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How Much Tax Is Taken Out Of My Super Withdrawals?

You’ve worked hard for your super, so make sure you access your benefits in the most tax-effective way possible. Members aged under 60 years will pay tax on their withdrawals, but if you’re over 60 you generally will not pay any tax. But there are always exceptions! Find out what taxes apply before you jump in.

 

If you’re aged 60 or over, you usually won’t pay any tax on super benefits you withdraw. However, if you’re under 60 your benefits will be taxed.

To understand how much tax you’ll pay, it helps to remember that your super benefits are split into two components:

-The “tax free” component of your benefits is not taxed when you make a withdrawal, even if you’re under 60. This component is the part of your super balance made up of things like non-concessional (after-tax) contributions.

-The “taxable” component is taxed. This component reflects things like compulsory superannuation guarantee contributions, salary-sacrifice contributions and personal contributions for which you claimed a tax deduction, as well as investment earnings.

 

You can’t “cherry pick” which component you would like to fund your withdrawal. This means, for example, that if your accumulation account is 80% taxable and 20% tax-free at a particular point in time, any lump sum you withdraw at that time would also reflect this 80/20 split for tax purposes. Similarly, any pension you start at that time would have this 80/20 split locked in from the commencement day of the pension.

 

Therefore, the bigger your “taxable” component as a percentage of your account balance, the more tax you’ll pay when you withdraw benefits. The applicable tax rates are as follows:

Pensions: the taxable part of your pension payments is taxed at your marginal rate, less a 15% tax offset.

Lump sums: the taxable part of a lump sum withdrawal is tax-free up to your “low rate cap” of $205,000 (for 2018–2019; set to increase to $210,000 for 2019–2020). This is a lifetime cap that you gradually utilise each time you withdraw a lump sum. Once you have fully utilised your cap, the remaining taxable part of any lump sum is then taxed at 17% (or your marginal rate, whichever is lower).

 

Several exceptions apply to these rules. First, if you’re receiving certain “disability superannuation benefits” or accessing super before you’ve reached preservation age (eg on “compassionate” grounds), different tax treatment applies. Second, some people such as members of public sector or government superannuation funds are subject to special rules that mean they will pay some tax even if they’re aged over 60.

 

Planning ahead

It’s worth talking to your adviser to plan the best strategy for your super withdrawals. For example, if you’re under 60, a lump sum may be more tax effective than a pension because of the “low rate cap” discussed above.

 

However, to access a lump sum before age 65 you must meet a relevant condition of release such as “retirement”, whereas you only need to reach your preservation age in order to access a transition to retirement income stream (TRIS).

 

Your adviser can also help you explore the possible tax benefit of starting a full account-based pension (ABP). Unlike a TRIS, an ABP requires that you’ve met a relevant condition of release such as retirement, but the advantage is that it attracts a partial or possibly a full exemption from income tax on investment earnings inside the fund. So, as you can see, the decision to access your benefits is best made with professional advice that takes into account a range of factors including:

-your age;
-employment status and income;
-lifestyle/cashflow needs;
-tax efficiency of running a pension;
-eligibility for the Aged Pension; and
-special planning required if you hold more than $1.6 million in super (the current limit on the amount you can hold in full pensions like ABPs).

 

Need to access your super?

Talk to us today for expert advice tailored to your individual circumstances. We’ll help you navigate through the tax rules to get the most out of your retirement savings.

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.

Alternative Dispute Resolution Process

 

Alternative dispute resolution (ADR) is not only used to resolve substantive disputes, and can be used to clarify or limit issues, and remove barriers created by relationship issues between you and the ATO. Usually, if your dispute is not very complex, in-house facilitation may be used. More complex issues will usually be outsourced to an external practitioner. Working out if the ADR process is right for you can save you time, money and heartache in any dispute or potential dispute.

