Accounting, Tax, Accountant, Business Specialists, Dickfos Dunn, Southport, QLD, Australia

Division 296 tax is now law: What it means for your super

Wed, 15 Apr 2026 05:58:30 GMT

There’s been a lot of talk about changes to super, and one of the biggest updates is now official. The government has passed the Division 296 tax, which will start from 1 July 2026.

While it mainly affects people with large super balances, it’s still important to understand what’s changing and why.

 A quick recap

When this tax was first proposed back in 2023, it caused quite a stir.

The original plan included:

Taxing unrealised gains (basically, increases in value on paper that you haven’t actually received yet)
A $3 million threshold that wasn’t going to increase over time

Understandably, many people were concerned this wasn’t fair.

After strong feedback, the government has revised the rules. The final legislated version aligns more closely with how tax usually works, that being, taxation of actual income not paper gains.

What’s changed in the final version?

Here’s what the new rules look like now:

You’ll only pay tax on actual earnings, not paper gains
Your super fund calculates your earnings and reports them to the ATO
The $3 million threshold will increase over time with inflation
A new $10 million threshold has been added
The rules start from 1 July 2026, giving people limited time to prepare
Defined benefit pensions are included, so all types of super funds are treated the same

How does the tax work?

Think of it like a tiered system:

Up to $3 million – earnings are taxed as normal (up to 15%)
$3 million to $10 million – a portion of earnings are taxed up to 30%
Above $10 million – a portion of earnings are earnings taxed up to 40%

Importantly, if your balance is only slightly above $3 million, only a small share of your earnings will be subject to the higher tax rate.

Put simply, the more you have in super above these thresholds, the higher the tax applied to that portion of your earnings.

Who does it apply to?

This tax only applies to individuals with more than $3 million in super or pension phase.

A few key things to know:

The threshold applies per person, not per fund
That means a couple could have up to $6 million combined and not be affected
Even if an SMSF has more than $3 million, you won’t be impacted unless your personal share exceeds the $3 million threshold

The first time this will apply is based on your balance at 30 June 2027.

How do you pay it?

You don’t need to calculate the tax yourself.

Here’s how it works:

1. Your super fund reports your balance and earnings to the ATO

2. The ATO works out if you owe extra tax

3. You’ll receive a notice if you’re affected

If you do have a tax bill, you can choose to:

Pay it from your own money, or
Have it released from your super fund

What does this mean for you?

For most people, this change won’t apply at all.

But if you have a high super balance, it could mean:

Paying more tax on part of your super earnings
Rethinking how your super is structured over time

The new rules start from 1 July 2026, with the first tax assessments expected in 2027–28.

Don’t rush into decisions

If you think this might affect you, it’s important not to act too quickly.

Taking money out of super might seem like a solution, but:

It can be difficult to put it back in due to contribution limits
You could lose long-term tax advantages

Getting the right advice before making any changes is key.

Final word

While Division 296 tax is a big change, it’s targeted at people with large super balances and has been refined to be fairer than originally proposed.

If you’re unsure how it affects you, we’re here to help you understand the new rules and what they could mean for your situation.

Six changes impacting your super in 2026

Wed, 18 Mar 2026 00:34:53 GMT

Superannuation rules are always evolving, and 2026 is shaping up to be another year of important changes. Some of these updates may only affect a small group of people, while others could impact almost everyone with super.

Whether retirement feels a lifetime away or it’s already on the horizon, understanding what’s changing can help you make smarter decisions and avoid costly mistakes. Here are six key changes to keep on your radar.

1. Possible tax changes for large super balances

One of the most talked-about changes is the government’s proposal to increase tax on large super balances, also known as Division 296 tax.

Here’s how it’s expected to work (if the legislation passes):

● Balances up to $3 million: no change. Earnings continue to be taxed at 15% as they are now.

● Balances between $3 million and $10 million: an extra 15% tax on earnings, bringing the total to 30% on that portion.

● Balances above $10 million: the total tax rate on earnings will rise as high as 40%.

It’s important to note:

● These changes are not law yet

● Only a small number of Australians would be affected

● Withdrawing super prematurely can be hard to undo because of contribution limits

If this may apply to you, the best approach is patience. Wait until the rules are final and get professional advice before making any big moves.

2. Payday super is locked in

One change that is definitely happening is payday super.

Currently, employers only have to pay super at least once every three months. From 1 July 2026, that changes.

Under the new rules:

● Employers must pay super at the same time as salary or wages

● Contributions must reach your super fund within 7 business days of payday

● For new employees, the first contribution must be paid within 20 business days of the salary or wages being paid

This is good news for workers. Paying super more frequently means:

● Your money gets invested sooner

● Less chance of unpaid or forgotten super

● Better long-term outcomes thanks to compounding

If you’re an employer, now is the time to start preparing for these changes ahead of their commencement on 1 July 2026. Reviewing your payroll systems and internal processes early will help ensure a smooth transition. This may involve speaking with your payroll software provider, accountant, or registered tax professional to confirm your systems are compliant.

If you need support, we’re here to guide you through the process and help you get ready with confidence.

3. Contribution caps are expected to increase

Thanks to rising wages, super contribution limits are expected to increase from 1 July 2026.

While final confirmation depends on official figures released in late February 2026, the changes are widely expected to be:

● Concessional (before-tax) cap increasing to $32,500

● Non-concessional (after-tax) cap increasing to $130,000

These caps are linked to wage growth, and based on recent data, it would take a significant and unlikely drop in wages for indexation not to occur.

This change could create opportunities for:

● People topping up their super

● Those who arrange with their employer to salary sacrifice part of their income into super

● Individuals planning larger after-tax contributions

Once the new caps are confirmed, we’ll let you know and help you understand what they mean for your super strategy.

4. Transfer balance cap: what’s happening next?

The transfer balance cap (TBC) limits how much super you can move into a retirement-phase pension. Unlike contribution caps, the TBC is indexed to inflation (CPI) rather than wages.

Based on the latest December CPI figures, the TBC is set to increase from $2 million to $2.1 million from 1 July 2026.

This change will mainly affect people who haven’t yet started a retirement pension. If you already receive a retirement pension from your super, you may still benefit from a partial increase, depending on your individual circumstances and how much of your cap you’ve already used.

5. More flexibility for legacy pensions

Good news for people stuck in older super pension products.

New rules now allow greater flexibility for certain legacy pensions, such as lifetime, life expectancy and market-linked pensions held in SMSFs.

Previously, these pensions:

● Couldn’t be easily changed or exited

● Often no longer suited members’ needs

● Had strict limits around reserves and conversions

Under the new rules:

● A five-year window allows eligible members to review and restructure these pensions

● This creates opportunities to simplify super and improve flexibility

Because legacy pensions are complex, professional advice, especially from an SMSF specialist, is strongly recommended before making changes.

6. Better fund performance, transparency and tech

Large APRA-regulated super funds continue to face increased scrutiny, and that’s a win for members.

In 2026, expect to see:

● Ongoing pressure on underperforming funds, including forced mergers

● Clearer reporting on fees, performance and investments

● Better tools to compare super funds and make informed choices

At the same time, technology is transforming how we interact with super. Many funds are rolling out:

● Smarter online dashboards

● Improved mobile apps

● AI-driven tools to help with investment choices and retirement planning

If you haven’t logged into your super account lately, 2026 is a good year to start.

Final thoughts

Superannuation is a long-term game, and even small rule changes can have a big impact over time.

Take the time to review your super, stay informed about potential changes, and consider speaking to a financial adviser if needed. With the right knowledge and strategy, you can make sure your super keeps working hard for your retirement.

Permanent incapacity and super - what it means if you’re totally and permanently disabled

Wed, 04 Mar 2026 23:35:06 GMT

Most people think of superannuation as money they can’t touch until retirement, but there are important exceptions. One significant exception is the permanent incapacity condition of release, which can allow people who are totally and permanently disabled to access their super earlier.

Understanding how this works can make a real difference at a time when income, medical costs, and financial security are often under pressure.

What is permanent incapacity?

Under superannuation law, permanent incapacity generally means that, because of physical or mental ill-health, you are unlikely to ever work again in a job for which you are reasonably qualified by education, training, or experience.

To meet this condition of release, your super fund usually requires certification from two medical practitioners confirming that your condition is permanent and prevents you from returning to suitable employment.

Once this condition is satisfied, your super can be released to you, even if you are well below preservation age.

You can access super even without insurance

A common misconception is that you can only receive money from super if your fund held Total and Permanent Disability (TPD) insurance. That’s not the case.

Even if your super fund did not have any insurance cover at all, you may still be able to access:

● Your existing super balance

● Employer contributions

● Personal contributions and earnings

The permanent incapacity condition of release applies to your super savings themselves, not just to insurance payouts. This can be especially important for individuals who changed jobs frequently, had low balances, or opted out of insurance.

In other words, the absence of insurance does not prevent access to super if you meet the permanent incapacity rules.

How the money can be paid

Once approved, the released super can usually be taken as:

● A lump sum – which may assist with large expenses like paying off the mortgage

● An income stream which may assist with meeting ongoing living expenses

Tax treatment may vary depending on your age and the components of your super, but in most cases, part of the benefit will be taxed concessionally compared to regular income.

It is important to get advice about your options and any tax implications before payment.

The role of TPD insurance in super

While insurance is not required to access super under permanent incapacity, TPD insurance held inside super can provide significant additional support.

If your fund includes TPD cover and your claim is accepted, the insurance benefit is paid into your super account. This can substantially increase the amount available to you, often at a time when earning an income is no longer possible.

Some key benefits of TPD insurance in super include:

● Premiums are generally deductible to the fund and this benefit is passed on to the member

● Premiums are paid from super, not your take-home pay meaning it won’t impact your cashflow

● You may not have to deplete super savings otherwise set aside for retirement

Final thoughts

The permanent incapacity condition of release from super exists to provide financial support when it’s needed most. If you are totally and permanently disabled, superannuation is not locked away indefinitely and can be accessed to help you manage life after work.

Whether or not insurance is involved, understanding your options can ease financial stress and give you more control during a difficult time. If you think you may qualify, speak to us to help guide you through your next step with confidence.

CGT: Buying a new home before selling the old one

Tue, 17 Feb 2026 23:04:24 GMT

If you find yourself in the position of having bought yourself a new home before you sold your existing home, there are important CGT issues to consider – and these centre on the fact that under the CGT rules, you cannot have two or more CGT exempt homes at the same time.

...However, there is an important concession that allows you to treat both the new home and the existing home as exempt from CGT for up to a period of six months – provided the new home actually becomes your main residence.

So, for example, in the simple case where you bought your new home on 1 February 2026 and then sell your existing one five months later on 1 July 2026, your existing home won’t be subject to any CGT – and your new home won’t lose any CGT exemption for this five-month period. However, the availability of this concession is subject to a number of important conditions.

Firstly, the existing home must have been your home for a period of at least three months in the 12 months period before you sold it. And, secondly, it must not have been used for the purpose of producing taxable income in any part of that 12-month period when you did not live in it.

So, in the above example, if you rented your existing home in the five-month period before you sold it (which vendors sometimes do while waiting to sell it), you could not use this concession to give you an additional five months of exemption on that home. As a result, you will be subject to a partial CGT liability to reflect the fact that your dwelling could not be treated as a main residence during this five-month period.

(But if this was the first time you rented it and it would otherwise have been entitled to a full main residence exemption just before you rented it, then you would calculate this partial CGT liability by reference to its market value when you first rented it and the amount you sell it for.)

However, the stringency of these conditions about the use of your existing dwelling in the 12-month period before you sell it can be alleviated by using another concession (the “absence concession”) to continue to treat it as your main residence, even if you rent it in this period.

In a similar fashion, you can use another concession (the “building concession”) to treat any land you acquire on which to build a new home as your new home for the purposes of this six month overlap rule.

However, in both these cases the application of these particular concessions, and their interaction with the rule that allows you to treat an existing home and new home as CGT exempt for up to six months, can be quite complex. And much will depend on the precise facts of the case.

If you find yourself in the position of having bought yourself a new home before you sold your old one (or are intending to do this) come and speak to us – and we will show you how the rules operate in your circumstances, and how they can be applied most advantageously.

Surviving (and maybe avoiding) an ATO audit

Tue, 27 Jan 2026 06:01:38 GMT

This article focuses on self-employed clients. If you’re a salary earner or retiree, you might find one of our other blogs more helpful.

It goes without saying that at tax time you should disclose all your assessable income and only claim legitimate business deductions. Failure to do so exposes you to the risk of penalties and interest on top of the underpaid tax.

And the chances of popping up on the ATO’s radar are not negligible. It runs an active small business compliance program that uses industry benchmarks and other information, including “dob ins” received from community members.

Cash jobs

Offering a discount for cash for a lower price might seem tempting, but it suggests an intention of under reporting income. Tradies and the like occasionally fall out with their clients, some of whom might then report them to the ATO and those “dob ins” can lead to audits being conducted. The practice remains widespread, but you should avoid doing cash jobs – there’s a good chance they will come back to bite you.

