Why Pick One Trustee Type Over The Other When Setting Up Your SMSF?

Posted on 7 August '22, under super.

If you have a Self Managed Superannuation Fund (SMSF), the Fund is considered to be a trust and must have a trustee. There are two options as to who this trustee can be.

Barring a few exceptions, it can be individual members, or it alternatively can be a company with the members as the directors and shareholders of the company. The choice, either way, is that the trustee of an SMSF can be either an individual trustee or a company as a trustee.

When choosing the appropriate trustee structure for your SMSF, a closer examination of the advantages and disadvantages will assist you in determining what is right for your needs.

The Cost

When looking specifically at the cost, a company as a trustee could initially cost around $1,000 or more to establish. An annual fee of roughly $50 will also need to be paid to ASIC, and when you are finished with the company, there will be costs associated with deregistering it. Using individual trustees, there is no initial cost associated.

Asset Separation

Most importantly, you have asset separation. The assets are held in the name of a separate entity; if the individuals are ever attacked financially, there is nothing to point toward the super fund.  Even though the fund’s assets should be protected even with individual trustees, if assets are in the individual names, you will need to spend legal fees to prove they are fund assets.

If the fund members are changed, you will need to change the trustees, and if you change the trustees, you need to change the ownership of all the assets. This will be a major administrative burden, as a lawyer will need to be engaged to do the necessary documentation to change the trustees and is required to be engaged if real estate is involved. In most instances, simply changing trustees and ownership of the assets will cost far more in the long run than the initial investment costs of setting up a corporate trustee.

Compliance Concerns

People always make mistakes, but with SMSFs, mistakes can create breaches of the law. If you have all of the assets in a special purpose company name, there is less chance that you will make the mistake of thinking that a particular fund asset (such as a bank account) will be your own asset. If you take money from the super fund account by mistake, thinking it is your own money, the auditor may report a breach. If you deposit money into your SMSF account, which is yours and not the fund’s, you may not be able to take that money back if the mistake isn’t realised in time. While price-wise, individual trustees may seem advantageous at first glance, companies as trustees possess more benefits over individual trustees.

Do you already own a company, and after reading this article, are you asking yourself if you can use that to set up a corporate trustee? It is only recommended that you do so if the company is not operating in any other capacity, but yes, doing so can save on the initial set-up costs.

There is no one size fits all advice we can give you, but we can try to determine what would best suit your needs. We may sit down with you and agree that individual trustees may be appropriate, but if our recommendation is for a corporate trustee, it is for sound financial reasoning.

Superannuation & Divorce: The Split Of Assets Isn’t Always 50/50…

Posted on 2 August '22, under super.

Were you aware that if you were to split up with your current partner, you may be able to file a legal claim for up to half your superannuation (under certain circumstances?

In all states (bar Western Australia), you don’t need to be married, have kids or even own a house together for your super to be split in a relationship breakdown. The superannuation of both partners is included in the pool of assets to be divided upon the separation.

According to the Federal Attorney General’s website, superannuation can be split either by:

  • an order of the Federal Circuit and Family Court of Australia (or Family Court of Western Australia for married couples in Western Australia); or
  • a superannuation agreement (a financial agreement that deals with a superannuation interest).

The Family Law Act 1975 gives the Family Court the power to deal with the superannuation interests of spouses (including de facto spouses). Superannuation cannot be taken as a cash payment and is usually rolled over to the recipient’s own superannuation account.

These laws were designed to tackle the longstanding issue where one person in a relationship – usually a woman – would have a tiny amount of super relative to her partner.

You don’t have to be married to potentially split your assets.

It applies if you have a child together or have been in a de facto relationship for at least two years. The definition of a de facto relationship under section 4AA of the Family Law Act 1975 is based on whether you were living together in a genuine domestic relationship.

Remember that any split isn’t necessarily half-half. You can enter into an agreement without going to court, but if you do end up in court, the judge will take into account the relevant circumstances including whether you have kids, direct and indirect financial contributions to the relationship, and the ongoing needs of each party.

Tax Return Items To Discuss With Your Accountant Before Lodging

Posted on 31 July '22, under tax.

Lodging your tax return for the 2021-22 financial year?