 

If you’re involved in a dispute with the ATO, going straight to the Court or Tribunals may not be the most time or cost-effective way to proceed. As a taxpayer, you can access the alternative dispute resolution (ADR) process in any dispute with the ATO, which used appropriately may be the most cost-effective and efficient way to resolve disputes. Basically, it involves using an impartial person to help resolve the dispute or at least narrow the issues between the parties.

 

Broadly, the ADR processes encompass 4 branches, facilitative, advisory, determinative, and blended dispute resolution.

 

Facilitative

In this branch, independent ADR practitioners assists the parties to identify the issues, formulate solutions, and consider any alternatives with the goal of reaching an agreement either about the entire dispute or some issues within the dispute. Examples of the facilitative processes include:

*Mediation – an external practitioner is engaged to facilitate the process. The parties usually split the costs involved where mediation is voluntarily entered into. Note that mediators do not normally give advice, unless the parties have requested an advisory/evaluative mediation or conciliation.

 

*In-house facilitation – a trained independent ATO officer facilitates the process. There are no costs involved in the process. However, the facilitator will not establish facts, give advice, decide on who is “right or wrong”. The facilitator’s function is to guide the parties through the process and assist them to ensure where are open lines of communication and that messages are correctly received.
Advisory

 

This process may also be referred to a neutral evaluation (or early neutral evaluation) and involves the parties presenting their arguments to an independent practitioner who provides advice on some or all of the facts of the dispute, the law, and possible or beneficial outcomes.

 

In tax and superannuation disputes, the practitioner will usually have substantial experience in tax law so they can give an insight into a decision a Court or Tribunal may make if the dispute proceeds to litigation. Once the practitioner gives the advice, it is up to each party whether they accept the advice and how they will use that information. For example, if both parties hear from the independent practitioner that they will not be completely successful in their case before the Tribunal or Court, they may decide to enter into a negotiated agreement to resolve the dispute rather than going through the costly legal proceedings.

 

Determinative

In this process, an independent practitioner evaluates the dispute and makes a determination, an example of this includes arbitration. However, the ATO notes that determinative processes are not generally appropriate for ATO disputes as it can incur similar costs and delays as litigation, but lack the openness and transparency of Court of Tribunal decisions.

 

Blended dispute resolution

This is where an independent practitioner plays multiple roles such as conciliation and conferencing, and may also facilitate discussions and provide advice on the merits of the dispute. The facilitator will usually have qualifications in the area of the dispute. This process is usually used by the Administrative Appeals Tribunal in tax and superannuation disputes in the early stages of the proceedings.

 

I have a dispute, what should I do?

Certainly, in any dispute or potential dispute emotions will be running high, and rash decisions may be made; but keep a cool head to work out which option best suits your circumstances will save you lots of time, money, and heartache. If you’re not sure if the ADR process is right for you, we can help you work out your options.

Are You Declaring Your “Odd Jobs” Income From Gig Economy Sites?

“Gig economy” platforms like Airtasker are allowing Australians to earn some extra cash by completing a staggering variety of odd jobs – everything from gardening to data entry and even standing in line for concert tickets! But if you earn money from these platforms, you must ensure you meet your tax obligations.

 

Have you ever considered joining a site like Airtasker to make some extra cash? If so, you’ll need to keep the ATO happy. Here, we explain the tax issues that arise when you earn money performing “gigs” through Airtasker, or any other online platform that connects workers with third-party hirers looking for help with one-off tasks.It’s important to understand that these platforms are used by everyone from “moonlighters” making some extra dollars on top of their regular job, through to self-employed people running substantial businesses (eg tradespeople) who use these platforms to pick up extra clients. Certain tax issues like GST registration can therefore depend on the person’s particular circumstances.

 

Is this money assessable income?

Yes, you must declare this income in your tax return. This means you must keep records of the amounts you earn.

 

If the platform charges you a fee or commission, you must declare the gross amount of income you earn. For example, if Sally earns $100 from a gardening gig and pays the platform a $15 service fee, she must declare the full $100 as income in her tax return.