Benchmarks

The ATO keeps extensive data of industry benchmarks for many industries, tracking gross income, expenses and profits margins. Its website suggests this data enables you to see how you compare with your peers and perhaps identifies areas for improvement. But it also gives the ATO a way of identifying potential audit cases.

If your trading results are well below the industry average, you might want to think about what some of the reasons for that might be. These could include:

Ill health suffered by yourself or a close family member
A long holiday
Your café or retail business is not in the best location
Competition from similar businesses operating nearby
You’re inexperienced or just not a great business person.

Averages are just that, and some businesses will be under while others are over. Having an idea of where you sit on the spectrum and why may help you engage with the ATO if and when the time comes.

Lifestyle factors

Another way of identifying cases suitable for audit is for the ATO to assess whether your apparent lifestyle matches the net income disclosed in your tax returns. If you drive a flash car, take expensive holidays, have your children in private schools, have had major home renovations done or get around wearing a Rolex while your disclosed income doesn’t support such a level of spending, you might have some explaining to do.

The audit

If, for whatever reason, the ATO isn’t satisfied that the taxable incomes you have disclosed are correct, they can make their own estimate using whatever information is available. Any amended default assessments will generally be based on a bank account analysis, as well as estimates of private spending. They can’t just pluck a figure out of the air, but they don’t have to prove where the discrepancy came from either.

Those without complete and accurate records of both their business and private finances are vulnerable to adjustments that involve double counting, especially from a bank analysis that assumes that every unexplained deposit represents undisclosed income and every unexplained withdrawal was used to fund private expenditure. As often as not the two are offsetting but the taxpayer can’t prove it.

To challenge a default assessment a taxpayer has to show not only that the ATO’s estimate is wrong in some respect - they also have to show what their correct taxable income is. The courts and tribunals are littered with default assessment cases where the taxpayer has failed in this regard, leaving them with a very large tax bill.

Protective measures

Here are some of the practices that might assist you in an ATO audit. Most of them would need to be in place before an audit even starts:

Keep your private and business accounts separate
Avoid using cash for business transactions
Never run private expenditure through your company account
Keep documentary evidence of gifts, loans and other non-taxable receipts that flow through your bank accounts. Create a written record of such transactions as they occur
Be prepared to explain any apparent discrepancies between your lifestyle and the income disclosed in your tax returns
If you have made a mistake or two, consider making a voluntary disclosure when you are notified of the audit but before it starts. This could help reduce penalties
Ensure you have books of account and bank records that verify the taxable income disclosed in your tax returns.

Come and see us to help get you ready for an ATO audit (or avoid one altogether).

The 50% CGT discount: More than meets the eye

Fri, 09 Jan 2026 02:18:09 GMT

There is much in the media about how the 50% capital gains tax (CGT) discount has contributed to the housing affordability problem in Australia (although no doubt the problem is a lot more complex than attributing it mainly to any taxation measure or measures).

Nevertheless, the CGT discount looms large for anybody who owns assets that are subject to CGT (and note in this regard a passenger car of any sort – including a vintage car – is not subject to CGT).

However, the 50% discount may even have relevance to your otherwise CGT-exempt home because you may be subject to a partial exemption due to the way you have used it to produce income or in some other cases. Also, you may inherit a home and not satisfy the requirements for a full CGT exemption!

But the rules for applying the discount are not as straightforward as you would think.

For example, in any case where you make a capital gain you must first apply any prior year or current year capital losses you have before you apply the discount – and this in effect dilutes the value of the discount. And if the gain arises from the sale of a business asset and if you qualify for the CGT small business concessions, there are other rules to consider before applying the discount (if at all).

Importantly, the full 50% CGT discount is generally not available to foreign residents for assets they acquire after 8 May 2012 (but an apportionment may be applied for any period of residency before becoming a foreign resident).

Further, even if you are a resident when you sell an asset, the 50% discount may be lost to the extent you were not a resident during the period you otherwise owned it.

But these rules are very messy and need to be looked at closely if the need arises.

Note that not all taxpayers can use the discount. For example, a company does not get it (albeit, it has lower tax rate of generally 30%). And superfunds (including SMSFs) are only entitled to a 331/3% discount.

Likewise, not all capital gains qualify for the discount. Typically, capital gains which arise from granting legal rights to another person or entity do not qualify for the discount – such as gains from granting a restrictive covenant to your employer or granting an easement over land.

Finally, in order to qualify for the CGT discount, you must have owned the asset that gave rise to the capital gain for at least 12 months – and the ATO takes the view that this does not include the day you legally acquired the asset nor the day you sold it.

So, it really means you need to have held the asset for 367 days – or 368 days in a leap year!

As with anything to do with tax, even the CGT discount is not straightforward.

So, as always, make sure you seek our advice on any such matters.

Could you be missing out on thousands in lost super?

Thu, 18 Dec 2025 02:43:44 GMT

Most of us keep a close eye on our bank accounts. But superannuation can be easier to lose track of, especially if you’ve changed jobs, moved house, changed your name, or simply set up a new fund and assumed everything followed you.

That’s why the Australian Taxation Office (ATO) has issued a timely reminder. There is now $18.9 billion in lost and unclaimed super sitting across Australia. That’s up $1.1 billion since 2024 and spread across just under 7.3 million accounts.

In other words, a lot of Australians have retirement savings that aren’t currently working for them and some of it could be yours.

What “lost” or “unclaimed” super actually means

Super doesn’t vanish, but it can go missing from your radar. It typically happens when an account becomes inactive and your super fund can’t contact you, or when you end up with multiple funds over the years.

The ATO also holds certain amounts of super on behalf of individuals, for example, small inactive balances that have been transferred to the ATO, or other unclaimed amounts.

The average amount of lost or unclaimed super is around $2,590 per person. That might not sound life-changing today, but over time it can grow into tens of thousands by retirement.

A special note if you have an SMSF

If you have an SMSF, this ATO update is particularly worth paying attention to. When you established your SMSF, you might have transferred most of your super across, but kept some behind, for example, to retain insurance cover through another fund. That means there could still be older super accounts from past jobs or retail/industry funds sitting in your name.

The ATO is urging SMSF members to do a check, because a share of the $18.9 billion in lost and unclaimed super might be yours and could be rolled into your SMSF.

One important practical tip is that if you locate lost super and want to move it into your SMSF, but your SMSF doesn’t show up as a transfer option in ATO online services, it’s often due to the fund’s compliance status. Take a moment to confirm your SMSF is listed as “complying” or “registered” on Super Fund Lookup.

How to check for lost super (it only takes minutes)

The ATO has made this super simple (pun intended!). You can:

1. Log in to myGov and go to ATO online services

2. Navigate to the Super section to view:

Super held by the ATO
Any lost or unclaimed accounts

3. Request a transfer to an eligible super account.

Even if you don’t find anything, you’ll at least know everything is where it should be.

Simple habits that help you stay on top of super

Finding lost super is great but preventing it from happening at all is even better. A few easy habits can make a big difference:
Keep your details up to date with your fund and the ATO so you stay contactable.
Check whether you’ve got more than one account. Multiple accounts can mean multiple fees and duplicated insurance
Consider consolidating if it suits your situation. Fewer accounts can mean lower fees and easier management but just be sure to check any insurance you might lose before rolling over
Read your annual statement. It’s a quick way to confirm contributions, fees, returns, investment mix and beneficiaries.

Why acting now matters

Since 2022, the ATO has already reunited Australians with about $5.5 billion in previously unclaimed super. But there’s still nearly $19 billion waiting to be found.

A few minutes today could translate into a healthier retirement balance later.

It’s easy to put super in the “deal with it later” basket, but it’s still your hard-earned money. If you want a hand finding lost super, combining accounts, or moving money into your SMSF, reach out to us. We can guide you through the steps and make sure you’re able to claim any lost super without any hassles.

Can the cost of clothing be tax deductible?

Tue, 09 Dec 2025 01:59:50 GMT

Sometimes it can be, but only in limited circumstances.

The tax deductibility of expenditure on clothing is subject to strict ATO guidelines. These cover occupation-specific clothing, compulsory or registered non-compulsory uniforms and protective items.

Conventional clothing

What you can’t claim is the cost of conventional clothing, even where your employer expects you to observe a particular dress style. You might work in an office environment, and your employer expects you to wear a business suit to work, even though you wouldn’t have even bought the suit but for your employer’s dress requirements. While the cost of the suit might seem like a work related expense, it is not deductible as it is conventional clothing that could also be worn outside of work. This makes it a private expense, even though it relates directly to your employment.

Conventional clothing includes business attire, non-monogrammed black trousers and white shirts worn by wait staff, non-protective jeans and drill shirts worn by tradies and athletic clothes and shoes worn by PE teachers.

Occupation-specific clothing

On the other hand, occupation-specific clothing falls on the deductible side of the line, for example a chef’s distinctive chequered pants or a health worker’s blue uniform, including nurses’ stockings and non-slip shoes.

Compulsory uniforms

The cost of clothing that forms part of a compulsory uniform is generally deductible. A compulsory uniform is a set of clothing that identifies you as an employee of a particular organisation. Your employer must make it compulsory to wear the uniform and have a strictly enforced workplace policy in place.

You can only claim a deduction for shoes, socks and stockings if:

They are an essential part of a distinctive compulsory uniform, and
The characteristics (the colour, style and type) are an integral and distinctive part of your uniform that your employer specifies in the uniform policy, for example, airline cabin crew members.

You can claim for a single item of clothing such as a jumper if it's distinctive and compulsory for you to wear it at work. An item of clothing is unique and distinctive if it:

Has been designed and made only for the employer, and
Has the employer's logo permanently attached and is not available to the public.

Just wearing a jumper of a particular colour is not part of a compulsory uniform, even if your employer requires you to wear it, or you pin a badge to it.

Non-compulsory uniforms

You can only claim for non-compulsory work uniforms if your employer has registered the design with AusIndustry. This means the uniform has to be on the Register of Approved Occupational Clothing. Your employer will be able to clarify whether your uniform is registered.

Protective clothing

The cost of protective clothing is deductible, and covers such items as:

Fire-resistant clothing
Sun protection clothing with a UPF sun protection rating
Hi-viz vests
Non-slip nurse’s shoes
Protective boots, such as steel-capped boots or rubber boots for concreters
Gloves and heavy-duty shirts and trousers
Occupational heavy duty wet-weather gear
Boiler suits, overalls, smocks or aprons you wear to avoid damaging or soiling your ordinary clothes during your work activities.

Laundry and dry-cleaning costs and repairs

You are entitled to a deduction for the cost of cleaning your deductible clothing. If you launder them at home, the Tax Office will allow you a deduction of $1 per load where the load contains only deductible clothing, or 50 cents per load where deductible clothing is mixed with other items.

You are entitled to claim the cost of dry-cleaning deductible clothing, as well as the cost of mending and repairs.

Record keeping

You should keep receipts or other documentary evidence of your expenditure on buying, laundering or repairing deductible work clothing. Proof of laundering clothing at home can be in the form of diary entries.

Allowances

If your employer pays you a clothing allowance, this needs to be included in your assessable income, and you can only claim what you have actually spent.

Feel free to come and see us for advice as to whether your expenditure on work clothing is deductible.

Division 296 Tax Revisited

Mon, 01 Dec 2025 06:19:21 GMT

Big news for anyone with a large super balance – the government has gone back to the drawing board on the controversial Division 296 tax , and the changes are a big step toward fairness and common sense.

A quick recap

When the Division 296 tax was first announced in 2023, it caused an uproar. The main problem? It would have taxed unrealised gains, that is, paper profits you haven’t actually made yet and set a $3 million threshold that wasn’t indexed meaning it wouldn’t rise with inflation.

After a wave of feedback from the industry, the government has listened. The Treasurer’s new announcement, made in October 2025, fixes some of the biggest issues. The revamped version is designed to be fairer, simpler, and more in line with how tax usually works.

The plan is to start the new system from 1 July 2026, with the first tax bills expected in 2027–28.

What’s changing

Here’s what’s new under the revised Division 296 tax:

· Only real earnings will be taxed. No more tax on unrealised gains as you’ll only pay on earnings you’ve actually made.

· Super funds will work out members’ real earnings and report this to the ATO.

· The $3 million threshold will be indexed to inflation in $150,000 increments, keeping pace with rising costs.

· A new $10 million threshold will be introduced. Earnings above that will be taxed at a higher rate of 40%, and that threshold will also rise with inflation.

· The start date is pushed back to 1 July 2026, giving everyone more time to prepare.

· Defined benefit pensions are included, so all types of super funds are treated the same.

So what does this mean in practice? Think of it as a tiered tax system:

· Up to $3 million – normal super tax of 15%.

· Between $3 million and $10 million – taxed at 30%.

· Over $10 million – taxed at 40%.