As registered tax agents, we are able to assist you with the process of lodgement to ensure your compliance with the requirements of the ATO.

To ensure that your return is correct, here are our top nine key items to be aware of.

COVID-19 Support Payments/Natural Disaster Payments

Did you receive either a COVID-19 support payment or a natural disaster payment from the government to assist you in trying times? You need to check whether or not what you received needs to be included in this year’s return, as there may be different tax treatments depending on the payment (e.g COVID-19 Disaster Payment is not taxable).

COVID-19 Tests

If you are claiming a deduction on Rapid Antigen Tests for work-related purposes, you need to be certain that they are eligible. That is, from 1 July 2021, to claim a deduction for the cost of a COVID-19 test, you must:

  • use the test for a work-related purpose to determine if you can attend or remain at work
  • pay for a qualifying COVID-19 test, being a:
  • polymerase chain reaction (PCR) test through a private clinic, or
  • test listed in the Australian Register of Therapeutic Goods, including rapid antigen test (RAT) kits
  • pay for the test yourself (that is, your employer doesn’t give you a test or reimburse you for the cost)
  • keep a record to prove that you incurred the cost (usually a receipt).

You can only claim a deduction for the COVID-19 tests you paid for that were used by you to determine whether you may attend or remain at work.

Working From Home Expenses

If claiming work from home expenses in this year’s return, you can calculate it through the temporary shortcut method (all-inclusive), fixed-rate or actual cost methods (as long you meet eligibility & record-keeping requirements of the method that you chose. You also need to make sure that you don’t add additional expenses that are already included when using the temporary shortcut or fixed rate methods.

Record-Keeping

Make sure you have the correct records to back up your deduction claims as no receipts, logbooks or diary entries means no deduction.

Bank Interest

Your bank interest statement is one of the records that the Australian Tax Office uses to pre-fill your return with high-certainty data – however, sometimes this isn’t ready as soon as your return is. This is because it is up to your bank to provide the ATO with this information for their pre-fill service, and some smaller banks may not be able to complete this until after July. As this is high-certainty data, it is data that can cause the ATO to red flag your return for audit purposes if it does not match what their records say if you elect to fill it. If you make changes to any bank interest pre-fill information where there is a certainty indicator, you’ll need to provide a reason for the adjustment.

Crypto & NFT Assets

Don’t get caught out by the ATO by trying to be clever with crypto & NFTs as it is not worth it in the long run.

Any capital gains or losses on disposal of crypto assets (coins, tokens and non-fungible tokens) during the 2021–22 financial year will need to be declared. If you received staking rewards or airdrops, make sure to include these as ordinary income. If you are in the business of trading crypto, income tax will also apply.

Rental Property Income

Did you receive any income from your rental property throughout the financial year? This needs to be reported in their return. This includes income from short-term rental arrangements, insurance payouts and bond money that was retained.

Late Lodgement 

If you have an outstanding tax return due as of 30 June, your tax return due date is 31 October 2022 (if lodging through a tax agent/accountant). If all overdue prior year tax returns are lodged by 31 October, the tax return for the financial year will be due according to the normal lodgement program.

Delayed Lodgement 

If you are lodging your tax return through an accountant and an exceptional or unforeseen situation occurs that impacts the process, don’t panic. Depending on the issues they may face, your accountant may be entitled to a lodgement program deferral or a supported lodgement program. We are able to discuss our options with the ATO to ensure the impact on you is minimised.

When it comes to your tax return, consulting with us is always a recommended course of action. As your trusted advisor, we are the mediators between you and the ATO when it comes to your tax return and any issues that may arise.

The Family Home, CGT & Your Records: What The ATO Needs To Know

Posted on 26 July '22, under tax.

Selling your family home is usually exempt from capital gains tax (CGT). However, your entitlement to a full exemption may vary depending on your circumstances, such as renovations to your home or using it for business or Airbnb.

General records to keep which help to form part of the cost base (used to work out if a capital gain or loss occurs) include:

  • A copy of the purchase contract and all receipts for expenses relating to the purchase.
  • All records relating to the CGT event and all relevant expenses.
  • Records of your costs of owning the property (interest, rates, land taxes, insurance premiums, the costs of repairs).
  • Records of capital expenditure on improvements such as extensions, additions or improvements including initial repairs and maintaining the title or right to the title during your period of ownership.