 

However, you’re entitled to claim relevant deductions, including platform fees and commissions. You may also be able to deduct other expenses you incur in generating the income, including equipment and some car expenses. If your expenses also entail some personal use, you’ll only be able to claim a portion of the expenses. Your tax adviser can explain exactly what you’re entitled to deduct and how to substantiate this. In the meantime, ensure you keep receipts of all expenses related to your gigs.

 

How does GST work?

If your annual turnover is $75,000 or more, you must register for GST. Below this threshold, registration is optional. Being registered for GST means:

-You must report and remit GST of 10% to the ATO. This involves additional administration, and you’ll need to take this into account when deciding what price you’re willing to perform a “gig” for. Other workers you’re competing against who aren’t GST-registered may be willing to perform a gig at a lower price.

-However, you can claim GST credits on the GST components of business expenses you incur, including the GST included in any platform fees. (Note that where you can claim a GST credit for an expense, you can only claim the GST-exclusive part of that expense as an income tax deduction in your annual tax return.)
If you’re below the $75,000 threshold, seek advice from your adviser about whether GST registration would be worthwhile in your situation.

 

Do I need an ABN?

If you must register for GST (or wish to do this voluntarily), you’ll need an ABN. But what if your turnover is below $75,000 and you don’t want GST registration? While you’re not legally required to have an ABN, there are downsides of not having one: in some cases, businesses who hire you may have to withhold tax at the top marginal rate from the payment if you don’t provide an ABN.

Anyone who carries on an “enterprise” may apply for an ABN. Most gig platform users, as independent contractors performing services to make money, arguably carry on an enterprise. If you’re only planning to use gig platforms very occasionally (or as part of a genuine “hobby” like photography or crafting, rather than to make a profit), talk to a tax adviser about your ABN needs.

 

More time earning, less time on tax!

Whether you’re using gig platforms occasionally or as part of a significant business, let us handle all your tax issues. We offer expert advice and assistance with deductions, ABNs and GST, freeing you up to spend more time pursuing your income-earning opportunities.

Lifting standards in the financial advisory industry

Education, training and ethical standards in the financial advice industry are about to be lifted, with ASIC releasing proposed updates to various competence requirements for financial advice licensees. The framework ASIC currently uses to assess compliance with organisational competence has 5 options for demonstrating the knowledge and skills of their responsible managers, but the proposed update seeks to incorporate a 6th option which would reflect the higher levels of competence expected in the industry.

 

The Australian Securities and Investments Commission (ASIC) has released proposed updates to organisational competence requirements for financial advice licensees, in a bid to lift education, training, and ethical standards in the financial advice industry. The proposal is based on existing draft guidance published by the Financial Adviser Standards and Ethics Authority (FASEA).

 

The ASIC Commissioner said: “Our proposals are designed to strengthen the organisational competence of financial advice licensees by ensuring that advisers are supervised by at least one responsible manager who satisfies the new education and training standards”.

 

Broadly, the new education and training standards apply to all those who hold an AFS licence or authorised representatives/employees, and ensures that all relevant licence holders must:

-have a relevant bachelor or higher degree, or equivalent qualification;
-pass an exam;
-meet continuing professional development (CPD) requirements each year;
-complete a year of work and training (professional year);
-comply with a code of ethics and be covered by a compliance scheme that monitors and enforces compliance with the code of ethics.

Under the Corporations Act, an Australian Financial Services (AFS) licensee must maintain competence to provide the services covered by its licence, which is known as “organisational competence obligation”. When ASIC assesses an AFS licensee’s ability to comply with the competence obligation, it looks at the knowledge and skills of the people who manage the financial services business, or “responsible managers”.

 

The framework ASIC currently uses to assess compliance with organisational competence has 5 options for demonstrating the knowledge and skills of their responsible managers:

-meet widely-adopted or relevant industry standards or relevant standard set by APRA and have 3 years relevant experience over the past 5 years;
-be individually assessed by an authorised assessor as having relevant knowledge equivalent to a diploma and having 5 years relevant experience over the past 8 years;
-hold a university degree in a relevant discipline and complete a relevant short industry course as well as having 3 years relevant experience over the past 5 years;
-hold a relevant industry-specific or product-specific qualification equivalent to a diploma (or higher) and have 3 years relevant experience over the past 5 years; or
-a written submission that satisfies ASIC that the responsible manager has appropriate knowledge and skills for their role that also addresses all the information covered in the relevant regulatory standard.

