

For many people, SMSFs are a great option for building retirement savings, but they may not be suitable for everyone. Before you jump in, make sure you understand the differences between SMSFs and other types of funds to help you make an informed decision.

 

Thinking about setting up an SMSF? In this first instalment of a two-part series, we explain some of the key differences between SMSFs and public offer funds. Understanding these differences can help you have a deeper discussion with your adviser.

 

Management

While public offer funds are managed by professional licensed trustees, SMSFs are considerably different because management responsibility lies with the members. Every SMSF member must be a trustee of the fund (or, if the trustee is a company, a director of that company).

This is an advantage for those who want full control over how their superannuation is invested and managed. However, it also means the members are responsible for complying with all superannuation laws and regulations – and administrative penalties can apply for non-compliance. Being an SMSF trustee therefore means you need to be prepared to seek the right professional advice when required.

 

If you intend to move overseas for some time (eg for a job posting), an SMSF could be problematic because it may be hit with significant tax penalties if the “central management and control” moves outside Australia.

 

 

On the other hand, members of public offer funds can move overseas without risking these penalties because their fund continues to be managed by a professional Australian trustee.

 

Costs

Costs are a key factor for anyone considering their super options. Fees charged by public offer funds vary, but are generally charged as a percentage of the member’s account balance. Therefore, the higher your balance, the more fees you’ll pay. This is an important point to remember when weighing up a public offer fund against an SMSF.

SMSF costs tend to be more fixed. As well as establishment costs and an annual supervisory levy payable to the ATO, SMSFs must hire an independent auditor annually. Additionally, most SMSF trustees rely on some form of professional assistance, which may include accounting/taxation services, financial advice, administration services, actuarial certificates (in relation to pensions) and asset valuations.

 

These costs may be a more critical factor for those with modestly sized SMSFs. This year, a Productivity Commission inquiry found that larger SMSFs have consistently delivered higher net returns compared with smaller SMSFs, and that SMSFs with under $500,000 in assets have relatively high expense ratios (on average). The Commission’s report has attracted some criticism that it has overstated the true costs of running an SMSF, but in any case, anyone considering an SMSF needs to think carefully about the running costs involved and make an informed decision about whether an SMSF is right for them. For members with modest balances, an SMSF will often be more expensive than a public offer fund, but this needs to be weighed up against the other benefits of an SMSF.

 

Investment flexibility

A major benefit of an SMSF is that the member-trustees have full control over their investment choices. This means they can invest in specific assets, including direct property, that would not be possible in a public offer fund. For example, a business owner wishing to transfer their business premises into superannuation would need an SMSF to achieve this. SMSFs can also take advantage of gearing strategies by borrowing to buy property or even shares through a special “limited recourse” borrowing arrangement.

However, with control comes responsibility. SMSF trustees must create and regularly update an “investment strategy” that specifically addresses things like risk, liquidity and diversification. And of course, the SMSF’s investments must comply with all superannuation laws. In particular, transactions involving related parties (eg leases and acquisitions) can give rise to numerous compliance traps, so SMSF trustees must be prepared to seek advice when required.

 

Need help with your decision?

Contact our office to begin a discussion about whether an SMSF can help you achieve your retirement goals.

Dealing With The ATO: Simple Tips For Taxpayers

Being a smart taxpayer means knowing what resources are available to you and understanding how the ATO deals with individuals as tax problems arise. Here are three simple things all individuals can do to help keep their tax affairs as stress-free as possible this tax time.

 

Sometimes, the way we approach tax matters can end up making a big difference to our bottom line and stress levels. Here are three tips to help individual taxpayers achieve a better outcome when lodging and dealing with the ATO.

 

Tip one: Get help with debts early

 

If you’re experiencing financial difficulties, there are a number of ways the ATO can assist. If you can’t pay your tax bill, the ATO encourages you to contact them early to discuss your options. This might include:

Payment plans: In 2017–2018 the ATO negotiated 226,000 payment plans to allow taxpayers to pay in instalments. For tax bills under $100,000 you can set up a payment plan online through myGov, or through your tax agent. For bigger debts, contact the ATO to discuss a plan.