Basically, the more you have in super, the higher the tax rate on your earnings above those thresholds.

How it will work

Super funds will continue reporting members’ balances to the ATO, which will figure out who’s over the $3 million mark. If you are, your fund will tell the ATO your actual earnings (not paper gains). The ATO will then calculate how much extra tax you owe.

We don’t yet have the fine print on what exactly counts as “realised earnings,” but it’s likely to mean profits you’ve actually made, similar to how taxable income is treated now.

What’s still up in the air

While these updates make the system much fairer, there are still a few unanswered questions:

· What exactly counts as “earnings”? Will it only include profits made after 1 July 2026, or could older gains that are sold later be included too?

· What happens with capital gains? Super funds usually get a one-third discount on capital gains for assets held over a year, but it’s unclear whether that will still apply.

· How will pension-phase income be handled? Some super income is tax-free when you’re in the pension phase, and we don’t yet know how that will interact with the new rules.

· Can people with over $10 million move money out? If your earnings above $10 million are taxed at 40%, you might want to shift funds elsewhere but the government hasn’t said if that’ll be allowed.

What it means for you

If your super balance is over $10 million, the proposed rules mean that a portion of your superannuation earnings could attract a higher tax rate of up to 40%.

For people with between $3 million and $10 million, the new system could also change how much tax applies to their super earnings, depending on how the final legislation defines “realised gains.”

But don’t rush. These rules aren’t law yet, and if you take your super out, it’s hard to put it back because of contribution limits. It’s best to wait for the final legislation and get professional advice before making any decision to withdraw benefits from super.

Christmas and Tax

Tue, 18 Nov 2025 00:53:39 GMT

(<With the festive season fast approaching, business owners will be turning their mind to year-end celebrations with both employees and clients.>)

Knowing the rules around Fringe Benefits Tax (FBT), GST credits and what is or isn’t tax deductible can help keep tax costs to a minimum. Holiday celebrations generally take the form of Christmas parties and/or gift giving.

(<->)

<Parties)

Where a party is held during a working day, on business premises, attended by current employees only and costs less than $300 a head (GST inclusive), FBT does not apply. However, the cost of the function will not be tax deductible and GST credits cannot be claimed.

Where the function is held off business premises, say at a restaurant, or is also attended by employees’ partners, FBT applies where the GST-inclusive cost per head comes to $300 or more, the costs are tax deductible and GST credits are available.

However , FBT will not apply where the per person cost is below the $300 threshold if it can reasonably be regarded as an exempt minor benefit – i.e., one that is only provided irregularly and infrequently. Where FBT does not apply because of the minor benefit rule, the cost will not be deductible and GST credits will not be available.

Where clients also attend, FBT will not apply to the cost applicable to them, but those costs will not be tax deductible and GST credits will not be available. Where there is a mix of attendees, you may need to keep track of who participated in the function.

<Gifts)

First, you need to work out whether the gift itself is in the nature of entertainment – for example, movie or theatre tickets, admission to sporting events, holiday travel or accommodation vouchers.

Where the recipient of an entertainment gift is an employee (or an associate of an employee) and the GST-inclusive cost is below $300, the minor benefit exemption should apply so that FBT is not payable, in which case the cost will not be tax deductible and GST credits are not claimable. For larger entertainment gifts to employees, however, FBT applies, the cost is deductible, and GST credits can be claimed.

Where the gift is not in the nature of entertainment and it falls below $300, the FBT minor benefit exemption should apply – for example, Christmas hampers, bottles of alcohol, pen sets, gift vouchers. But because the entertainment rules don’t apply, the cost of the gift is tax deductible and GST credits are claimable.

Where a gift is made to a client, the $300 FBT minor benefit exemption falls by the wayside, but as long as it is not an entertainment gift and it was made in the reasonable expectation of creating goodwill and boosting future business it should be deductible to the business. GST credits are also claimable, while the amount is uncapped (within reason).

<Best approach for employees)

Provided partying is not a regular thing in your business, taking employees out for Christmas lunch escapes the FBT net, as long as the cost per head stays below the $300 threshold. While the cost of the function will be non-deductible, and no GST credits are available, that generally has less of a cash-flow impact on the business than the grossed-up FBT amounts.

For employees and their associates, non-entertainment gifts under $300 are a good way to go. Making a non-entertainment gift costing up to $299 is a very tax effective way of showing your appreciation. And because the $300 cap applies separately to each benefit, depending on how generous you feel, you could also make a gift costing up to $299 to the partner or spouse of an employee, which effectively doubles the $300 minor benefits cap.

Where the cost of a non-entertainment gift costing up to $299 is not subject to FBT, it will be tax deductible, with an entitlement to GST credits, giving you the best of both worlds.

<Best approach for clients)

While FBT is off the table for business clients, making a non-entertainment gift (tax deductible; no dollar limit within reason) is actually much more tax effective than wining and dining a key client (non-deductible entertainment). If you put some thought into what gift to buy a client and perhaps deliver it yourself, you might make much more of an impact than inviting them to share a restaurant meal in their already crowded Christmas calendar.

If you’re not sure and you need help in sorting out the tax treatment of your upcoming holiday celebrations and gifting, don’t hesitate to give us a call.

Reducing your tax bill while topping up your super

Tue, 11 Nov 2025 05:53:44 GMT

Let’s say you’ve just sold the house you inherited from your parents 12 years ago for $1.3 million. You’ve been renting it out for most of that time, but the property market has been hotting up, and you were told by several real estate agents that they could get you a good price.

But what about the tax consequences?

At age 50, you’re still working (salary of $120,000 per annum), having returned to the workforce in July 2023 following a five-year absence for personal reasons. You don’t expect to retire from paid employment until age 65 at the earliest. Your total super balance on 30 June 2025 was $300,000, sitting in a retail fund.

Your accountant has calculated the net capital gain on selling Mum’s house as $600,000. After applying the 50% CGT discount, this results in a taxable income of $420,000, and a whopping tax bill of $163,538 to go with it.

Can anything be done?

Depending on your superannuation history, there may be a legitimate way of taking a big chunk out of that tax bill while topping up your super at the same time.

Concessional super contributions are subject to an annual cap, which is set at $30,000 for the 2025-26 income year. That figure is well above the mandatory employer super guarantee amount for most income levels. Many people don’t go close to using up their concessional contribution caps, which can leave them with carry-forward concessional contributions.

To help people with modest total super balances (below $500,000 on the previous 30 June), the government gives them the option of using some or all of their previously unused concessional contributions cap on a rolling basis for five years – ie, the five previous income years from 2020-21 to 2024-25, plus the current year (2025-26).

Conveniently, the ATO keeps track of your carry-forward concessional contributions balance, which you can look up on myGov.

The beauty of this arrangement is that you can use your catch-up concessional contributions to make personal deductible contributions, which can offset part of the CGT gain from the sale of the inherited property. Instead of being taxed at the top marginal rate of 47%, the amount of the catch-up contribution is taxed at the normal rate of 15% in your super fund, which creates a net saving of 32% on the contributed amount.

It is not unusual for someone to have carry-forward concessional contributions in excess of $100,000, which would take your taxable income down to $320,000, with tax payable of $116,538, or $47,000 less than what your tax bill would be without making the tax-deductible catch-up contribution. That tax saving has to be reduced by $15,000 in contributions tax payable by your super fund, for a net saving of $32,000.

Remember, however, that any super contributions you make at age 50 will not be accessible until you reach preservation age (60 if retired or 65 if you’re still working).

If you have other plans for that $100,000 (and you did pocket $1.3 million on the house sale) you will need to weigh up your options. But locking up a small part of the house proceeds seems like a small price to pay for a $32,000 tax saving. On the other hand, if you have an appetite for putting even more money into your super, you might want to consider also making a non-concessional contribution of up to $360,000. This is not tax deductible and there is no 15% contributions tax when paid into your fund.

That covers the tax side of things but since you have received a life-changing windfall, you should consider getting advice from a licensed financial adviser.

If you find yourself in this situation, come in and see us well before 30 June 2026. If you decide to go ahead with making a catch-up contribution the super fund has to be notified, which we can help you with.

30 June 2025 Tax and Super Checklist

Sun, 15 Jun 2025 22:07:38 GMT

With the end of the financial year coming up, now’s a great time to get on top of your tax and super. A little planning before 30 June can help you make the most of any opportunities to reduce tax, boost your super, and avoid last-minute surprises.

This checklist outlines key things to consider and action before the financial year wraps up. It’s a simple way to stay on track and finish the year with confidence.

TAX CHECKLIST

Here are some practical things to consider before 30 June to help you tidy up your tax position and potentially reduce your bill.

Bad Debts

If you're running a business, write off any bad debts that won’t be recovered before 30 June so they can be claimed.

Employee Bonuses and Director Fees

Planning to pay employee bonuses or director fees? Make sure they're confirmed in writing and communicated to recipients by 30 June, even if payment happens later.

Charitable Donations

Bring forward any planned donations and have the highest-earning family member make the gift. Remember:

Donations must be to registered charities.
They can’t create a tax loss.
Keep receipts.

Prepay Interest on Loans

If you have a loan for an income-generating asset (like an investment property), consider prepaying interest before 30 June to bring forward the deduction.

Claim Work-Related or Business Costs

Bring forward costs such as repairs, stationery, or supplies by 30 June 2025. These small deductions can add up. This applies to all taxpayers, not just businesses.

Prepay Expenses

You can claim prepaid expenses, such as insurance or subscriptions.

Where the expense is:

Under $1,000 – all taxpayers can claim the expense
Over $1,000 – fully deductible if you're a small business if the expense relates to a period of 12 months or less. Note that this is also available if it's a non-business expense of individuals, such as work related expenses or rental property costs.

Write Off Old Stock

If you hold stock, write off any damaged, outdated or unsellable items before 30 June 2025.

Review Assets & Depreciation

Small businesses (turnover under $10m) can immediately deduct assets under $20,000 that were acquired from 1 July 2024 and ready to use by 30 June 2025.

Also, remove any old equipment from your depreciation schedule if it’s been sold, thrown out, or is no longer usable.

Electric Vehicles

If your business provides an electric vehicle to an employee, you may be eligible for depreciation deductions and Fringe Benefits Tax (FBT) concessions.

Defer Income

If possible, delay receiving income (like issuing invoices) until after 30 June to push tax into next year.

Offset Capital Gains

Selling an asset this year with a profit? You could crystallise capital losses before 30 June to offset that gain.

Watch out: 'Wash sales' (selling and rebuying the same asset just to get a loss) are not allowed.

Defer Capital Gains

If you're planning to sell an asset for a gain, consider delaying until after 30 June if it makes sense for your broader financial situation.

Personal Services Income (PSI)

If you’re working in your own name (like a contractor or freelancer), check that your income qualifies as a business under PSI rules.

Business Losses

If your business runs at a loss, you may not be able to claim that loss if you carry on a “non-commercial business” - unless you pass one of the ATO’s tests (eg, income, asset, or profit test).

Company Loans to Shareholders (Division 7A)

If you’ve borrowed from your company, the loan needs to be properly documented, put on commercial terms and repaid.

If repaying through dividends, make sure the dividends are legally declared and paid prior to 1 July (with appropriate documentation in place).

Trust Distributions

If you're a trustee, resolutions must be made before 30 June to properly distribute income to beneficiaries. You also need to let your beneficiaries know what they’re entitled to.

Beneficiary TFN Reporting

If new beneficiaries gave you their TFN between April–June, you must lodge a TFN report by 31 July 2025.

Motor Vehicle Logbook

Planning to claim car expenses using the logbook method?

Start now and track 12 weeks of usage (can span over two tax years). Also record your odometer readings.

Private Health Insurance

Make sure you have the right level of cover to avoid the Medicare Levy Surcharge, especially if your family situation has changed (eg. new baby, separation, adult children moving off your policy).

Check Your Insurance Cover

Review your personal and business insurance needs. Not only does this provide peace of mind, some policies may also be tax deductible, especially if prepaid.

Review Your Business Structure

Is your current setup still the right one? Changes in income, family, or risk levels may mean a trust, company, or restructure could be more effective. We can help you weigh up your options.

SUPER CHECKLIST

Make the most of your super before 30 June 2025 with these smart, simple tips.

Check Your Contribution Limits

Before adding more to super, log in to myGov > ATO > Super > Information to check how much you’ve already contributed.

Tip: If you're in an SMSF, your info may not be up to date in myGov, but we can help you work this out.

Add to Super and Claim a Tax Deduction

You may be able to make a personal deductible contribution and claim it at tax time.

To be eligible:

You must be over 18
If you're 67–74, you must meet the work test or qualify for a work test exemption
If you’re over 75, you must contribute within 28 days of your birthday month

Don’t forget: To claim a tax deduction, submit a Notice of Intent to Claim a Deduction to your super fund and get their confirmation before lodging your tax return or making withdrawals, rollovers, or starting a pension.