The following records are necessary for homes used as the main residence:

Your Home

If you use your home to produce income (running a business or renting a room out such as AirBNB) you will need to keep records of different costs depending on when you acquired your home.

For homes acquired on or after September 1985, you should keep records of expenses during the income-producing period and the proportion of the property used to produce income.

If you started using your home to produce income for the first time after 20 August 1996 – you generally need to know your home’s market value at the time you first used it to produce income.

An Inherited Home

Inheriting a home that was the primary residence of the person who left it to you means any capital gain on its subsequent disposal (selling of the home) may be exempt. Until you are sure of the circumstances, keeping records of the relevant costs incurred by you, the previous owner, or their trustee or executor is advisable.

Records do not need to be kept of the previous owner’s costs if you inherited the dwelling after 20 August 1996, the dwelling was their main residence prior to their passing away, and they were not using the dwelling to produce income at the time of their death.

In these circumstances, you will be taken to have acquired the dwelling at its market value at the date of death. If you have not obtained a copy of the valuation report from the executor or trustee, you will need to get your own valuation.

From Ordering Your Products To Sending Emails, What Processes Could Your Business Automate?

Posted on 24 July '22, under business.

With client needs and team capabilities constantly changing within the business world, we recommend you pause and reflect on your own critical business processes to see if you can spot opportunities for improving efficiency and reducing waste.

There’s no better time to do this than at the beginning of a new financial year.

Get your team together in a room or a Zoom meeting to brainstorm the processes or work that:

  • frustrates them,
  • has highly repetitive tasks, or
  • is time-consuming.

Then, you should examine how you might be able to automate these processes to improve your business’s productivity and output better.

Business automation can occur in order to improve external performance and experience of the business for your clients, OR it can be used to improve upon the internal processes of your business.

For example, communicating with your employees is one constant in your business. This is obviously important, but you know it could be improved. You don’t need to have as many meetings as you are now. You should be able to share feedback faster. So how can this be improved?

Automated business processes can be split into four basic types outlined below.

Basic Automation

Basic automation refers to the most straightforward jobs that need to be performed, like creating a centralized place to store a mix of related information. This can be automated through a project management tool that prioritises collaboration and communication to seamlessly pull together a patchwork of data into a single platform.

This tool should automatically organise all of this information to make it understandable and usable.

Process Automation

Process automation involves a dedicated network of software and apps used to document and manage your business processes, such as budgeting or project management.

Integration Automation

Integration automation allows machines and software to monitor and analyze how employees perform tasks and imitate them. You simply define the rules of operation.

An example would be your project management software integrated with your customer support software. A customer complaint comes through, but instead of waiting in an inbox for someone to process it, the integration automatically sends it as a task to the person assigned to handle them.

Artificial Intelligence (AI) Automation

Artificial Intelligence (AI) automation is when you combine AI with your integrated software tools for faster, smarter decision-making. The system can now make choices on your behalf with the data it’s presented (such as sample data).

Some general examples in which your business could benefit from automating key processes could include:

  • Email Automation – Automating your inbox can assist in automatically processing information from your email quickly and efficiently
  • Automated Business Application Integration – With businesses using more and more different applications, a lot of business processes can involve multiple business applications at the same time
  • Automated Order Entry – You can use business process automation to automate your database interaction processes without writing a line of code
  • Browser Automation – Even if a part of your process involves going to a website and clicking on fields or grabbing information, business process automation can make it faster and more efficient.

Recovering After The Impact Of A Natural Disaster On Your Business

Posted on 19 July '22, under business.

Natural disasters within Australia are not unheard of, unfortunately. When fire, floods and tropical storms threaten business operations, employers must often make hard decisions about leaving their shops to weather what nature throws at them.

Over the last few years, the news has often featured the ongoing aftermath of natural disasters on towns and their businesses. The process of recovery amidst this can be a daunting, stressful time for businesses and their employees.

Rather than assume that this process will be quick and that operations will be as usual within a short period of time, save your business the stress of rushing through this recovery.