Debt relief: The ATO has power to release an individual from their tax bill (in part or in full) where paying the bill would leave them unable to afford food, clothing, accommodation, medical treatment, education or other necessities. In 2017–2018, the ATO granted 2,174 full or partial releases.

 

A good tip for anyone having trouble paying their tax bill is to stay on top of their lodgment obligations. Even if you can’t pay, you should still lodge your tax returns on time (and any business activity statements).

 

Not only will you show the ATO that you’re aware of your obligations and making an effort to comply, you’ll avoid penalties for non-lodgment.

 

Tip two: Stay off the ATO’s radar

 

No one wants to be audited, so it pays to know the “red flags” the ATO looks for when analysing its increasingly vast data sources. Understanding these risk areas can also help you self-identify any mistakes you might have accidentally made, or areas where it’s worth getting professional tax advice. For individuals, the ATO looks closely for:

-work-related expense claims that are unusually high or out of the ordinary, especially in relation to clothing, cars, travel and self-education;
-rental expenses, especially those inconsistent with rental income or other information the ATO holds about the property;
-undeclared capital gains from property sales, the Australian share market and cryptocurrency;
-undeclared income (eg cash payments or income from foreign sources); and
-taxpayers who don’t lodge returns on time.

 

Tip three: Manage disputes efficiently

 

There are many options for resolving tax disputes, ranging from lodging an objection, seeking external review, alternative dispute resolution and litigation. However, the ATO wants to resolve tax disputes quickly and fairly. It says in the last five years, there has been a 60% reduction in Administrative Appeals Tribunal applications made by taxpayers against its decisions.

 

To achieve an efficient resolution, individual taxpayers should consider taking advantage of the ATO’s “in-house” facilitation service. This gives individuals (and small businesses) free access to an impartial ATO mediator who will take the taxpayer and ATO case officers through the issues in dispute and attempt to reach a resolution. It’s a voluntary process and can be undertaken at any time from the early audit stage up to and including the litigation stage. If the mediation fails, your usual review and appeal rights aren’t affected at all. It may not solve the problem in every case, but if the facilitation is successful it could save you time, stress and money.

 

Need help with a tax problem?

We’re here to support you in all of your dealings with the ATO. Whether it’s an unpaid tax debt, a disputed assessment or a complicated deduction you’re just not sure about claiming, our experts will guide you every step of the way and help you achieve the best possible outcome.

How Illegal Phoenixing Affects You

Every year, illegal phoenix activity costs the Australian economy billions of dollars not to mention the direct costs to businesses, employees, and the government. Just how much has been quantified by a recent report commissioned by three government agencies. Overall, the direct cost to businesses, employees, and the government has been calculated to around $2.85bn to $5.13bn, while the total impact to the Australia economy is around $1.8bn to $3.5bn in lost gross domestic product.

 

According to the Australian Bureau of Statistics, at the end of 2016-17 the number of businesses that ceased operating in Australia amounted to 261,450, an increase of 0.5% from the previous year. While most of these are likely to be honest commercial failures, after all, there are statistics that indicate that around 60% of Australian small businesses fail within the first 3 years, a percentage of these yearly failures may be attributable to illegal phoenixing.

 

Illegal phoenixing is the deliberate liquidation of a company to avoid liabilities while simultaneously commencing similar operations in another company or trading entity. This type of illegal activity leaves behind not only outstanding payment to tax authorities, but also unpaid creditors, unfulfilled customer orders and unpaid employee entitlements.

 

“[Illegal phoenixing] can occur in any industry or location. However illegal phoenix activity is particularly prevalent in major centres in building and construction, labour hire, payroll services, security services, cleaning, computer consulting, cafés and restaurants, and childcare services. [it is also seen] in regional Australia in mining, agriculture, horticulture and transport. There is an emerging trend in intermediaries who promote or facilitate illegal phoenix behaviour.”