Use Up Unused Contribution Limits

Haven’t used your full concessional contribution cap in recent years? You may be able to catch up using the carry-forward rule if your total super balance is under $500,000 on 30 June 2024.

Tip – Unused limits from 2019–20 expire after 30 June 2025 so don’t miss out.

Split Contributions with Your Spouse

You can split up to 85% of your 2023–24 concessional (pre-tax) contributions with your spouse before 1 July 2025.

This is a great way to even out your balances and plan ahead for retirement.

Note – To use this strategy, your spouse must be under their preservation age or aged 64 or younger and not retired when you make the request to your fund.

Get a Tax Offset for Spouse Contributions

If your spouse earns less than $40,000, consider making an after-tax contribution to their super.

By doing so, you could get up to a $540 tax offset while boosting their retirement savings.

Grab a Government Co-Contribution

If you earn less than $60,400 and at least 10% comes from work or running a business, you could be eligible for a government co-contribution. All you need to do is add up to $1,000 to your super and the government may add up to $500 extra.

Avoid the Division 293 Tax Trap

If your income (plus employer contributions) is over $250,000, you may pay an extra 15% tax on some of your super contributions.

Strategies like bringing forward expenses or deferring income may help keep you below the threshold.

Maximise Non-Concessional (After-Tax) Contributions

If you're under 75, you may be able to contribute up to $360,000 in one year using the bring-forward rule.

New rules from 1 July 2025 may allow you to contribute even more – speak with us about getting the timing right.

Take Your Minimum Pension Payment

If you're drawing a pension from your super, make sure you take the minimum amount by 30 June.
Missing the minimum may affect your fund’s tax benefits for the whole year.

Age: Under 65

Minimum Pension: 4%

Age: 65-74

Minimum Pension: 5%

Age: 75-79

Minimum Pension: 6%

Age: 80-84

Minimum Pension: 7%

Age: 85-89

Minimum Pension: 9%

Age: 90-94

Minimum Pension: 11%

Age: 95 or more

Minimum Pension: 14%

Need Help?
We’re here to help you make the most of EOFY tax and super opportunities. Contact us to discuss what options might work best for your situation.

Getting on the front foot for your 2024-25 tax return

Sun, 15 Jun 2025 22:07:34 GMT

Here are some more detailed tips relating to a couple of common claims that often attract ATO scrutiny.

Working from home

A lot of people are still regularly working from home for at least part of the week. If you do, you are entitled to a deduction for the additional costs you incur. To be eligible to make a claim it is not necessary to set aside an area exclusively for business or employment related use. A shared dining table is all you need. Except in very unusual cases, deductions are not available for occupancy costs such as mortgage interest, rent, rates and insurances.

Most people make their claim using the fixed rate method, which is 70 cents per hour for 2024-25. The fixed rate method covers home and mobile internet costs, mobile and home phone costs, power and gas charges and stationery and computer consumables. Under the fixed rate method, you can also claim depreciation and repairs for assets used such as desks, office chairs and laptops, where those items cost more than $300. This is on top of the 70 cents per hour.

Alternatively, you could use the actual cost method, but that requires more detailed records and receipts.

We can help you to legitimately maximise your claim, but before you can claim anything, you need to have:

A record of the hours worked from home. This has to be maintained for the entire 2024-25 financial year – you can’t just keep a detailed record for a representative period and apply it for the full year.
One current sample invoice for each of the costs the fixed rate method is intended to cover – internet costs, phone costs, energy bills. It’s important to take copies of those invoices now and file them with your tax records rather than scramble around looking for them when the ATO comes asking for them in a few years’ time.

Use of your own vehicle for business or employment related purposes

For starters, any reimbursement you receive from your employer, either on a cents per kilometre basis or a flat amount, is assessable in your hands and will be shown on your payment summary. Not everyone who uses their own car for work is reimbursed in this way, however, and you are still entitled to make a claim, in spite of not receiving any reimbursement.

There are two alternative ways of claiming a deduction for business or employment related car use – the cents per kilometre method or the logbook method. For those who use the cents per kilometre method (which only applies to claims of up to 5,000 kms) the process is pretty simple – just multiply the kilometre figure by 88 cents. So if your business or employment related use was 4,000 kms, your 2024-25 claim would be $3,520.

Under the cents per kilometre method, you don’t need to keep a full-blown logbook that tracks every journey. However, the ATO may ask you how you came up with the claimed distance, especially where you’re pushing up against the 5,000 km threshold. So you will need to have a diary of some sort that shows how you have estimated the kilometres being claimed – anything to prove you haven’t just plucked the figures out of thin air.

People sometimes get confused about what qualifies as business or employment related car use. You can make a claim where:

you travel to locations that are not your usual workplace;
you have no fixed workplace and travel from site to site;
you carry tools or equipment which are bulky and cannot be securely stored at your workplace;
you drive to see customers or suppliers;
you drive to seminars or to a second job.

Non-deductible travel includes situations where:

you drive to and from your regular workplace;
your employer pays your car expenses directly.

The logbook method is the alternative to the cents per km method. As the name implies, you need to keep a detailed logbook, but only for a representative period of twelve weeks to work out your business related use. Provided your pattern of car usage remains broadly the same, the resulting business use percentage is good for five years, after which you have to repeat the process. The logbook method might be more appropriate where your business or employment related car use is well over 5,000 kms.

For each journey, the logbook needs to show the date of the trip, the starting and finishing odometer reading, the distance travelled and the reasons for the journey. Where you are completing your logbook for the 2024-25 financial year, you need to complete the logbook entries during that year, after each trip. The logbook should come up with a business percentage, which can then be applied to all the costs associated with running the car, including depreciation. Receipts, invoices or other documentary evidence has to be maintained to verify the actual expenditure being claimed.

Car logbooks are available from Officeworks and most stationers, and can also be ordered online.

We can help you with the record keeping and logbook requirements.

CGT concessions: Using an asset in a business for the required time

Fri, 13 Jun 2025 04:40:32 GMT

A recent decision of the tax tribunal has highlighted the requirement that in order to use the CGT small business concessions for a capital gain made on an asset used in a business, the asset must have been used, or held ready for use , in that business for the required time.

And this required time is for half the period that the asset was owned, or if you owned it for 15 years or more then it must have been so used for at least 7 ½ years.

And, importantly, this includes the period that it was held ready for use in that business.

In that tribunal case, the taxpayer inherited farmland which he never used for farming (but instead left it vacant and then later let his brothers use it in their own farming business). However, he claimed that it was for the relevant period it was held ready for use in his own farming business, but that a dispute with his brothers prevented him from using it as such.

In this case, it was clear that the farming land was never really held ready for use in his business – so the large capital gain he made on the asset was fully taxable and not entitled to any CGT small business concessions.

However, there are many cases where the period that an asset is held ready for use in a business will count towards the required time that an asset must have been used in a business (ie, half the period that the asset was owned, or 7 ½ years if you owned it for 15 years or more).

For instance, in relation to farmland, this would include where farmland is being prepared for grazing activity (eg, while fencing is being built or while waiting for the stock to be trucked in from other sources) or cropping activity (eg, while pastures are being sown).

In relation to other businesses, this could include the period that, say, a factory or a shop is being fitted out in preparation for the relevant business activity or where, say, relevant structures are being built on the land for that purpose (eg, greenhouses for a nursery).

And this period of being held ready for use may be important in meeting this holding period rule – where otherwise the actual business activity hasn’t been carried out for the requisite period

But whether an asset is being held ready for use in a business can be a difficult question to determine – as can the other requirements of this rule. And this includes the crucial issue of whether an asset can qualify for the CGT small business concessions where it has also been used for rental purposes.

So, if you run a small business and have this type of issue come and have a talk to us and we can help you.

Small-scale subdivision and property development

Fri, 13 Jun 2025 04:21:45 GMT

So, you have decided to knock down your home and to build a couple of townhouses instead – and maybe live in one (but will just wait and see how things pan out).

Likewise, you may have decided to subdivide your large backyard to do a similar thing.

In another case, you may have bought yourself a large block of land down the coast or in the country on which to build a holiday home (or your dream retirement home), but have now decided to build some houses on it to sell as the market is now in that region. (And you know how to manage a project; you have been doing it all your working life.)

In all of these scenarios, the ATO may take the view that you are engaging in small scale property development and that, as a result, your profits from this activity should be taxed as ordinary business profit (and possibly at the top rate of tax), and not just merely as a concessionally taxed capital gain.

Furthermore, where you may have “ventured” land into a property development project, the capital gains tax (CGT) laws will apply to capture any capital gain (or loss) made on that land up until that time (but provided the land was not exempt from CGT, such as in the case of a home).

But there is one big advantage in being taxed as a property developer – you can generally claim your deductible costs each year as you incur them, and particularly interest on any money borrowed for the venture.

On the other hand, if you are merely subdividing part of your backyard and selling it you will only be subject to CGT in respect of any gain or loss you make – and, what’s more, you can’t claim the CGT exemption for a home in this case.

And in the case of a knockdown-rebuild of a home, where you move back into and make it your home in the required time periods, there will generally be no CGT consequences (albeit, one day the ATO may look more closely at this this rule if it considers it to be badly exploited).

In relation to GST, it generally doesn’t apply to small-scale property developments unless you’re operating a business and registered for GST – or to put it another way, for one-off projects, GST is unlikely to apply, but subdividing and selling multiple lots could push you into GST territory.

But the application of GST to small-scale property developments is a complicated area.

In short, the issue of how small-scale property development activities are taxed is complex – and will depend on the exact circumstances of the case.

So, it is vital to come and speak to us if you are considering undertaking such activity – or have already done so.

Binding Death Benefit Nominations Explained

Fri, 13 Jun 2025 04:10:33 GMT

When it comes to superannuation, many people assume that their retirement savings will go to their loved ones when they pass away. Sadly, this isn’t always the case. Unlike other assets that are covered by your will, your superannuation is handled separately, and if you want to ensure it goes to who you want, you need a binding death benefit nomination (BDBN).

What is a binding death benefit nomination?

A BDBN is a formal instruction you give to your superannuation fund, telling them who should receive your super when you die. The fund must follow your instructions if your nomination is valid. This gives you certainty that your money will go to who you want.

If you don’t have a binding nomination, your super fund will decide who gets your money. This means your super could be distributed differently from what you intended. Without a valid nomination, your fund will usually follow set rules and laws about dependants.

The three-year expiry rule

A BDBN generally expires every three years. This means you need to renew it regularly to keep it valid. If your nomination expires and you haven’t updated it, your super fund will decide who gets your money when you pass away.

To avoid this, many people set reminders to review their nomination every few years. Major life events such as marriage, divorce, or having children are also opportune times to review your BDBN.

Non-lapsing binding nominations

Some super funds offer non-lapsing binding nominations, which do not expire. Once you make a valid non-lapsing nomination, it remains in place unless you choose to change or cancel it.

However, not all super funds offer this option, and each fund has its own rules about how non-lapsing nominations work. It’s important to check with your fund to see if you can make one and whether any conditions apply.

Binding nominations in SMSFs

If you have a self-managed super fund (SMSF), the rules around BDBNs can be different. Unlike large super funds, where trustee discretion is limited by the rules of the fund and superannuation laws, SMSFs can have more flexibility.

Some key differences include:

No automatic expiry: In many SMSFs, binding nominations do not expire unless the trust deed specifically states otherwise. This is different from retail and industry super funds, where nominations often expire after three years.
Customised rules: The rules about binding nominations in an SMSF depend on the trust deed, which is the legal document that governs the fund. Many SMSFs allow non-lapsing nominations, while others may require regular updates. Also, some SMSFs allow cascading nominations ie, instructing the fund to pay a death benefit to a secondary beneficiary if the primary beneficiary predeceases the member.
Trustee control: Since SMSF trustees are usually fund members themselves, there can be potential conflicts of interest when deciding how to distribute super benefits. A well-structured binding nomination can help prevent disputes among family members.

If you have an SMSF, it’s crucial to check your trust deed and ensure your nomination aligns with the fund’s rules.

Who can you nominate?

When making a binding nomination, you can’t just choose anyone – you must nominate one or more ‘eligible beneficiaries’. These include your:

Spouse (including de facto and same sex partners)
Children (including adopted or stepchildren)
Financial dependants (such as someone who relies on you financially)
Interdependents – someone you share an interdependent relationship with (such as a person you live with, have a close bond with, and where one or both of you provide financial assistance, domestic support, and personal care)
Legal personal representative (your estate, so your super is distributed according to your will)

If you nominate someone who isn’t eligible, your nomination will be considered invalid, and the super fund trustee will decide who receives your super.

How to make a valid binding nomination

To ensure your nomination is legally binding, follow these steps:

1. Check your fund’s rules: different funds have different requirements for binding nominations.

2. Complete the required form: your super fund will have a specific binding nomination form you need to fill out.

3. Nominate a dependant or legal personal representative

4. Ensure the proportions add up to 100%

5. Sign and date it in the presence of two independent witnesses (over 18 and not beneficiaries)

6. Submit the completed form to your super fund.

Final thoughts

A BDBN is an essential tool for ensuring your superannuation is distributed according to your wishes. If you don’t have one in place, or if yours has expired, your super fund may decide who gets your money – and it might not be who you intended.