You can break down the recovery process of your business from a natural disaster into three time frames:

  • Within the first two days
  • Within a week
  • Within a month

Within The First Two Days

You should contact all of the business’s staff to confirm their location and if they’re safe and well. Then, once their situation is confirmed, find out if they’ve been affected, if they can return to work and, if so, when.

Then, conduct an initial damage assessment. If you can safely access your premises, create an inventory of destroyed and damaged items with an estimate of replacement costs. Include photos of damaged items if possible. Don’t clean up until you have contacted your insurer.

Contact your insurer and discuss your damage assessment, level of cover, how quickly your claim can be processed, how much and in what form a claim will be paid and when an insurance assessor will visit.

If it’s safe to do so, salvage any remaining equipment and stock.

Within A Week: Begin Recovery

Begin actions that will assist you in re-opening your business when you are ready. Make a list of any key equipment, stock or activities required for the business to become operational. If any key equipment or stock has been salvaged, store it in a secure location.

Contact your key customers and suppliers, so they know your business has been affected and if existing orders will be affected. Work with your customers so they can continue to receive the goods or services you usually provide and contact them again when you’re ready to resume trading.

Contact your lender and accountant to assess your business’s situation. Assess if you can trade temporarily. Do you have forward orders you can complete or sales you can complete from salvaged stock?

Access any business information held in cloud-based software – this can assist you in retaining normalcy as the information held in the cloud is unlikely to have been affected by the situation at hand.

Consider contacting government agencies that may help affected businesses, such as the Australian Government’s Disaster Assist website.

Within A Month: Further Steps To Aid Recovery

If it is necessary, look for alternative business premises. This may be due to unsafe conditions as a result of the disaster (such as water damage from floods or destruction from fire)  It will need to be safe, and you need to consider whether your staff, customers and suppliers will be able to access the alternative premises.

Collect all business records that have been salvaged and decide if off-site copies are retrievable (such as from the cloud or an off-site server). Where there are gaps in records, consider alternative sources to help you reconstruct your financials. You may like to talk to your accountant at this stage for assistance.

In any case, recovering from a natural disaster isn’t a speedy, short-term solution. Consulting with your accountant can assist you in determining what you may be able to salvage financially if it is required, and what your situation is in the meanwhile. Look towards the long-term.

Your Employees, Their Super: What Do You Have To Do?

Posted on 17 July '22, under super.

It is your responsibility as an employer to set up your business to pay super into your eligible employees’ chosen super funds or their stapled super fund where no choice has been made.

If your employee hasn’t made a choice and doesn’t have a stapled super fund, you can contribute their super to your default super fund.

What you need to do:

  • Select your default super fund.
  • Offer employees a choice of super fund and keep records that show you’ve done this.
  • Request your employee’s stapled super fund details if they do not make a choice
  • Provide employees’ TFNs to their funds.
  • Set up your systems to pay super contributions electronically to the right fund.

If you pay extra super for an employee:

  • under a salary sacrifice agreement, you must set up the arrangement for the employees’ future earnings, document the arrangement and use a complying fund.
  • you must report the amounts being made to the employee’s fund.

Salary Sacrifice Agreements

To create an effective salary sacrifice arrangement, you must:

  • set up the arrangement for employees’ future earnings
  • document the arrangement
  • use a complying fund.
Set Up The Arrangement For Employees’ Future Earnings

The arrangement must be set up for your employee’s future earnings. It can’t include previously earned or accrued:

  • salary, wages or entitlements
  • annual or long service leave.
Document The Arrangement

You and your employee must prepare and sign a document that states the terms of the salary sacrifice arrangement. If you don’t have this documentation, it may be difficult to establish the facts of your arrangement.

Employees can renegotiate the arrangement at any time, within the terms of their employment contract or industrial agreement. If your employee has a renewable contract, you can renegotiate the salary sacrifice amount before the start of each renewal.

Use A Complying Fund

The salary sacrifice amount must be contributed to a complying fund for the period of the arrangement.

Contributions can’t be accessed until the employee satisfies a condition of release, such as reaching retirement age.

Report The Amounts

Reportable employer super contributions (RESC) are not included in your employee’s assessable income. They do not affect the way you calculate super contributions for your employees.