 

The proposed update seeks to incorporate a 6th option which would reflect the higher levels of competence expected in the industry.

 

The new 6th option would require advice licensees to have at least one responsible manager who satisfies a knowledge component (ie financial adviser exam, degree requirement, and CPD requirement), and a skills component (3 years of relevant experience over the past 5 years). Both new and existing responsible managers who wish to satisfy the 6th option would have until 1 January 2021 to pass the exam, and until 1 January 2024 to satisfy the degree requirement, according to the proposal.

 

Want to find out more?

Improvements are coming to the financial services industry, albeit slowly. If you would like some simple financial product advice about SMSF and your existing holdings, or some class of product advice about simple managed investment schemes, super products, securities, general insurance, life risk insurance or basic deposit products, your accountant with a limited AFS licence may be able to help. Contact us today to find out how.

Catching Up On Superannuation Contributions

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The government’s new measure to allow those with less than $500,000 in superannuation to “catch up” on missed superannuation contributions is a great opportunity for anyone who takes time out of work or otherwise has “lumpy” income that means they have a varying capacity to make contributions from year to year. Individuals who want to fully take advantage of this strategy by making contributions up to their concessional cap plus additional catch-up amounts may need to consider strategies for how to fund those catch-up contributions.

 

Individuals with a total superannuation balance (TSB) below $500,000 are now able to “carry forward” their unused concessional contributions (CC) cap space to future years in order to catch up on contributions later when they have the capacity to do so. Usually, an individual’s CCs are capped at $25,000 per financial year, and exceeding the cap will generally attract an excess contributions tax penalty. CCs include:

 

-compulsory superannuation guarantee (SG) contributions;

 

-additional salary-sacrifice contributions made by your employer; and

 

-personal contributions you make yourself from your after-tax income for which you claim a deduction. Anyone under the age of 75 is now entitled to claim a deduction for personal contributions.

 

The new “catch-up” scheme allows eligible individuals to carry forward unused CC cap amounts on a rolling basis over five years. This means that if you do not use up all of your cap in one financial year, the unused amount can be carried forward and utilised in a future year for up to five years, allowing you to contribute more than the annual cap without penalty.

 

Unused cap space that has not been used after five years will expire.

The 2018–2019 financial year is the first year in which individuals can accumulate and carry forward unused cap space, which means the 2019–2020 financial year will be the first year in which individuals can start to make additional catch-up contributions. To be eligible to make a catch-up contribution (ie above the usual annual CC cap), the person must have had a TSB below $500,000 just before the start of the financial year in which they wish to make the contribution (ie as at 30 June of the previous financial year).

 

How might this work in practice?

To utilise unused cap space from earlier years, an individual must have the capacity to fund the catch-up contribution. Some ways in which a person with prior unused cap space might be able to contribute more than $25,000 in a financial year include:

 

-Making additional salary-sacrifice contributions, particularly for higher income earners who have not yet accumulated $500,000 in superannuation. Once someone reaches annual earnings of $216,120 per annum (which yields around $20,531 p.a. in compulsory SG contributions), their employer is not required to make further SG contributions. However, some workers, including many who earn well under $216,000 p.a., choose to salary-sacrifice additional amounts all the way up to their CC cap of $25,000. Using any unused cap space from earlier years may be attractive to those who want to heavily salary-sacrifice beyond the usual cap.

 

-Contributing an inheritance or windfall, or some other source of surplus funds.

 

-Contributing proceeds from the sale of an asset. It is important to remember, however, that selling an asset may have immediate tax consequences, and selling the family home in particular could affect the person’s entitlement to the Age Pension.