Whether you choose a standard nomination with a three-year expiry, a non-lapsing nomination, or an SMSF-specific arrangement, keeping your nomination up to date is key. Take the time to review your super fund’s rules and ensure your hard-earned super goes to the ones you love.

Writing a will in a tax-effective manner

Fri, 13 Jun 2025 04:06:14 GMT

When a person writes a will they usually leave their assets to their children – and usually in equal shares.

And when they first write their will their children may be young – and they may also be relatively young when they later update it.

However, there is a potential capital gains tax (CGT) issue lurking here.

In this increasingly globalized world, when the children do inherit the assets, they may be living overseas.

In this case, if they are considered a foreign resident for tax purposes at the time they become entitled to the assets of the estate (or their share of them), instead of the roll-over applying, it will trigger an immediate CGT liability for the deceased in their final tax return.

And this will usually be paid by the executor from estate assets – thereby diminishing the amount of the estate that would otherwise be available to the beneficiaries.

And in this case the amount of the capital gain (or loss) is determined by the asset’s market value at the time of the deceased’s death and the deceased’s cost for CGT purposes.

However, there is a very important carve out from this rule.

It does not apply if the bequeathed asset is Australian real estate (or other “taxable Australian property” as defined). This is because such assets always remain subject to CGT – regardless of the residency status of the taxpayer. Moreover, any dealings in them can usually be traced by the ATO (especially in the case of land).

However, the rule would, for example, apply to shares on the ASX and ordinary investment units in unit trusts.

Note that there are special rules that apply to shares in a company or units in unit trust where more than 10% of the shares or units are owned and more than 50% of the value of the assets of the company or unit trust is real property. (But these rules can be very complex.)

The upshot of all this is that when writing your will it is important to get good tax advice so that it can be structured and documented in a tax effective way – and, broadly speaking, this will entail giving your executor a high degree of flexibility in how estate assets will be distributed among your beneficiaries.

However, if you are already locked into a will and you find yourself in this situation, there are a few things you can do to ameliorate the effect of this rule.

And by the way, in writing a will it is probably not a bad idea to give your executor the power to grant someone a right to occupy your home after your death. This is because it is another potential way to access the CGT exemption for an inherited home.

So, if you are writing your will or looking at updating one, come and have a chat to us about it first so that we can take you through some of the ins-and-outs of writing it tax-effectively.

Concessional Super Contributions vs Mortgage Paydown: What’s the smarter move?

Fri, 13 Jun 2025 04:02:11 GMT

If you have some extra cash, you might be deciding whether to make a concessional contribution to your super fund or use it to pay down your mortgage, whether on your home or holiday house. Both strategies have advantages, but the right choice depends on your personal situation. Let’s take a closer look at the options.

Option 1: Pay down your mortgage

Putting extra money towards your mortgage helps reduce non-deductible debt ie, debt carrying interest that isn’t tax-deductible. This strategy can be particularly appealing if you value certainty or plan to free up cash flow soon. Key advantages include:

Guaranteed savings : every extra dollar paid directly reduces your interest costs. For example, on a 5% loan, an additional $10,000 payment saves you $500 a year. This is essentially a risk-free 5% return.
Increased equity : reducing your loan balance builds equity in your property, which can improve your financial flexibility if you need to borrow against it or decide to sell.
Improved cash flow and peace of mind : with a smaller loan, your minimum repayments shrink, giving you more breathing room and financial security.

The downside is that unlike super contributions, there are no immediate tax benefits. Over the long term, investment returns from a well-diversified super portfolio often exceed typical mortgage interest rates.

Option 2: Concessional super contributions

Concessional super contributions, like salary sacrifice or personal deductible contributions, boost retirement savings and cut personal tax. They’re especially appealing for people near retirement. Super may be partly or fully accessible after 60 at which time withdrawals are generally tax-free and can be used to repay loans whilst also having enjoyed a tax break on contributions. Key advantages include:

Tax benefits : contributions are taxed at 15% in super (or 30% for some high-income earners), often below your marginal rate.
Long-term growth : super investments in growth assets, plus a concessional tax rate of 15% on asset income in super, can significantly grow your retirement savings.

The downside is that funds are locked away until age 60 and are generally unavailable for emergencies. Market fluctuations, such as those seen recently, may also impact your superannuation savings.

Case study

Brian has $10,000 (after tax) of surplus cashflow each year. He is considering using this surplus cashflow to pay down his mortgage on a holiday home or making a personal deductible contribution to super. He is 55, plans to fully retire at 60 and is on the 39% tax bracket (including Medicare Levy). His mortgage is incurring interest at 5.6%.

Option 1 – pay down mortgage

If Brian makes an additional $10,000 one-off mortgage repayment each year for the next five years, he will have about $56,000 less debt than he would otherwise have. This reduction includes the interest that would have been accrued but for the reduction in the loan over the five years.

Option 2 – make concessional contribution to super

If Brian can forgo $10,000 of after tax cashflow he can potentially make a personal deductible contribution of approximately $16,390 and be in the same after-tax cashflow position. As he is paying 39% tax, a $16,390 deductible super contribution will reduce his tax by $6,390 meaning his cashflow only reduces by $10,000 per annum.

Let’s assume a net super contribution of $13,930 ($16,390 less 15% contributions tax) is invested each year into super for the next five years. Let’s also assume his super grows at 5.6% net per annum. In this case Brian will have about $78,000 more in super than what he would otherwise have but for the deductible super contributions. After five years Brian is aged 60 and if he is also retired, he is free to withdraw any amount of super, tax-free, to pay down remaining debt.

The verdict

Chat with us to find out which option suits you best. There is no one-size-fits-all answer. Paying down your mortgage offers security and peace of mind. Making extra concessional super contributions can deliver powerful tax benefits and long-term growth in retirement savings.

Whether you're focused on financial flexibility now or building wealth for later, we're here to help you weigh the pros and cons and make the most of your money.

Good CGT records can save you money

Fri, 13 Jun 2025 03:59:05 GMT

Congratulations! Your investment has done well, and you’re cashing in. You’re happy, and so too is the ATO. That substantial capital gain has brought wealth and a hefty tax bill.

Sharing might be part of the deal but when it comes to your hard-earned profits, you might prefer to keep the ATO’s share to a minimum. Keeping good records will help do this. Here are some tips to help you hold onto more of your windfall and avoid that hefty tax bill.

How much did your investment really cost?

Good record-keeping is essential; it helps your accountant ensure that you pay no more tax than you must. You probably already know that what you get paid for your investment isn’t necessarily your gain. Basically your ‘gain’ on an investment is what you get less what it cost you, but do you really know what it cost you?

The most obvious cost to keep a record of is the asset purchase price or ‘acquisition cost’ but there are some lesser-known costs that are often forgotten. Keep records of anything falling under these four categories as well.

1. Incidental costs of acquisition

These are costs directly associated with acquiring the asset, including such things as:

Fees paid to brokers, auctioneers, or accountants
Stamp duty paid on the purchase
Advertising costs incurred when acquiring the asset
Conveyancing fees or conveyancing kit costs
Brokerage fees if buying shares

2. Non-capital ownership costs

You can sometimes add certain ownership costs to your cost base if they weren’t previously claimed as tax deductions. These include:

Interest on money borrowed to acquire the asset (but again only if it has not already been used as a deduction on income)
Maintenance, repair, or insurance costs
Rates or land tax (if the asset is land)

3. Capital expenditure on improvements

Your expenses covering things to increase or preserve the value of the asset are also relevant. Some examples include:

Costs incurred for zoning changes, whether successful or not
Capital improvements, such as renovations or structural changes

4. Costs of establishing, preserving, or defending ownership

Hopefully you don’t have too many legal expenses but if you do they too can be taken off the gain. If you have incurred costs related to defending your ownership in court or any legal fees incurred in a dispute over title keep a record of them as they will reduce the gain.

You’ve identified all the costs, but can we further reduce the gain?

That capital loss you made earlier in the year wasn’t nice but there is a silver lining: it can offset that gain. If that’s not enough to wipe out the gain, dig deeper into your records. Was there any unused loss in a prior year? We can use that too!

Keep note of when you bought it

If you bought that asset prior to 20 September 1985, yippy no CGT! If you bought it over 12 months ago only half the net gain (after costs and losses) is assessable. So, if you’re thinking of selling an asset but haven’t held it for a year, consider hanging on to it just that little bit longer.

Final thoughts

By understanding what the costs are and keeping thorough records, you can legally minimise your CGT liability.

Speak to us about what things you should keep records of to take full advantage of any applicable deductions and exemptions.

Employees vs. Contractors: What Sets Them Apart

Fri, 13 Jun 2025 03:48:06 GMT

The Australian Taxation Office (ATO) has recently revised its guidance on differentiating between employees and independent contractors. This change follows several court rulings that clarified the criteria for determining whether a worker is genuinely an employee or an independent contractor.

Whether you’re a worker or a business owner, understanding these differences is crucial, as they have an impact on tax, superannuation, and workplace entitlements.

Why does the difference matter?

How a worker is classified – either as an employee or a contractor – impacts who is responsible for paying taxes, providing benefits like superannuation and leave, and who carries legal responsibilities. Misclassifying a worker can lead to serious financial consequences, including unpaid entitlements and penalties from the ATO.

Key differences between employees and contractors

The primary difference lies in how the worker interacts with the business:

· Employees work in the business and are part of its operations.

· Contractors work for the business but maintain their own separate operation.

The contract between the business and the worker is crucial in determining a worker's classification. While day-to-day work practices play a role, the legal rights and responsibilities outlined in the contract hold the greatest significance.

See the table above for the ATO’s most important considerations.

Superannuation and contractors

Even if someone is considered a contractor, they might still be entitled to superannuation if:

· They’re paid mainly for their labour.

· They work as a sportsperson, artist, entertainer, or in a similar field.

· They provide services for performances or media production.

· They do domestic work for over 30 hours per week.

Workers who are always employees

Some workers are always considered employees, no matter what. This includes apprentices, trainees, labourers, and trades assistants.

Apprentices and trainees work while completing recognised training to earn a qualification, certificate, or diploma. They might be full-time, part-time, or even school-based and usually have a formal training agreement.

Most of these workers are paid under an award, meaning they have set pay rates and conditions. Businesses hiring them must follow the same tax and superannuation rules as they do for other employees.

Companies, trusts, and partnerships are always contractors

If a business hires a company, trust, or partnership (rather than a person) it’s always considered a contracting arrangement. However, people working for that entity could still be employees of that entity, rather than the business hiring the services.

Why this matters to you?

For workers, knowing your status helps ensure you receive the correct pay and benefits. For businesses, classifying workers correctly helps avoid fines and ensures compliance with tax and employment laws.

If you need more details or want to check your situation, reach out to us for more information. Proper classification today can prevent costly mistakes in the future.

Managing inherited investments: what you need to know

Tue, 22 Apr 2025 03:08:06 GMT

When it comes to inheritances, one key fact to understand is that Australia has no death duties – meaning there are no taxes on a deceased person’s estate based on the value of their assets at the time of death.

Rather, we have a form of “roll-over” whereby there is no taxation of the assets as they pass from the deceased person to their estate (executors) and then onto beneficiaries.

But like musical chairs, it will be the beneficiary who will be left holding the asset and will be subject to capital gains tax (CGT) on its later sale in their hands (unless the asset is exempt from CGT, such as a car or the home of the deceased sold within two years of their death).

But here’s the good news: even though the beneficiary does not pay anything for the inherited asset, in calculating any CGT on its later sale in their hands, they get a “cost base” for this purpose equal to either the cost of the asset to the deceased person or its market value at the date of their death.

Whether they get the deceased person’s cost or market value will depend on whether the deceased acquired the asset before or after 20 September 1985 (when the CGT regime was introduced into Australia).

If the deceased acquired the asset after 20 September 1985, they will get the cost base of the deceased. In other words, as well as inheriting the asset, they will inherit the deceased’s cost base, ie, they will “step into the shoes” of the deceased.

Otherwise, if the deceased acquired the asset before 20 September 1985, then they will get a cost base for the asset equal to its market value at the date of the deceased’s death (because the asset is being brought into the CGT system for the first time).

Either way, the outcome is good: despite the beneficiary paying nothing for the inherited asset, they get some sort of cost for it – which means less CGT will be paid on its sale.

Furthermore, if the asset has been owned for more than 12 months by the beneficiary (including the deceased’s ownership in the case of an asset acquired after 20 September 1985), then the beneficiary will get the benefit of the 50% CGT discount in calculating the assessable.