The following employer super contributions are reportable:

  • additional contributions as part of an employee’s individual salary package
  • additional contributions under a salary sacrifice arrangement
  • pre-tax amounts paid to an employee’s super fund at the employee’s direction, such as directing an annual bonus into super.

You must report extra contributions if:

  • your employee can influence the rate or amount of super you contribute for them; and
  • the contributions are in addition to the compulsory contributions you must make under
    • super guarantee
    • a collectively negotiated industrial agreement
    • the rules of a super fund
    • federal, state or territory law.

The extra contributions are reportable super contributions for employees unless you show that:

  • the extra contributions are made for administrative simplicity
  • a documented policy is in place that does not allow an employee to influence the contributions you make on their behalf.

Women’s Average Superannuation Balance Likely To Be 28% Less Than Men

Posted on 12 July '22, under super.

As women approach retirement, a lifetime of gender inequality can often come into sharp focus. Particularly so when that focus is on superannuation.

Some of the causes of the super gender gap include:

  • Unequal pay – while the increase to the national minimum wage is a step in the right direction, women in full-time work earn 8 per cent less than men and are more likely to undertake casual or part-time roles.
  • Breaks from work for unpaid caring duties – As opposed to their male counterparts, women are more likely to take time off to care for a family member or to reduce their work hours due to parenting responsibilities.
  • Childcare costs
  • Maternity leave – the lack of superannuation paid onto maternity leave currently leaves women on the back foot when it comes to superannuation

Gender gaps can affect superannuation accounts as much as they can affect salary rates. With barriers to entering into fields, low hourly rates of pay in industries predominantly worked by women, less hours worked and more unpaid labour affecting the amount of super Australian women are retiring with, as compared to men.

This gender gap in superannuation balances can be impacted even more by women using maternity leave. With women taking their time off from work and losing out on super contributions during this period of paid parental leave, it can affect their super in the long run as it exacerbates the income and superannuation gaps that were already in effect during their employment.

It can also be exacerbated by existing salary gaps across the workforce. Despite traditionally male-dominated fields experiencing high percentages of female graduates entering the workforce, the positions that they fill are not always high-ranked, irrespective of experience.

There are three proposed measures with regard to how the superannuation gap could be addressed at a macro level. These include:

  • Including superannuation guarantee contributions in the Commonwealth Paid Parental Leave scheme, as a majority of recipients are women and it is a leading cause of the gap exacerbation.
  • allowing unused concessional contributions to be made for recipients of Commonwealth Paid Parental Leave without time limits is having a negative impact on women’s superannuation outcomes, so the policy needs to be changed accordingly.
  • Amending the Sex Discrimination Act to ensure employers are able to make higher superannuation payments for their female employees if they wish to do so without contravening the existing legislation.

Here are some examples of ways in which women can increase their super balances to make up for any losses that may have been incurred:

  • Contribution splitting – by having their spouse transfer some of their superannuation contributions over to their account, their account can be increased.
  • Salary-sacrificing contributions into their super to make up for the shortfall from not working in the previous year.

If you are concerned about how your superannuation is performing or looking for more information, consulting with a professional is the best course of action.

Work-Related Deductions Major Flag For ATO Scrutiny

Posted on 10 July '22, under tax.

Are you up to date and aware of what you can and can’t claim on your tax return this year? Brushing up on the three rules of work-related deductions can make tax time a lot easier.

In order to be able to claim a deduction for a work-related expense on your tax return, you must meet the following golden rules of the Australian Taxation Office (ATO).

  1. The money must have been spent by you and you were not reimbursed by your employer for it.
  2. The expenses must directly relate to earning your income.
  3. There must be a record to prove the expense (such as a receipt)

These need to be claimed in the Work-related expense section of your tax return.

If the expense was for both work and private purposes, you only claim a deduction for what was the work-related use. You cannot claim a deduction if your employer pays for or reimburses you for any of these costs.

These work-related expenses may include:

  • Motor vehicle expenses
  • Travel expenses
  • Clothing, laundry and dry-cleaning expenses
  • Self-education expenses

If the ATO believes that your employer may reimburse you for your expenses they may ask your employer directly.

You may be able to claim other work-related deductions for expenses you incur in the course of earning your income. These are claimable in your tax return as an ‘Other work-related expense’.