 

To tackle this issue on a national level, the Inter-Agency Phoenix Taskforce has been established to identify, manage and monitor suspect illegal phoenix activity. This task has been made significantly easier with the development of the ATO Phoenix Risk Model (PRM) which allows for the identification of potential illegal phoenix population which can be more closely monitored by the taskforce. As at June 2018, the taskforce comprises of 29 government agencies including all State and Territory Revenue Offices.

 

A recent report commissioned by three Phoenix Taskforce member agencies (ATO, ASIC and the Fair Work Ombudsman) into the economic impacts of illegal phoenixing activity shows a sobering picture of how this illegal activity affects all of us, either directly, or through broader economic impacts:

-direct cost to businesses in the form of unpaid trade creditors is $1,162-$3,171m;
-direct cost to employees in the form of unpaid entitlements is $31-$298m;
-direct cost to the government in the form of unpaid taxes and compliance cost is $1,660m; and
-the net effect to the Australian economy is $1.8bn-$3.5bn lost gross domestic product.

 

As the figures show, illegal phoenix activity has deep financial impact on the Australian economy. Not to mention the costs unable to be captured by the report such as employee stress related to losing their jobs, discouragement effect on labour supply due to people not getting their full entitlements, increased social welfare burden through increased government support, and distortionary competition effects on lawful businesses.

 

How to protect yourself

As an employee, you should ensure that you receive a payslip and regularly review your entitlements and superannuation. As a business owner, look out for warning signs such as a company offering lower than market value quotes, or changes to a company name with the same management or staff. If you think you may be dealing with a company the is involved in illegal phoenixing, we can help with the due diligence before you enter into any business arrangements.

 

Working And Studying Part-Time: Can I Deduct My Course Fees?

If you’re working and also studying part-time in a work-related course of education, you may be able to deduct some expenses like tuition fees. However, to be eligible there must be a sufficient connection between the course and your current job. Make sure you understand the ATO’s criteria before making a claim.

 

Planning on going “back to school”? The costs can really add up, but the good news is that your course fees may be deductible if the course is sufficiently related to your current employment. In this first instalment of a two-part series, we explain when you can deduct your tuition fees for work-related education. Our second instalment will look at other expenses like textbooks, computers and travel.

 

What courses are eligible?

The first step is to work out whether the course you’re studying entitles you to claim self-education deductions. Not all courses you study while you’re working will be eligible.

Importantly, the course must lead to a formal qualification from a school, college, university or other educational institution. Courses offered by professional associations (as well as other work-related seminars, workshops and conferences) generally don’t come under “self-education” for tax return purposes, but these course fees will often be deductible as “other work-related expenses” in a separate part of your tax return. Your tax adviser can help you determine how to claim these.

Second, there must be a sufficient connection between your formal course of study and your current income-earning activities.

This means the course must either maintain or improve the skills or knowledge you need for your current employment, or result in (or be likely to result in) an increase in your income from your current employment.

 

Therefore, a course that directly enables you to:

-become more proficient in performing your current job;
-move up to a new pay scale; or
-be promoted to a higher-salary position with your current employer
is likely to be eligible.

 

However, the ATO says it’s not sufficient if a course is only generally related to your job, or if it will help you to get employment or get new employment. The ATO gives the following as examples of study that would not be eligible:

-An undergraduate student studying a course with the intention of working in that industry in future.
-A worker studying in order to change industries, or to get a new type of job within the same organisation.
-A professional like a general medical practitioner studying to become a specialist in a particular field of medicine.

 

When are course fees deductible?

If your course has the necessary connection to your current work as explained above, you can deduct course fees that are funded under the government’s “FEE-HELP” or “VET FEE-HELP” loan programs. However, you can’t deduct course fees funded under the “HECS-HELP” program.

You also can’t deduct any repayments you make under any government loan scheme. This is best illustrated by an example:Sarah is an employee who is also enrolled part-time in a course funded by a FEE-HELP loan. This course will help her improve skills needed in her current job. Her tuition fees for this financial year are $2,000. She can claim this $2,000 as a deduction in her tax return.

When she later makes repayments on her FEE-HELP loan (either compulsory or voluntary), those repayments will not be deductible.