All this means is that in the case of inherited assets which the deceased acquired after 20 September 1985, it will be important for the deceased to have kept records of their cost (and their date of acquisition) – and in the case of inherited assets like a big parcel of shares it can be very messy if no records have been kept by the deceased or they are not readily available.

So, come and have a chat to us if you have inherited – or are going to inherit – assets such as shares and other investments. We can help make this easier for you - and maximise the tax outcomes.

No CGT exemption for homes held on trust

Tue, 15 Apr 2025 02:42:52 GMT

It’s pretty well-known that a foreign resident (for tax purposes) cannot get a CGT exemption for a main residence (if they are a foreign resident at the time they entered the contract of sale).

Also, if the home was acquired after 8 May 2012 they won’t be entitled to any 50% CGT discount to reduce the amount of the assessable gain. And if they acquired the home before that date, then the amount of discount available will be reduced on a (disproportionate) sliding scale.

Of course, all this means that if a person is going to become a foreign resident and they want to get the CGT exemption on their home, they need to enter that contract of sale before they leave the country (even if the appropriate transaction takes place at the airport just before they leave!).

However, what is probably less well known is that you can’t get a CGT main residence if you own the home on trust for someone else.

And this means any form of trust, ranging from one that arises from a formally executed trust deed to one that arises “accidently” in the circumstances where a court of equity would rule it appropriate to find that one person own the home on trust for another in the interest of fairness.

It would also include the case where a home is held under a bare trust arrangement – which essentially means that the person for whom it is held essentially “owns” it and can call for its legal transfer to them at any time. And this is regardless of who lives in the home.

This bare trust arrangement is often used when the true owner of the home does not want his or her identity known as the real owner of the home – so it is held in trust under another name.

Which leads to the next point.

In the light of the Government’s recent announcement to place a temporary 2 year ban on foreign investors buying residential property in Australia, attempts may be made to circumvent this ban by arranging for a resident taxpayer to buy the property on behalf of a foreign resident.

In such a case, among other problems, no CGT main residence exemption would be available - regardless of who lives in it. And in any event, the broad rule that makes a foreign resident liable for CGT on any real estate they (beneficially) own in Australia would apply.

And presumably, the practice was fairly widespread even before the temporary ban – in every type of situation ranging from a defined strategy to buy the home on trust for a major overseas person or entity to the case where, say, a foreign student buys a property from parents’ money as an investment for the parents (and a place to live for the student) to “accidental” cases.

But, above all, be careful if you sign up for this – because if it is pursued by the ATO, then it will be you as the trustee who is liable for tax on any capital gain (or profit) made on the property to which the overseas owner is entitled. And you may no longer have the funds to pay it!

So, if you think you may this type of thing may apply to you, come and talk it us about it.

Capital gains tax: How good records can save you money

Tue, 15 Apr 2025 02:32:47 GMT

Congratulations! Your investment has done well, and you’re cashing in. You’re happy, and so too is the ATO. That substantial capital gain has brought wealth and a hefty tax bill.

How much did your investment really cost?

Good record-keeping is essential, it helps your accountant ensure that you pay no more tax than you must. You probably already know that what you get paid for your investment isn’t necessarily your gain. Basically your ‘gain’ on an investment is what you get less what it cost you, but do you really know what it cost you?

1. Incidental costs of acquisition

These are costs directly associated with acquiring the asset, including such things as:

Fees paid to brokers, auctioneers, or accountants
Stamp duty paid on the purchase
Advertising costs incurred when acquiring the asset
Conveyancing fees or conveyancing kit costs
Brokerage fees if buying shares

2. Non-capital ownership costs

You can sometimes add certain ownership costs to your cost base if they weren’t previously claimed as tax deductions. These include:

Interest on money borrowed to acquire the asset (but again only if it has not already been used as a deduction on income)
Maintenance, repair, or insurance costs
Rates or land tax (if the asset is land)

3. Capital expenditure on improvements

Your expenses covering things to increase or preserve the value of the asset are also relevant. Some examples include:

Costs incurred for zoning changes, whether successful or not
Capital improvements, such as renovations or structural changes

4. Costs of establishing, preserving, or defending ownership

You’ve identified all the costs, but can we further reduce the gain?

That capital loss you made earlier in the year wasn’t nice but there is a silver lining, it can offset that gain. If that’s not enough to wipe out the gain, dig deeper into your records - was there any unused loss in a prior year? We can use that too!

Keep note of when you bought it

Final thoughts

By understanding what the costs are and keeping thorough records, you can legally minimise your CGT liability.

Speak to us about what things you should keep records of to take full advantage of any applicable deductions and exemptions.

Do you own an asset that is used in your spouse’s business?

Thu, 10 Apr 2025 02:58:58 GMT

Did you know that if you own an asset (eg, land or a factory or even a trademark) that someone else uses in carrying on a small business then you might be entitled to the CGT small business concessions when you sell the asset?

And these concessions can either entirely or partially eliminate any capital gain you make on selling it (or at least defer it).

This can occur for example when your asset is used by, say, your spouse or a child under 18 in their own business (or one that you may be involved in also) – such as where that small commercial property you own (or own jointly with your spouse) is used by your spouse in, say, that art frame, photography or accounting business etc that he or she carries on.

Typically, this concession can also apply where an asset you own is used in say the business carried on by a family company or family trust in which you have a relevant interest – although the rules can get a bit complicated where you are only a beneficiary in that family trust.

These rules can also apply in “reverse” – so that an asset owned by family company or family trust that is used in the business carried on by a relevant shareholder or a relevant beneficiary can also qualify for the CGT small business concessions (eg, farmland).

Importantly, these rules apply whether or not you lease the asset to that other person (or entity) that carries on the business. Interestingly, the rules can also apply in appropriate circumstances where a testamentary trust continues to carry on the business that was carried on by the deceased – although in that case it may be easier to access the concessions by having the executor or beneficiary (or surviving spouse) sell the relevant business asset within two years of the deceased’s death.

These rules that allow an asset owned by one person to qualify for the CGT small business concessions where they are used by another person (or entity) in their business are only permissible where the parties are either “affiliates” or “connected entities” of each other (as defined under the tax law).

Suffice to say, whether or not persons or entities are “affiliates” or “connected entities” of each other for the purposes of the CGT small business concessions can be difficult to determine – and will depend on the exact circumstances of the relevant parties.

So, if you think you are in this situation – or propose to start a small business and intend to use assets owned by someone else in that business – speak to us first so that we can help you get the optimal CGT outcome.

This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

FBT Checklist 2024-25

Mon, 07 Apr 2025 03:33:00 GMT

2024-25 FBT Checklist

With the due date for FBT returns coming up, the following non-exhaustive checklist may prove useful in determining whether an employer has an FBT liability in the first place.

Although it will generally fall to your accountant to prepare the FBT return from your software file or other records, all of the instances where you have provided employees and/or their associates (e.g. spouse) with a potential fringe benefit may not always be apparent to them. To assist you in bringing these potential benefits to the attention of your accountant, following is a general checklist to refer to.

CAR FRINGE BENEFITS

Does a car fringe benefit arise?

For FBT purposes a “car” is:

any motor-powered road vehicle (including a four-wheel drive) that is designed to carry:
- less than one tonne, and
- fewer than nine passengers.

Were any vehicles provided to employees (or associates) during the FBT year?

You make a car available for private use by an employee on any day that either:

a. the car is actually used for private purposes by the employee or

b. the car is available for the private use of the employee.

A car is treated as being available for private use by an employee on any day that either:

a. the car is not at the employer’s premises, and the employee is allowed to use it for private purposes, or

b. the car is garaged at the employee’s home.

If so, was the vehicle designed to carry less than one tonne and fewer than nine passengers?

If so, the vehicle would be classified as a “car” for FBT purposes. If not, the provision of the vehicle may constitute a “residual fringe benefit” (see later). Different requirements in valuing the benefit then apply.

Exemptions

Is the vehicle a taxi, panel van or utility?

If so, an exemption is available where there is private use of the vehicle by a current employee and the vehicle is either:

a taxi, panel van or a utility designed to carry less than one tonne, or
any other road vehicle designed to carry less than one tonne which is not designed to principally carry passengers, and
the employee’s use of such a vehicle is limited to:

- travel between home and work

- travel incidentals where travel expenses are incurred in the course of performing employment-related duties, and

- non-work-related use that is minor, infrequent and irregular. This means (according to the ATO) less than 1,000 kms of private vehicle use, with no single private use journey in excess of 200 kms. (Note: the ATO expects the employer to exercise some oversight over the minor, infrequent and irregular use of the vehicle.)

Is the vehicle a dual cab vehicle?

If so, the vehicle will qualify for the work-related use exemption only if:

it is designed to carry a load of one tonne or more, and more than eight passengers, or
while having a designed load capacity of less than one tonne, it is not designed for the principal purpose of carrying passengers.

Is the vehicle a “modified” vehicle?

Certain modified vehicles are exempt from FBT where modifications permanently change a car and cannot be readily reversed for the car to be regularly used alternately as a passenger or non passenger car. An example of such a vehicle is a hearse.

Is the vehicle an unregistered vehicle?

If a car is unregistered for the full FBT year and used principally for business purposes (such as off-road or cars used on farms), any private use is exempt from FBT. A car that may be lawfully driven on a public road is regarded as being registered.

Does the vehicle qualify for the electric cars exemption?

Zero or low emission vehicles (including plug-in hybrids) are exempt from FBT where they are first held from 1 July 2022 and made available to current employees or associates. This incentive will apply until at least 2027, when there is to be a review. The GST-inclusive cost of the EV cannot exceed $91,387, which is the Luxury Car Tax threshold for fuel efficient vehicles for 2024-25. Plug-in hybrids will lose their exemption after 31 March 2025 unless there is a binding commitment to continue to provide the vehicle after that date.

CAR PARKING FRINGE BENEFITS

Does a car parking fringe benefit arise?

A car parking fringe benefit arises in relation to a particular day where all of the following conditions are present on that day:

the car is parked on business premises or associated premises of the provider
a commercial parking station is located within a 1km radius of the premises at which the car is parked
the lowest fee charged by the operator of any such commercial parking station located within a 1km radius for all-day parking on the first “business day” of the FBT year is more than the “car parking threshold” ($10.77 for the 2024/25 FBT year).
the car is parked on the premises for more than four hours (cumulative) between 7.00am and 7.00pm on that day
the car is used for travel between home and work at least once on that day
the provision of the parking facility is in respect of the employment of the employee
the car is owned by, leased to, or otherwise under the control of the employee, and
the employee has a primary place of employment on that day and the parking is at or in the vicinity of that primary place of employment.

Small businesses (gross turnover less than $10 million or aggregated turnover less than $50 million) are exempt from car parking FBT unless employees are using a commercial car parking station.

LOAN FRINGE BENEFITS

Does a loan fringe benefit arise…

Has a loan been made by an employer (or associate) to an employee (or their associate)?
Was the loan provided in respect of the employment of the employee?
Do you know the date the loan was made?
Do you know the amount of the loan?
Do you know the purpose of the loan?
Has interest been charged on the loan that is at a rate lower than the benchmark interest rate of 8.77% (2024/25)?

The loan is not a fringe benefit where it is either:

compliant with s109N ITAA 1936 for Division 7A purposes, or
treated as a deemed dividend under s109D ITAA 1936 for Division 7A purposes.

Exemptions

Is the minor benefits exemption under s58P FBT Act applicable?

Did the loan constitute an advance of money by the employer to the employee to meet employment-related expenditure which will be incurred within six months?

If yes, an exemption is available.

DEBT WAIVER FRINGE BENEFITS

Has an employer (or their associate) released the employee (or their associate) from repaying an outstanding debt?

A debt waiver fringe benefit arises.

Does the debt forgiveness give rise to a deemed dividend under Division 7A ITAA 1936?

If so, the debt waiver does not constitute a fringe benefit.

Section 109F ITAA 1936 may operate to treat a forgiven debt as a deemed dividend in the hands of a current or former shareholder (or associate) of a private company even if they are also an employee of the company (see s109ZB(2) ITAA 1936).

Does the debt waiver constitute the forgiveness of a genuine bad debt?

If so, the debt waiver is exempt from FBT.

EXPENSE PAYMENT FRINGE BENEFITS

Does an expense payment fringe benefit arise?

Did an employer (or their associate) pay or reimburse an employee (or their associate) for any expenses incurred by the employee (or their associate)?

Was the payment or reimbursement for an item that was used solely for an income-generating purpose?

If yes, a fringe benefit does not arise.

Employee to complete Expense payment fringe benefit declaration.

Was the expenditure reimbursement by the employer to the employee on a cents-per- kilometer basis?

If yes, the payment is FBT-exempt. Note that the employee will be assessed on this reimbursement.

Exemptions

Is the minor benefits exemption under s58P FBT Act applicable?

Is an exemption available for a work-related item which is used primarily in the employee’s employment?

These work-related items include a portable electronic device (including mobile phones, laptops and tablet pcs), briefcase, tool of trade or an item of computer software, or protective clothing. Specific conditions apply to the provision of portable electronic devices.