 

Anyone considering these strategies will need to ensure the contributions make sense for their particular circumstances from a tax and financial viewpoint. Individuals aged 65 or over will also need to meet the work test in order to make voluntary CCs (subject to an exception for certain eligible recent retirees).

 

 

Start thinking ahead now

If you have fluctuating income and you would like to explore the possibility of utilising unused CC cap space in future years, talk to us today. Catch-up contributions can form part of an overall contributions strategy designed to boost your retirement savings in a tax-effective manner.

ATO Continues Its Blitz On The Sharing Economy

The sharing economy is booming in Australia with a large proportion of the population either making it their full-time job or making a little extra money on the side. However, with the boom comes the all-seeing-eye of the ATO which is now firmly focused on the sharing economy. Its latest target are those people who rent/hire their car out in car sharing arrangements, but this is by no means its only focus, and comes on the back of a data-matching program on online accommodation platforms.

 

The sharing economy has become a big disrupter in the Australian market, particularly in the areas of accommodation, transport, food delivery, or car sharing. It seems like everyone is getting in on the action of making a little extra money on the side whether it be renting out a spare room, driving for a ride sharing service, or even sharing their cars. It is no surprise then that the ATO is keeping a close eye on the participants in this sector.

 

In the latest round of salvos against people in the sharing economy that may be flouting tax laws, the ATO is turning its attention to car sharing platforms. This interest has been prompted by the growing popularity of third party services such as Car Next Door, Carhood and DriveMyCar Rentals.

 

If you receive income from sharing your car, no matter how little, you need to include it in your tax return, and cannot avoid tax by calling it a hobby.

 

However, the flip-side is that you are entitled to claim deductions directly related to renting, hiring or sharing of your car. These expenses can include: platform membership fees, availability fees, cleaning fees, and car running expenses. The deductions you can claim depends on the car sharing agreement you have. For example, different agreements require either the car borrower or car owner to bear the costs of refuelling the car. Therefore, you can only claim expenses if you actually paid for them.  Another thing to keep in mind is keeping accurate records and retaining all your receipts to back up any expense claims should the ATO come knocking.

 

If you participate in car sharing arrangements you should also be aware that deductions for running expenses may differ depending on the vehicle that’s being shared. Cars designed to carry a load of less than one tonne can use the cents-per-kilometre method or the logbook method, but motorbikes and vehicles designed to carry more than one tonne or more than 8 passengers cannot use the cents-per-kilometre method.

 

Other pitfalls of car sharing include situations where you jointly own a car, in which case, all income and deductions need to be apportioned based on your share of ownership. In addition, if your car sharing activities amount to more than occasionally renting out your own car (ie you’re considered to have an “enterprise” of renting or hiring your car), you may be required to register for GST. In those instances, you will have to pay GST on the payments you receive, but will be able to claim GST credits provided you use them in carrying on your “enterprise”.

 

This focus on car sharing comes on the back of an ongoing data-matching program on online accommodation platforms which will collect data to identify people providing accommodation through online platforms during the 2016-17 to 2019-20 income years. Details collected from this data-matching program include: listing owner and property details (name, residential address, phone number, date of birth, rental property address etc), financial transactions per listing (bank details of owner, gross rental income, nights books etc), property activities (listing date, conversion rate, host/owner block out dates, price per night etc). The program will also obtain various information from financial institutions of the platform providers.

 

Need more information?

Contact us if you would like more information on the ATO’s blitz on car sharing, online accommodation or the sharing economy in general. We have the expertise to help you get it right whether you’re renting out your home or car occasionally, or whether you’re running an enterprise.

FBT On Work Christmas Parties and Gifts

With Christmas fast approaching, the ATO has reminded employers and business owners about the potential FBT implications of providing office Christmas parties and gifts to employees. Whether or not the party or the gift attracts FBT depends on a number of factors including how much it cost, where the party is held, or the type of gift that is given. One of the essential things to remember is to keep good records so if you’re unsure about your FBT implications down the track an experience professional can help.

