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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.

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.

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.

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.

Travel Allowance Or LAFHA: Which Applies To You

 

Travel Allowance or living-away-from-home allowance (LAFHA)? Understanding the difference between these two allowances can be complex, particularly when there is the perception of an overlap. The allowances are in fact very different, and have different consequences for the person receiving them.

 

An amount paid by your employer to cover expenses such as accommodation, food, or drinks while you travel for business is typically know as a travel allowance. There is also another type of allowance, called the living-away-from-home allowance (LAFHA), which compensates you for additional expenses when you are required to live away from home due to work duties. So what is the difference between the two?

 

Travel allowances are considered to be assessable income and PAYG withholding may apply. Any expenses incurred on meals and incidental expenses may be deductible against the allowance if certain criteria are met. Living-away-from-home allowance, however, is subject to Fringe Benefits Tax (FBT) and is non-assessable, non-exempt income. Costs of meals and incidental expenses will not be deductible since you are considered to be living away from home and not travelling.

 

There are no specific set criteria to know whether you are receiving a travel or a LAFHA allowance. The circumstances of each case will determine which one is more appropriate.

 

The ATO considers the following factors, although not determinative on their own, to be important:

-time spent working away from home – the longer you spend working away from home, the more likely that you are living away from home and not travelling;

-whether you had a usual place of residence at a previous location – you would only be considered to be living away from home where it is reasonable to conclude that you will return to your previous residence when work at the new location ends;

-the nature of accommodation – if you live in settled accommodation, such as a house, unit or apartment, it may indicate that you are living away from home. This is particularly true if the accommodation has the amenities common to a home, such as an equipped kitchen and laundry. On the other hand, if you are staying in a hotel or in transitory accommodation, then it is more likely that you are not living away from home and are merely travelling;

-whether you are, or can be accompanied by family or visited by family or friends – if your family accompany you during the entirety of your stay at a new location then it is likely that you have relocated and are not living away from home or travelling. All meals, living and incidental expenses will be considered to be private and not deductible.

-conversely, if your family members accompany you for a short stay at your new location and subsequently return to live at the family’s permanent home, while you continue to work at the new temporary location, then it is likely that you will be considered to be living away from home.

 

Usually, your employer should tell you which allowance you’re getting, and a big clue is contained in your payment summary. Travel allowances are usually shown in the allowances section of the payment summary and contribute to your overall taxable income and affect the amount of Medicare levy payable. LAFHA is usually included in the reportable fringe benefits section and does not contribute to your overall taxable income or affect the amount of Medicare levy payable. It does, however, affect other things including the tax offset for eligible spouse superannuation contributions, HELP repayments, child support obligations, and entitlement to certain income-tested government benefits.

 

If you receive a travel allowance, expenses can be deducted without documentary evidence where it is considered by the ATO to be “reasonable”. However, if you have a lot of expenses that may go over the reasonable amount set by the ATO, it would be wise to keep documentary evidence, such as receipts and supporting evidence (eg, bank or credit card statements).

 

Want to find out more?

Do you want to know if your income or other government benefits will be affected by the allowance you receive? Ensure that you don’t get a big surprise when your tax is due. Talk to us about this today.

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.

Garnishee Orders May Bring Home The Bacon

A garnish is an enhancer, something to dress up a plate – think of a sprig of parsley. A garnishee is something entirely different, although it can enhance an otherwise dire situation for a creditor and bring home the bacon. It’s a third party who is ordered by the court to release money to remedy a personal debt owed to the creditor by the debtor. This could be the debtor’s bank, their employer or their own creditor.

 

Issuing a garnishee order is a cheap and easy way to claw back some of your debt, but there are a few matters to consider first.

 

Bypass your debtor and go straight to the source of their funds

Once the court has given you a judgment against your judgment debtor, and they have failed to satisfy the judgment, you can apply to the court for a garnishee order. This allows you to bypass the recalcitrant debtor and it sets up a relationship in the form of a triangle between you as creditor, the debtor and the third party.

 

This third-party garnishee acts as a kind of proxy for the debtor and the order will require them to pay the debt to you in a lump sum or in instalments.

 

A garnishee order can be directed straight to the debtor’s bank or their employer. In the latter case, you will be able to access the debtor’s pay packet before they do. You do not have to tell the debtor you have applied for a garnishee order and they may only find out when they see their bank statement or pay slip. However, the local and district courts instruct that the amounts claimed in total under the garnishee orders must not reduce the judgment debtor’s net weekly wage or salary received to less than $500.60.

 

This is known as the weekly compensation amount and is adjusted in April and October each year. When issuing a garnishee order, it must include an instruction to the garnishee about the amount that a judgment debtor is entitled to keep.

 

Garnishee orders can also be made against those who owe money to the debtor, for example a real estate agent who is collecting the rent from the debtor’s tenanted property.

 

Benefits galore of a garnishee order

One of the benefits of a garnishee order is that there is no filing fee, although a service fee may be payable. There is also no extensive research on the debtor required before the order is issued, the debtor’s name may be enough. And if the order fails to recover all or some of the money, the order can be reissued on the same garnishee several times.

There is also little the garnishee can do to stop the order unless they apply to the court or they repay the debt.

 

Guidance on garnishing

If you have received a judgment and have an outstanding debt you are trying to recover from your judgment debtor, we can help take the lead on it for you and take you straight to the debtor’s funds.

 

 

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