Employers who are eligible small businesses (i.e. aggregated annual turnover of less than $50 million) can provide multiple work-related portable electronic devices (such as laptops and tablets) in certain circumstances.

Is an exemption available for the reimbursement of the following:

membership fees and subscriptions to:
- a trade or professional journal

- use a corporate credit card, or
- an airport lounge membership

newspapers and periodicals to employees for business purposes, and
expenses relating to emergency assistance such as:

- first aid or other emergency health care

- emergency meals, food supplies, clothing, accommodation, transport or use of household goods

- temporary repairs, and

- any similar matter.

BOARD FRINGE BENEFITS

Does a board fringe benefit arise?

Was a meal provided to an employee (or their associate) where the following conditions are satisfied:

there is an entitlement under an industrial award or employment arrangement to be provided with residential accommodation and at least two meals per day
the meal is supplied by either:

- where the employer is not a company – the employer, or

- where the employer is a company – the employer or a related company

either of the following applies:

- the meal is cooked or prepared on the premises of the employer (or related company) and is provided to the recipient on employer’s premises (other than a public dining facility), or

the following conditions are satisfied:

- the employee’s duties consist principally of duties to be performed in, or in connection with, an eligible dining facility of the employer or a facility for the provision of accommodation, recreation

or travel which includes the dining facility

- the meal is cooked or prepared in the cooking facility of the dining facility, and

- the meal is provided to the recipient in the dining facility

the facility in which the meal is cooked or prepared is not used wholly or principally for cooking or meal preparation for the employee or their associates, and
the meal is not provided at a social function (eg, party or reception).

LIVING-AWAY-FROM-HOME ALLOWANCE (LAFHA)

Does a LAFHA benefit arise?

Was an employee paid an allowance by an employer as compensation for additional expenses because the employee was required to live away from his or her usual place of residence located in Australia to perform employment duties during the FBT year?

If yes: The LAFHA rules may apply.

Has documentary evidence been obtained from the employee to substantiate accommodation expenses and food expenses (if reasonable amounts determined by the ATO are not being used)?

Alternatively, has a declaration for employee-related expenses been obtained?

If a declaration is made, the record must be maintained for five years from its making.

Relocation costs

Were any of the following expenses incurred in relation to the employee relocating from their usual place of residence to perform employment-related duties:

engagement of a relocation consultant
removal and storage of household effects
sale or acquisition of a dwelling
connection or reconnection of certain utilities (eg, water, electricity), or
transport of the employee (and family members) and any meals and accommodation en-route to the new location?

The provision of such benefits either as an expense payment, property or residual fringe benefit is typically exempt from FBT.

Declarations and substantiation

Have the relevant LAFHA declarations been sought from employees in receipt of allowances or benefits before the lodgment day of the FBT return?

The ATO has released on its website pro-forma LAFHA declarations. The declarations include employees who fly-in, fly-out or drive-in or drive-out, employee-related expenses, and employees who maintain a home in Australia.

MEAL ENTERTAINMENT FRINGE BENEFITS

Does a meal entertainment fringe benefit arise?

Has entertainment been provided to an employee (or their associate) by way of food or drink, accommodation or travel in connection with the provision of food or drink or recreation?

Calculation of taxable value

Has an election been made to use either the 50/50 split method or the 12 week register method?

If no election is made, the benefit is typically treated as either a property, expense payment or residual fringe benefit and the taxable value calculated based on the rules for those types of benefits (i.e. under the actual method).

50/50 split method – has all expenditure in respect of all persons been included?
12-week register method:

- Has all expenditure in respect of all persons been included?

- Does the register include details of the date, cost, location and persons in relation to the meal entertainment?

See TR 97/17 for guidance on the various circumstances where food and drink is provided and the applicable FBT and income tax treatment.

Where the actual method is used:

Has the food or drink been consumed by current employees on the employer’s business premises on a working day?
If so, apply the s41 FBT Act exemption relating to property benefits.
Is the minor benefits exemption pursuant to s58P FBT Act applicable?

Reduction in taxable value

Did the employee contribute towards the provision of the benefit?

If so, reduce the taxable value by the amount of the employee’s contribution.

HOUSING FRINGE BENEFITS

Does a housing fringe benefit arise?

Has an employer (or their associate) provided an employee (or their associate) with a right to occupy a “unit of accommodation” as the usual place of residence of the employee (or their associate)?

A housing fringe benefit will arise except where an exemption applies.

An exemption will arise where the benefit constitutes remote area housing.

Reduction in taxable value

Did the employee contribute towards the provision of the benefit?

Reduce the taxable value by the amount of the employee’s contribution.

ENTERTAINMENT LEASING FACILITY EXPENSES

Did an entertainment leasing facility expense fringe benefit arise?

Has entertainment been provided to an employee (or their associate) by way of the employer incurring “entertainment leasing facility expenses”?

This includes the hire or leasing of a corporate box, boats or planes or “other premises or facilities” for providing entertainment.

Expenses, or parts of expenses, that are not entertainment facility leasing expenses for these purposes are:

expenses attributable to providing food or beverages, and
expenses attributable to advertising that would be an allowable income tax deduction.

TAX-EXEMPT BODY ENTERTAINMENT FRINGE BENEFITS

Does a tax-exempt body entertainment fringe benefit arise?

A charity must be endorsed in order to be income tax-exempt.

Has entertainment been provided to an employee by a tax-exempt body (an organisation that is wholly or partially exempt from tax)?

Where this is the case, a separate category of fringe benefit arises (referred to as a “tax-exempt body entertainment fringe benefit”). It is only non-deductible entertainment that falls within this category of benefit (eg, a meal at a party). Refer to TR 97/17 for further guidance.

A tax-exempt body is an entity which is either:

wholly exempt from income tax (eg, a club that earns income from members only), or
partially exempt from income tax (eg, a club that earns income from both members and non-members).

Calculation of taxable value

Equal to the expenditure incurred in the provision of the entertainment.

Reduction in taxable value

Did the employee contribute towards the provision of the benefit?

Reduce the taxable value by the amount of the employee’s contribution.

Exemption

Is the minor benefits exemption under s58P FBT Act applicable?

PROPERTY FRINGE BENEFITS

Does a property fringe benefit arise?

Was any property provided in respect of an employee’s employment?

Property includes both tangible and intangible property e.g. goods, shares and real property.

Exemption

Is the minor benefits exemption under s58P FBT Act applicable?

Is an exemption available for a work-related item which is used primarily in the employee’s employment?

i.e. a portable electronic device (including mobile phones, laptops and tablet pcs), briefcase, tool of trade or an item of computer software, or protective clothing.

Is an exemption available for the provision of:

membership fees and subscriptions to:
- a trade or professional journal,
- use of a corporate credit card, or
- an airport lounge membership
newspapers and periodicals to employees for business purposes, or
expenses relating to emergency assistance such as:
- first aid or other emergency health care
- emergency meals, food supplies, clothing, accommodation, transport or use of household goods
- temporary repairs, and
- any similar matter?

RESIDUAL FRINGE BENEFITS

Does a residual fringe benefit arise?

Has a fringe benefit been provided by an employer to an employee which does not fall within any other specific fringe benefit category in the FBT Act?

Exemption

Is the minor benefits exemption under s58P FBT Act applicable?

Is an exemption available for a work-related item which is used primarily in the employee’s employment?

i.e. a portable electronic device (including mobile phones, laptops, tablet, PC), briefcase, tool of trade or an item of computer software, or protective clothing.

Employers who are eligible small businesses (ie, aggregated annual turnover of less than $50 million) can provide multiple work-related portable electronic devices.

FBT REBATE

Are you a rebatable employer?

Certain non-government, non-profit organisations are eligible for the FBT rebate. These include:

certain religious, educational, charitable, scientific or public educational institutions
trade unions and employer associations
organisations established to encourage music, art, literature, science, a game, a sport or animal races
organisations established for community service purposes
organisations established to promote the development of aviation or tourism
organisations established to promote the development of information and communications technology resources, and
organisations established to promote the development of agricultural (etc.), fishing, manufacturing or industrial resources.

Endorsement for FBT rebatable status is required from the ATO for charities.

Reduce FBT liability by a rebate equal to 47% of the gross liability subject to a capping threshold. The capping threshold is $30,000 per employee per FBT year.

The full capping threshold applies for the FBT year even if the employee was not employed by the organisation for the full year.

Federal Budget 2025-26

Wed, 26 Mar 2025 04:30:24 GMT

On 25 March 2025, the Federal Government delivered its fourth Budget, focusing on five key priorities, including cost-of-living relief, housing, and education.

From a tax and superannuation perspective, there weren’t any surprises, although the Treasurer did pull a rabbit out of the hat by announcing a small (very small) tax cut for individuals. Not many commentators had been expecting that.

Below you will find the key tax, superannuation and cost of living highlights together with measures already announced but not yet implemented to help you understand the changes that will impact you.

Please feel free to contact this office if you have any queries about them or how they may impact you in your circumstances.

Income tax measures

Personal tax cuts

It wouldn’t be an election Budget without at least a modest tax cut, and in his Budget Speech the Treasurer unveiled a small tax cut that will benefit all taxpayers, although they will have to wait more than two years to enjoy the full benefits.

As from 1 July 2026 the government proposes to shave 1% off the lowest tax bracket ($18,200 to $45,000), from 16% to 15%. Then, from 1 July 2027, another 1% comes off by taking the rate down to 14%. All this cutting will leave a taxpayer earning at least $45,000 better off by $268 in 2026-27 and $536 in 2027-28.

Economic times are tough, with the Budget sliding back into long-term deficits, so we suppose taxpayers should be grateful for whatever extra money comes their way, even $10 a week when it all finally comes through. With nominal wages on the rise, however, bracket creep will more than replenish the government’s coffers over time.

Of course, Labor needs to be re-elected before any of this comes to pass, although the Coalition may come along with tax cuts of their own. Bring it on.

Medicare Levy low income thresholds increased

The Medicare levy low‑income thresholds for singles, families, and seniors and pensioners are to be increased as from 1 July 2024. This is another form of a tax cut, and not one people have to wait two years for, so the proposed increases should be welcomed.

Higher education loan repayment changes

The government will reduce all outstanding Higher Education Loan Program (HELP) and other student debts by 20%, before indexation is applied on 1 June 2025. The proposed cut will remove a total of $16 billion in student debt.

In addition, the minimum repayment threshold is to increase substantially, moving from $54,435 in 2024-25 to $67,000 in 2025-26.

Both these changes had been previously announced late in 2024, but the Budget announcement shows the government remains committed to implementing them.

The missing Instant Asset Write-Off legislation

With the year end fast approaching, there are concerns that last year’s Budget announcement extending the $20,000 threshold for the small business Instant Asset Write-off to 30 June 2025 remains unenacted. As things stand, the threshold reverts back down to $1,000 for the 2024-25 financial year unless the law is changed to give effect to last year’s announcement. And there are unlikely to be any law changes this side of the election. We also note there has been no announcement for the 2025-26 financial year.

Readers may recall there were similar delays last year in relation to the 30 June 2024 extension, with amending legislation being passed at the eleventh hour.

Our preference would be to make the threshold a permanent feature of the law and to increase the threshold to at least $30,000.

Superannuation measures

Super Guarantee payable on payday from 1 July 2026

From 1 July 2026, employers will have to pay super at the same time as wages instead of every three months. This means if you’re paid weekly or fortnightly, your super will be too.

What this means:

Better tracking of super payments – you'll be able to see your super being paid in real time, making it easier to spot any missing contributions.
More money for retirement – getting super more frequently means it can start earning interest sooner, which adds up over time. According to the Treasurer, a 25-year-old earning a median income could have around $6,000 extra at retirement.
Cashflow impact for businesses – employers will need to adjust their cashflow planning to accommodate more frequent super payments.

This change is designed to protect workers and boost retirement savings, making super payments more reliable and transparent.

Extra tax for super earnings for account balances above $3 million

The 15% additional tax on superannuation “earnings” for individuals with account balances above $3 million from 1 July 2025 appears to remain government policy. This will be on top of the existing 15% tax on superannuation earnings. The Budget papers confirm that the government isn’t backing down on this policy, making it a likely election issue.

What this means:

This extra tax has some major flaws, including:

Taxing unrealised gains – meaning you could be taxed on profits you haven’t actually received.
A fixed $3 million cap – as super balances grow over time, more people will be affected.
Cashflow risks for SMSFs – especially for those holding property, farms, or land, where selling assets just to pay tax could be a real issue.

With the federal election approaching, time is running out for the Senate to debate this tax. If it doesn’t pass before the election is called, it will automatically disappear – a huge win after two years of industry pushback.

Cost of living measures

The government has announced a range of measures to help with everyday costs, including energy bill rebates, bulk billing incentives, and cheaper medicines.

Energy bill relief

Good news for households and small businesses – the government is extending energy bill rebates for another six months until 31 December 2025.