If you’re paying course fees yourself without any government assistance, you can claim a deduction and you can also claim the interest expenses on any loan you’ve privately taken out to finance this (eg a bank loan).

In many cases, taxpayers are required to reduce their total claim for self-education expenses by $250. This depends on what other self-education expenses you incur in the financial year. Your tax adviser can perform the necessary calculations to finalise your claim.

 

Get it right before you claim

Tertiary course fees can involve some large deductions. Talk to us today for expert advice on your eligibility and to ensure your claim will stand up to ATO scrutiny.

Government Tenders And Tax Compliance

Bidding on Commonwealth government tenders could soon be more complex, with the government seeking to exclude businesses that do not have a satisfactory tax record from the tender process. It would apply from 1 July 2019 to all tenders with an estimated value of over $4m (including GST) and includes construction services. Businesses that wish to tender must generally be up-to-date with their tax obligations including both registration and lodgement requirements and not have any outstanding debt.

 

Do you run a business that would like to bid on lucrative Commonwealth government contracts or is likely to do so in the future? From 1 July 2019, the government is seeking to exclude from the tender process those businesses that do not have a “satisfactory tax record (STR)” as a part of its measures to tackle the black economy. The initiative would apply to all tenders with an estimated value of over $4m (including GST) for all goods and/or services including for construction services.

 

Those companies wishing to tender must either provide a satisfactory STR that is valid for at least 2 months or more at the time of the tender closing, or in circumstances where a satisfactory STR has not been issued, provide an STR receipt demonstrating that an STR has been requested from the ATO and then provide the STR no later than 4 business days from the close of tender and before the awarding of the contract.

 

To obtain a satisfactory STR from the ATO, the business must:

-be up-to-date with registration requirements (ie ABN, GST, TFN etc);
-have lodged at least 90% of all income tax returns, FBT returns and BASs that were due in the last 4 years or the period of operation if less than 4 years;
-not have $10,000 or greater in outstanding debt due to the ATO on the date the STR is issued. Note this does not include debt subject to a taxation objection, review or appeal or debt that is a part of a payment plan with the ATO.

 

When an STR is issued, it will usually be valid for 12 months from the time of issue. However, those businesses that do not hold an Australian tax record with the ATO of at least 4 years will generally receive STRs that are only valid for 6 months.

 

There may also be additional requirements in relation to obtaining STRs for subcontractors, foreign companies, partnerships, trusts, joint ventures and tax consolidated groups tendering for Commonwealth government contracts from 1 July 2019.

 

Depending on how well the policy runs in its first year, the government is open to introducing further criteria to determine an STR, such as whether the business:

-meets its superannuation law requirements and PAYG withholding obligations;
-discloses information about its tax affairs under the voluntary tax transparency code;
-has had court order penalties imposed on its directors; and
-its related parties have had convictions for phoenixing behaviour, bribery or corruption.

 

Note this initiative is not designed to replace existing due diligence and checks that are already undertaken, including those relating to business practices that are dishonest, unethical or unsafe, not entering into contracts with businesses that have had a judicial decision against them relating to employee entitlements and who have not satisfied any resulting order (not including decisions under appeal).

 

Want to get your tax obligations in order?

Get on the front foot with your business by getting all your tax obligations in order. Contact us today for all your income tax, FBT and GST needs, we have the expertise to help you with any tax issue, no matter how complex. If you’re planning to expand your business, we can help you map out a plan for a smooth evolution.

Changes Ahead For Inactive Super Accounts: Are You Affected?

Got an old super fund account you haven’t touched for years? New rules mean “inactive” accounts (ie no contributions or rollovers for 16 months) will lose their insurance coverage from 1 July 2019 – unless you want to keep your insurance and take action now. Low-balance accounts may even be transferred to the ATO. Find out if you’re affected and what steps you might need to take.