Common claims in this section of the tax return include:

  • Working from home expenses
  • COVID-19 test expenses
  • Phone, data and internet expenses
  • Tools, equipment and other assets
  • Union fees, subscriptions to associations and bargaining agents’ fees

When it comes to working from home expenses, you need to be careful of what you claim. To claim your working from home expenses you must:

  • be working from home to fulfil your employment duties, not just carrying out minimal tasks, such as occasionally checking emails or taking calls
  • incur additional expenses as a result of working from home.

You can claim a deduction for the additional running expenses you incur as a result of working from home.

Running expenses are expenses that relate to the use of facilities within your home and include:

  • electricity expenses for heating or cooling and lighting
  • the decline in value of office furniture and furnishings as well other items used for work – for example, a laptop
  • internet expenses
  • phone expenses.

You can’t claim a deduction for the following expenses if you’re an employee working at home. These include

  • coffee, tea, milk and other general household items, even if your employer may provide these at work
  • costs that relate to your children’s education such as equipment you buy – for example, iPads and desks, subscriptions for online learning
  • items your employer provides – for example, a laptop or a phone
  • any items where your employer pays for or reimburses you for the expense.

If your employer pays you an allowance to cover expenses, you can claim a deduction for the expense. However, you must include the allowance as income in your tax return.

You may also be able to claim a deduction for other expenses you incur that don’t relate to your work or income-producing activities. These are claimable in your tax return at the specific expense category (where available) or as an ‘Other deduction’.

Common claims in this section include expenses, such as

  • Cost of managing tax affairs
  • Gifts and donations
  • Interest, dividend and other investment income deductions
  • Income protection insurance

If you require assistance with ensuring that your individual income tax return is correctly lodged, a registered tax agent should be consulted (such as us). We’re equipped with the knowledge and tools to help you through this process.

Trading Crypto? It Can Be A Taxing Asset To Deal With In Your Return

Posted on 5 July '22, under tax.

No matter if you’re a dedicated crypto trader or just someone who’s been doing a spot of dabbling with the digital asset, it is still required that you let your accountant know just how much they’ll be dealing with this tax return season.

Cryptocurrency isn’t an easy tax matter to handle either.

According to the Australian Taxation Office, “if you are involved in acquiring or disposing of cryptocurrency, you need to be aware of the tax consequences. These vary depending on the nature of your circumstances.”

Your activity related to cryptocurrency will be taxed with either capital gains tax (CGT) or income tax, depending on the type of activity you undertake.

CGT will be applicable if you:

  • Sell or gift your crypto
  • Swap your crypto for another crypto
  • Convert your crypto into fiat currency

Income tax will be applicable if you:

  • Receive staking rewards
  • Receive an airdrop.

If you conducted a crypto-to-crypto swap, you will still be taxed with CGT. This is because the ATO considers this to be a ‘disposal event’, which means that these types of transactions are taxable and must be recorded correctly as such.

To ensure that your accountant is equipped with what they need to know to handle your tax matters involving crypto compliantly, you will need to provide them with records to do with any and all transactions to do with your digital assets. These records could differ depending on the activity conducted with them.

Buying (acquiring)

You will need to keep either:

  • records of receipts of transactions
  • documents that display
    • the cryptocurrency
    • the purchase price in Australian dollars
    • the date and time of the transaction
    • what the transaction was for.

You will also need records showing:

  • commission or brokerage fees on the purchase
  • agent, accountant and legal costs
  • exchange records.

Owning (holding)

You need to keep records of:

  • software costs related to managing your tax affairs
  • digital wallet records and keys
  • documents showing the date and quantity of cryptocurrency received via staking or airdrop.

Disposing

You will need to keep either:

  • records of receipts of sale or transfer
  • documents that display
    • the cryptocurrency
    • the sale or transfer price in Australian dollars
    • the date and time of the transaction
    • what the transaction was for.

You also need records showing:

  • commission or brokerage fees on the sale or transfer
  • exchange records
  • calculation of capital gain or loss.

If you need assistance this year with your cryptocurrency and its tax obligations, you can speak to a trusted tax advisor or contact the ATO for further information.