 

Ahead of the holiday season, the ATO has reminded employers about the potential FBT implications of providing Christmas parties and gifts. When planning Christmas parties, the ATO says employers need to check how much it will cost and where and when it is held. This is because a party held on business premises on a normal work day is treated differently to an event outside of work. The ATO said it is also necessary to keep good records and consider who is invited – is it just for employees, or are partners, clients or suppliers also invited?

 

The ATO noted that Christmas presents or gifts may also attract FBT, so employers should consider:

-the value of the gift;
-the type of gift (noting that gifts of wine or hampers are treated differently to gifts like tickets to a movie or sporting event); and
-who the gift is given to.

 

There are different rules depending on whether gifts are given to employees and clients or suppliers, the ATO said.

 

FBT exempt benefits – minor benefits

Minor fringe benefits with a taxable value (if subject to FBT) of less than $300 are (with certain exceptions) exempt benefits under s 58P of the Fringe Benefits Tax Assessment Act 1986. According to Ruling TR 2007/12, exempt minor benefits (which are valued at less than $300) are likely to include Christmas gifts and a Christmas party.

 

The ATO’s FBT guide for employers says a single gift at Christmas time to each employee of, say, a bottle of whisky or perfume would be an exempt benefit, where the value was less than the $300 threshold for exempt minor benefits. However, if the gift is provided at a Christmas party, the ATO says the gift needs to be considered separately to the Christmas party when considering the minor benefits threshold.

 

Need help with your FBT obligations?

The silly season is fast approaching, if you’re planning the office Christmas party of getting gifts for your employees, your business may be subject to FBT. If you’re unsure of how to manage your FBT affairs, get in touch with us today, we have the expertise to help.

Government Debts And Your Travel Plans

The government has started a crackdown on individuals who owe welfare debts by preventing them from leaving the country, even for a holiday, until either the debts have been paid or they enter into a repayment plan. Some of the welfare debts are as small as $10,000, so is this the start of the government using Departure Prohibition Orders (DPOs) more frequently as a tool to pressure individuals from paying their government debts, including money owed to the Tax Office?

 

Departure Prohibition Orders (DPOs) have long been used as a tool by the government as a way to stop those who owe debts from leaving the country before they pay their debts, even if they are just going on a holiday. It has been used successfully for more than a decade in the enforcement of child support payments, and by the ATO as well.

 

Now the government has started applying DPOs to prevent former welfare recipients from leaving the country over debts as small as $10,000.

 

So far, more than 20 DPOs have been issued and the Department of Human Services is looking to increase the use of DPOs to help recover more than $800m owed by more than 150,000 who are no longer in the welfare system. Those that are currently receiving a welfare benefit will not be caught under this measure and those that are experiencing genuine hardship can have their repayments deferred.

 

The Department has made it clear that they will only issue DPOs in cases where the individual has consistently refused to repay their debts and have ignored multiple warnings. In addition, those who are subject to a DPO will also continue to have interest charged on their debt until they take action to repay the money they owe. The real question is whether this increased used of DPOs as a way to exert pressure on individuals to pay their debts will spread to other areas such as ATO debts.

 

The ATO guidelines on DPO indicate that the Commissioner can issue a DPO where an individual has a tax liability and the Commissioner believes on reasonable grounds that it is desirable to issue a DPO to ensure that the individual does not depart Australia without wholly discharging the tax liability or making arrangements for the tax liability to be discharged. This is regardless of whether the individual intends to return. In addition, DPOs can apply to both Australian citizens and foreign nationals who are liable to pay Australian tax.

 

In deciding whether to issue a DPO, the ATO will take into account all relevant facts and circumstances, including whether: the debt can be recovered; disposal of assets had occurred; information to suggest concealment of assets exists (eg AUSTRAC reports); the individual has sufficient assets overseas to maintain a comfortable lifestyle; transfer of any assets overseas; the actual need for travel; recovery proceedings or audit activity in progress; and involvement in criminal activity.