 

This year’s Productivity Commission inquiry into superannuation highlighted concerns that many Australians’ super benefits are being eroded by fees and inappropriate insurance premiums. The government has now passed laws to force superannuation funds to take action – in some cases by cancelling insurance policies or paying benefits over to the ATO for consolidation. While the reforms will undoubtedly benefit many Australians, some members who wish to prevent unwanted action on their account may need to take action.

 

The new laws broadly take effect from 1 July 2019 and apply to “MySuper” and choice products (eg retail and industry fund accounts), but don’t apply to SMSF trustees or small APRA funds.

 

Fees reform

The new laws ban superannuation funds from charging exit fees when a member wants to leave the fund, making it easier for members to close and consolidate their super accounts.

 

For member account balances below $6,000, funds are also prohibited from charging annual administration and investment fees totalling more than 3% of the member’s account balance.

 

Insurance changes

Currently, many funds offer insurance on a default “opt-out” basis. While insurance is beneficial to many Australians (eg for death, permanent disablement or income protection), the government is concerned that some members are signed up for inappropriate or multiple insurance policies (eg from having accounts across multiple superannuation funds) and their super is being eroded by the premiums deducted from their accounts. Members are sometimes not fully aware of the costs and benefits involved.

 

Under the new laws, funds may not provide insurance for members of accounts that have been “inactive” (ie have not received any contributions or rollovers) for at least 16 months, unless specifically directed by the member. This means many existing insurance policies will be cancelled from 1 July 2019.

 

Funds were supposed to contact potentially affected members by 1 May 2019, but all members should check for themselves by asking:

 

-Do I have an “inactive” account? This commonly includes workers with one or more old accounts from a previous job, parents taking time out of the workforce to care for children and even SMSF members who also keep an old public offer account open just for the insurance coverage.

-What insurance am I signed up to? How much am I paying annually in premiums, and what is the insured amount? Do I hold multiple policies for the same insurance?

-Do I want to keep the insurance cover? Your needs are unique and depend on your own financial and personal circumstances. If in doubt, seek professional advice.

 

If you wish to keep the insurance policy, you must make an election in writing. Contact your fund if you’re unsure how to do this. You can make an election before 1 July.

 

Consolidating inactive low-balance accounts

Inactive accounts with balances below $6,000 will be paid over to the ATO, who will then take action to consolidate the person’s super into a single account (or pay the benefits to the member directly if they are old enough to qualify or, if the member has died, to their beneficiaries or estate).

 

Even if your low-balance account has not received any contributions or rollovers for 16 months, the account will not be deemed “inactive” if you have taken actions such as changing investment options, changing insurance coverage or making or amending a binding nomination. You can also elect in writing to the ATO not to be treated as an inactive account member.

 

Get your super in order 

Now is a great time for superannuation members to take stock of their accounts and insurance arrangements. Contact us if you need assistance with any of the upcoming changes.

Whistle While You Work

 

Have you ever wanted to report financial or corporate misconduct, but been fearful of blowing the whistle? Currently, there is no whistleblower regime within Australia’s tax laws. To remedy this situation the Government has recently unveiled draft legislation with a view to create a single whistleblower protection regime.

 

To remove the barriers to whistleblowing, the Bill under consideration seeks to widen what constitutes an “eligible” whistleblower (ie, who can be a whistleblower) and offers civil compensation for whistleblowers.

 

Minister for Revenue and Financial Services Kelly O’Dwyer said “Breaking ranks and reporting wrongdoing can be a harrowing experience, so it is important people know that they will have access to redress if they are victimised as a result of blowing the whistle.”

 

What is proposed?

Designed to cover the corporate, financial and credit sectors and to protect those who expose tax misconduct, the proposed reforms include:

 

-expanding the protections to a broader class of people, set to include former officers, employees, contractors and suppliers as well as associates and family members of such individuals;

-expanding the types of disclosures that will be protected under the framework;

-allowing disclosures to parliamentarians and the media in certain circumstances, providing certain pre-conditions are satisfied;

-imposing new stringent obligations to maintain the confidentiality of a whistleblower’s identity;

-making it significantly easier for a whistleblower to bring a claim for compensation where he or she has been victimised;

-creating a new civil penalty offence so that law enforcement agencies will be able to take action against companies where the civil standard of proof can be met; and

-requiring all large companies to have a whistleblower policy in place, with penalties for failing to do so.

 

To be protected as a whistleblower in relation to an entity, you must be eligible and the disclosure must be made to:

 

-the ATO and as a discloser you must consider that your information will assist the ATO in performing its duties; or

-an eligible recipient (which includes the auditor of an entity and a registered tax agent (who provides tax agent services to the entity)) and as the discloser you have reasonable grounds to suspect that your information indicates misconduct, or an improper state of affairs or circumstances, in relation to the tax affairs of an entity or an associate of an entity.

 

Protections provided to any eligible whistleblower include:

-immunity from civil or criminal proceedings for making a disclosure;
-protection against an action for breach of contract (including protection against termination of employment);
-protection against victimisation; and
-protection against disclosure of the whistleblower’s identity.

It will become mandatory for public companies and large propriety companies to have a procedure for whistleblowing and those who fail to do so will face a penalty.

 

Do the measures go far enough?

There has been criticism that the new proposed measures do not go far enough. Again, in response to this the Government has formed an Expert Advisory Panel to ensure new measures answer some of the recommendations made by a recent Parliamentary Joint Committee on Corporations and Financial Services into Whistleblower Protections in the corporate, public and not-for-profit sectors (PJC Report). Advice from the Expert Panel and feedback from consultation will be considered before finalising the legislation for introduction to Parliament in the last sitting week of this year.

The Government will respond to the parliamentary inquiry’s recommendations to create a reward system or bounty for whistleblowers and a whistleblower protection authority.

 

What is the timing?

The proposed date of effect will commence on the day the Bill receive Royal Assent and would apply to whistleblower disclosures made on or after 1 July 2018, including disclosures about events before this date. To allow sufficient time for public companies and large proprietary companies to comply with the requirement to have a whistleblowing policy, those amendments will apply on and after 1 January 2019, or not later than six months after a proprietary company first becomes a large proprietary company.

 

Next steps

We will keep you updated on this area. Do you currently have a whistleblowing procedure and is this promoted openly within your organisation? Given the coming changes, now might be a good time to start thinking about how to put this in place. If you own a company, you will need to keep abreast of the coming reforms. If you have something to report you can start by talking to us as your tax agent.

Black Economy Taskforce: Who Could Be Included

 

In a bid to crack down on tax evasion, the Government has proposed to extend the taxable payment reporting system to two new high risk sectors identified by the Black Economy Taskforce: cleaning services and couriers. The Government cited the improved tax compliance in the building and construction industry as a model of what can be achieved in newly targeted sectors. We will keep you up to date with developments in this area as legislation is enacted.

 

The proposed new laws will require entities that provide courier or cleaning services to report to ATO details of transactions involving contractors. According to ATO guidance, contractors include sole traders (individuals), companies, partnerships, or trusts.

 

For couriers, the proposal captures any service where an entity collects goods (ie, packages, letters, food, flowers, or any other goods) and delivers them to another location.

 

The Government is hoping the imposition of additional compliance will encourage tax compliance, particularly in the food delivery market, which is gaining in popularity.

 

Similarly, cleaning services have also been broadly defined in the proposal to refer to any service where a structure, vehicle, place, surface, machinery or equipment has been subject to a process in which dirt or similar material has been removed from it.

 

What will you need to declare?

If you employ couriers or cleaners

Entities captured by this measure will need to lodge an annual report to the ATO detailing each contractor’s ABN, name, address, gross amount paid for the financial year (including GST) and the total GST included in the gross amount that was paid. If this applies to you and you employ couriers or cleaners you may also be required to provide additional information, such as the contractor’s phone number, email address and bank account details. In essence, companies such as deliveroo, ubereats, foodora, as well as a host of other players, could face the increased compliance costs of having to lodge hundreds, if not thousands, of these reports to the ATO each year.