 

It should be noted that the issuing of DPOs will only be pursued after initial collection activity which involves issuing a notice calling for payment and then having the debt referred for collection activity. While the ATO acknowledges that a DPO imposes significant restrictions on normal rights of individuals and deprives them of their liberty, it needs to be balanced with the protection of revenue.

 

Therefore, the Commissioner already has a wide remit to issue DPOs in circumstances he considers to be appropriate. Data from past years indicate that the majority of DPOs were issued in relation to tax fraud/evasion on an international scale, related to wealthy or high-net-worth individuals or their related entities. Even then, the fact that the ATO has issued relatively few DPOs in the past few years may be an indication that it will not be applying this method to pressure individuals with smaller tax debts.

 

Need help with a tax debt?

Even though the ATO is unlikely to stop you from going on holidays because you have a tax debt, it may still be prudent to take care of any debt you may have outstanding with the ATO, even if it’s a small one. We can save you money in interest charges and potentially get penalties remitted. Contact us today.

Does Your SMSF Have A Sole Purpose?

The sole purpose test is one the fundamental requirements for SMSFs to obtain tax concessions. It requires that the SMSF be maintained for the sole purpose of providing retirement benefits to its members or their dependents if a member dies before retirement. Broadly, the test can be contravened when a member or a related party, directly or indirectly obtains a financial benefit when making an investment decision. Trustees need to be careful of this area as the ATO has a very high standard in relation to the compliance required under this test.

 

To be eligible for tax concessions available to super funds, SMSFs need to meet the sole purpose test. Essentially, this means that the SMSF needs to be maintained for the sole purpose of providing retirement benefits to its members or their dependents if a member dies before retirement.

 

Although the question of whether the sole purpose test has been contravened is usually determined on the facts of each case. Broadly, the sole purpose test can be contravened when a member or a related party, directly or indirectly obtains a financial benefit when making an investment decision, other than increasing the return of the SMSF.

 

The ATO, which administer the relevant super laws in relation to SMSFs, has a very high standard in relation to the compliance required under the sole purpose test. It requires “exclusivity of purpose” but does accept that the provision of incidental, remote or insignificant benefits that fall outside of the scope of those specified in legislation may occur in certain circumstances.

 

According to the ATO, the sole purpose test is particularly concerned with how an SMSF came to make an investment or undertake an activity. 

 

Therefore, trustees need to ensure that they do not provide a purposeful benefit to members when undertaking SMSF activities, this is the case even if there is no net cost to the SMSF in providing the benefit. Ultimately, it is the object purpose of providing the benefit rather than the net financial impact of the arrangement on the SMSF’s resources that determines whether the sole purpose test is contravened.

 

Factors that indicate the sole purpose test being contravened include:

-trustee negotiated or sought out addition benefit, even if the additional benefit was sought out in the course of undertaking other activities consistent with the sole purpose test;
-the benefit influenced the decision-making of the trustee;
-the benefit is provided by the SMSF to a member or another party at a cost or financial detriment to the SMSF; and
-there is a pattern of events that, when viewed in their entirety, amount to a material benefit being provided that is not consistent with the sole purpose test.

 

On that other hand, factors that weigh in favour of the ATO reaching a conclusion that an SMSF is being maintained in accordance with the sole purpose test include:

 

-the benefit is inherent or unavoidable part of other activities consistent with the sole purpose test;
-the benefit is remote, isolate, or insignificant when considered in light of other activities;
-benefit was provided on arm’s length commercial terms consistent with the financial interests of the SMSF;
-all activities of the trustee are in accordance with covenants specified in the legislation; and
-all investment and activities are undertaken as part of or are consistent with a properly considered and formulated investment strategy.

 

New investment opportunity?

Determining whether an investment in an SMSF meets the sole purpose test is a complex area. This is especially true for any new or planned investments in the areas of property, club memberships/licences, artwork, discount cards, and instalment warrant arrangements. Before you decide to invest, come and see us first to make sure the investment won’t contravene the sole purpose test and leave your SMSF in the lurch.

 

 

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