 

If you contract as a courier or cleaner

If you are a courier or a cleaner (and you provide contract services), the data collected about you will be used in data-matching programs to ensure that all of your income is reported correctly to the ATO. If you are contracted to a delivery company or a cleaning company you will need to keep careful records of what you are being paid. This is particularly important if you only work for these companies on an occasional or part-time basis.

 

How about the timing?

Should this proposal pass as law, the first annual report will be for the 2018–2019 financial year.

 

What to do next

Any relevant business that is required to report will need to collect relevant information from 1 July 2018, with the report due by 28 August 2019. Information from the reports (which will be data matched with information provided by contractors) will apply on tax returns for the 2018–2019 income year. Speak to us if you think this could be relevant to you.

Reverse Mortgage Lending And Retirement

Since the global financial crisis, demand for reverse mortgages have grown steadily. It allows older individuals, perhaps retirees, to unlock the equity in their homes while they continue to live in the property. However, reverse mortgages may not be all it’s cracked up to be. A recent review by ASIC found that borrowers had a poor understanding of the risks and future costs of their loan, inadequately documented long-term financial objectives, and lack of protection for non-borrowers who live in the property. When it comes to reverse mortgages, it may be a case of buyer beware.

 

Reverse mortgages are a credit product that allows older individuals to achieve their immediate financial goals by using the equity in their home to borrow amounts. The loan typically does not need to be repaid until a later time (ie when the borrower has vacated the property or has passed away). For older individuals who own their home but few other assets, the advantage of reverse mortgages is that it allows them to draw on the wealth locked up in their homes while they continue to live in the property. As good as it sounds, reverse mortgages may not be all it’s cracked up to be.

 

ASIC recently reviewed data on 17,000 reverse mortgages, 111 consumer loan files, lender policies, procedures and complaints, along with in-depth interviews with 30 borrowers and 30 industry and consumer stakeholders. The review evaluated the effectiveness of enhanced responsible lending obligations and examined 5 brands who collectively lent 99% of the dollar value of approved reverse mortgage loans from 2013 to 2017.

 

The average size of a reverse mortgage loan was found to be around $118,627 with an average home value of $632,598 (average loan-to-value ratio 26%). Borrowers typically took out reverse mortgages to pay for daily expenses, bills and debts, home improvements and car expenses. Unlike other loans, reverse mortgage borrowers had limited choices due to a lack of competition, with 2 credit licensees writing 80% of the dollar value of new loans from 2013 to 2017.

 

The review also found that borrowers had a poor understanding of the risks and future costs of their loan, and generally failed to consider how their loan could impact their ability to afford their possible future needs. In addition, it found reverse mortgages were a more expensive form of credit compared to standard variable owner occupier home loans with the interest rates typically being 2% higher and as no repayments are required, the interest compounds.

 

According to ASIC, lenders have a clear role to play and in nearly all the loan files reviewed, the borrower’s long-term needs or financial objectives were not adequately documented. 

 

This is important as borrowers can never owe the bank more than the value of their property, however, depending on when a borrower obtains their loan, how much they borrow, and economic conditions (eg property prices and interest rates), they may not have enough equity remaining in the home for longer term needs such as aged care.

 

The other concerning finding by ASIC is that some reverse mortgages may not protect other residents in the home. For example, if a borrower vacates the property or passes away, the borrower or their estate can often only afford to pay off the loan balance of a reverse mortgage by selling the property. This can require non-borrowers still living in the home (ie a spouse, relative, or adult children) to move out unless the contract contains a “tenancy protection” provision allowing them to remain in the home for a period of time.

 

Only one lender in the review offered a limited option to include a tenancy protection provision in their loan contract which lasted for one year after the death of the borrower with certain conditions. Other lenders in the review would only protect non-borrower residents if they added their name to the loan contract. ASIC notes that under enhanced consumer protections, lenders must give potential borrowers a prescribed tenancy protection warning, which did not occur in a majority of the cases.

 

Thinking of getting a reverse mortgage?

If you think a reverse mortgage would suit your retirement needs, come and speak to us today to ensure that you get the full picture before you sign up to anything. We can help you understand all the terms and protections to make the most out of your retirement.

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