The changes include:

Eligible households will receive $150 in total ($75 per quarter) from 1 July 2025.
Small businesses that meet their state’s definition of a ‘small electricity customer’ will also receive $150 in total.
The discount will be automatically applied to your electricity bill by your energy provider.

Expanding bulk billing incentives

From 1 November 2025, bulk billing incentives will be expanded to all Medicare-eligible Australians – not just children under 16 and concession card holders.

A new Bulk Billing Practice Incentive Program will also reward general practitioners (GP) who bulk bill all Medicare consultations, making it easier to find doctors who bulk bill. The goal? Nine out of ten GP visits bulk billed by 2030.

Cheaper medicines

The Government is lowering the maximum cost of medicines on the Pharmaceutical Benefits Scheme (PBS) for everyone with a Medicare card and no concession card.

From 1 January 2026, the maximum co‑payment will be lowered from:

$31.60 to $25.00 per script for general Medicare cardholders
For concession card holders, the co-payment will stay frozen at $7.70

These measures aim to ease financial pressure and improve access to essential services for Australians.

Beware of Bitcoin gains!

Sat, 22 Mar 2025 02:36:29 GMT

If you own Bitcoin, or any other crypto currency, you may have been the beneficiary of Donald Trump’s election as President last November – which saw Bitcoin prices jump by almost 50% almost immediately after the election (and certainly in the following weeks).

And if you decided to take advantage of this and realise your gain by selling your Bitcoin you may have a capital gains tax (CGT) problem, and a nasty one at that (albeit, it is only a tax problem – it is not a “no-profit” problem!).

So, if you have made a capital gain, you should consider a few things.

Firstly , the Tax Office’s data matching capabilities regarding the buying and selling of Bitcoin are very extensive (and very good) – so, any idea of just not declaring your gain would bring with it big risks.

Secondly , like anything to do with tax, keep good records of your dealings with Bitcoin: it is both a legal requirement and will help you manage your tax affairs.

Thirdly , if you also have capital losses from your dealings in Bitcoin (or any other CGT assets) in either this income year or previous ones, you can use those losses to reduce any assessable capital gains from Bitcoin – and this will result in less tax being payable.

And the same rules applies to using any current or prior-year “revenue” or trading losses you have from any other activities. They too can be used to reduce your capital gains from Bitcoin.

Fourthly, and importantly, like most capital gains from other assets, you are entitled to use the 50% discount to reduce the amount of assessable capital gain – provided you have owned the Bitcoin for more than 12 months.

Finally, don’t forget that if you become a foreign resident for tax purposes you will be deemed to have sold your Bitcoin for its market value at the time you left the country – or the CGT rules will subject you to Australian CGT if you sell it while you are overseas. (And don’t forget about the ATO’s extensive data matching capability in this regard!)

However, all this assumes you aren’t in the business of trading in Bitcoin. If this were the case you would generally be taxed on your profits as ordinary business or other income – without the benefit of the accompanying concessions.

The other thing to be wary of is that the ATO has specific guidelines about how it treats Bitcoin and these can be difficult to apply to a particular situation.

So, if you have a “Bitcoin problem”, come and speak to us about it – and we will help you get things right (and maybe even find a legitimate way to reduce the ultimate tax payable on it).

Salary Sacrifice vs Personal Deductible Contributions

Mon, 17 Mar 2025 02:10:24 GMT

Salary Sacrifice vs Personal Deductible Contributions: And the winner is…

Super is a great way to save for retirement. It offers an opportunity to invest in long-term growth assets and enjoy generous tax concessions along the way. For those wanting to make extra contributions and reduce their personal tax bill, there are two options:

Salary sacrifice, and
Personal deductible contributions (PDCs)

Both have their benefits, and choosing the right method depends on your cash flow, flexibility needs and personal preference. Let’s break them down.

What are salary sacrifice and personal deductible contributions?

Salary sacrifice – Your employer deducts a portion of your pre-tax salary and contributes it to your super fund.
Personal deductible contributions (PDCs) – You make voluntary contributions from after-tax money and later claim a tax deduction when you lodge your tax return.

Benefits of salary sacrifice

Timing – Salary sacrifice contributions reduce your taxable income immediately, meaning your employer will withhold less tax and you will immediately enjoy the tax saving. PDCs provide a tax deduction when you lodge your tax return meaning you do not get the tax benefit until later.
Discipline – Salary sacrifice is automatic and helps maintain savings discipline.
Simplicity – salary sacrifice can be much simpler and less administrative. PDCs require you to submit paperwork to the super fund known as a ‘notice of intent’ form. This paperwork must be submitted within strict timeframes. With salary sacrifice you do not need to worry about such paperwork.

When salary sacrifice is a winner

Salary sacrifice is a winner for employees who:

Prefer a “set-and-forget” approach to growing their super.
Have regular income and want a simple way to contribute.
Want to ensure their contributions are made gradually over the year to benefit from ‘dollar cost averaging’. This reduces the risk of ‘going all in’ at the peak of the market.

Benefits of personal deductible super contributions

Availability – Salary sacrifice is only available to employees. If you are not employed, you can’t salary sacrifice. Instead, you might able to make a PDC to super.
Flexibility – PDCs offer greater flexibility, allowing you to contribute lump sums at any time during the financial year.
Reversibility – After making the contribution and submitting paperwork to claim the deduction you might change your mind. Perhaps you have insufficient income to justify claiming a deduction and would prefer that contribution not be subject to the 15% ‘contributions tax’. It may be possible to ‘reverse’ the contributions tax and not claim the deduction, but unless you have retired or met a condition of release the contribution will remain ‘stuck’ in super.

When personal deductible contributions are a winner

PDCs are a winner for people who:

Want greater control over when and how much they contribute.
Have variable income or expect a large one-off payment (e.g., bonus, inheritance, asset sale).
Are self-employed or receive income from multiple sources.
Want to contribute additional amounts closer to the end of the financial year to maximise their tax deduction.

Enjoy the best of both worlds: Combining salary sacrifice and PDCs

Many people use both strategies to maximise their super contributions efficiently. For example:

Setting up salary sacrifice to contribute steadily throughout the year.
Making a PDC at the end of the financial year if additional concessional contribution (CC) cap space is available.
Adjusting contributions based on unexpected income or bonuses.

Conclusion

Salary sacrifice and PDCs each have their advantages, and the right choice depends on your employment, cash flow and personal preference. By speaking to your adviser as to how each method works, you can make informed decisions to optimise your retirement savings while reducing your tax bill.

Downsizer Super Contributions: Dispelling three myths

Tue, 04 Mar 2025 03:52:27 GMT

Most people know that if you inherit a person’s home and you sell it within two years of their death, it can be exempt from capital gains tax (CGT).

However, there is another way you can get a full CGT exemption on an inherited home – and that is if a “relevant” person occupies it as their home from the time of the deceased’s death until its later sale (or other transfer or disposal, etc).

And these “eligible” persons are the deceased’s surviving spouse of the deceased, a person who is given a right to occupy it under the deceased’s will (eg, a niece or nephew or a friend) or a beneficiary who inherits the home (or an interest in it).

However, there are lots of things to bear in mind when using this rule – some good and some not so good. These include the following:

It is not necessary to occupy the home immediately from the deceased’s death – as soon as “practicable” will do (which will depend on the circumstances) – albeit in the case of a surviving spouse, presumably this would be no problem.

The requirement can be met if more than one of these relevant persons occupy the property as their home successively (eg, a surviving spouse, followed by a beneficiary who inherited the home).

The exemption applies on an “interest by interest basis” – which means that if more than one beneficiary inherits the home, then only the beneficiary who occupies the home gets an exemption – and only in respect of their interest (except in rare cases). But this problem can be readily overcome in a number of ways.

Where a person or persons are given a right to occupy the home under the will, they must be named or specified under the will; a general power given to the executor to grant such a right will not suffice – well at least that is the position the ATO takes.

For a surviving spouse to qualify for the exemption, they cannot be “living permanently and separately apart from the deceased”. They must, in effect, be living with the deceased at the time of their death.

Finally, it may be even possible to use another CGT concession – namely, the “building concession” - to preserve the CGT exempt status of the home where renovations are undertaken or intended to be undertaken on the home’s acquisition.

And this may mean it may not have to occupied by a relevant person (or sold within two years of the deceased’s death) to get the CGT exemption.

However, if this concession can be used in this case, it comes with one big drawback – no other home can be taken to be your CGT main residence for the period that this building concession is used.

As always, come and seek our advice if you inherit a home and wish to occupy the home – or even beforehand for some appropriate planning.

Inheriting a home – and then living in it

gemma@dickfosdunn.com.au (Brad Dickfos) — Thu, 20 Feb 2025 02:45:36 GMT

Most people know that if you inherit a person’s home and you sell it within two years of their death, it can be exempt from capital gains tax (CGT).

However, there are lots of things to bear in mind when using this rule – some good and some not so good. These include the following:

It is not necessary to occupy the home immediately from the deceased’s death – as soon as “practicable” will do (which will depend on the circumstances) – albeit in the case of a surviving spouse, presumably this would be no problem.

The requirement can be met if more than one of these relevant persons occupy the property as their home successively (eg, a surviving spouse, followed by a beneficiary who inherited the home).

The exemption applies on an “interest by interest basis” – which means that if more than one beneficiary inherits the home, then only the beneficiary who occupies the home gets an exemption – and only in respect of their interest (except in rare cases). But this problem can be readily overcome in a number of ways.

Where a person or persons are given a right to occupy the home under the will, they must be named or specified under the will; a general power given to the executor to grant such a right will not suffice – well at least that is the position the ATO takes.

For a surviving spouse to qualify for the exemption, they cannot be “living permanently and separately apart from the deceased”. They must, in effect, be living with the deceased at the time of their death.

And this may mean it may not have to occupied by a relevant person (or sold within two years of the deceased’s death) to get the CGT exemption.

However, if this concession can be used in this case, it comes with one big drawback – no other home can be taken to be your CGT main residence for the period that this building concession is used.

As always, come and seek our advice if you inherit a home and wish to occupy the home – or even beforehand for some appropriate planning.

Super and hardship: A safety net in financial difficulty

Wed, 05 Feb 2025 04:27:58 GMT

Superannuation is often seen as untouchable savings for retirement, but did you know it can also be a lifeline during financial difficulty? While super is designed for retirement, there are rules to allow it to provide financial support in several situations. Let’s explore these rules and how super might offer relief in times of crisis.

Accessing super on compassionate grounds

If you're dealing with specific expenses that you simply can’t afford, you may be able to access your super on “compassionate grounds”. This option allows you to withdraw a lump sum to cover certain expenses, which may include:

Eligible medical treatment or associated transport costs
Modifications to your home or vehicle to accommodate a disability
Palliative care for yourself or a dependent with a terminal illness
Funeral expenses for a dependent
Preventing the foreclosure or forced sale of your home

There is no set limit on how much super you can access under compassionate grounds, except when it comes to mortgage relief which is restricted to the sum of 3 months repayments and 12 months of interest on the outstanding balance of the loan. Mortgage relief only applies to principal homes and not investment properties.

To apply, you’ll need to submit your application to the Australian Taxation Office (ATO). This can be done online through myGov or by requesting a paper form from the ATO. This process also applies to individuals with a self-managed super fund (SMSF). SMSF trustees also require the ATO’s approval before accessing their super early under compassionate grounds. Once approved, you’ll need to provide the approval letter to your super fund to facilitate the release of funds. Keep in mind that tax may apply to your withdrawal.

Severe financial hardship

If you do not qualify for an eligible expense under “compassionate grounds” but are struggling financially and receiving a Centrelink income support payment, you may qualify to access your super under severe financial hardship. The rules for this depend on your age:

If you’re under 60 and 39 weeks: You can make one withdrawal of up to $10,000 in a 12-month period if:

You’ve been receiving an income support payment (like JobSeeker Payment) for at least 26 continuous weeks, and
You can’t meet immediate and reasonable family living expenses, such as mortgage repayments.

If you’re older than 60 and 39 weeks: There are no limits on the amount you can withdraw if:

You’ve received an income support payment for at least 39 weeks since reaching 60 years of age, and
You’re not currently employed.

For those in this category, you may be able to access your full super balance.

To apply for early super release due to severe financial hardship, you’ll need to contact your super fund directly, as they are responsible for assessing your claim. The same rules apply to individuals with an SMSF, where trustees are legally required to evaluate member applications using the same severe financial hardship eligibility criteria.

Final thoughts

It can be reassuring to know that your super isn’t entirely locked away if you find yourself in financial difficulty. Whether it’s to cover urgent medical expenses, prevent losing your home, or simply make ends meet, these provisions can provide much-needed relief. Of course, accessing your super early means you’ll have less saved for retirement, so it’s important to weigh up your options carefully. Also keep in mind, tax may apply on your withdrawal.

If you are thinking of accessing your super due to financial difficulty, consider reaching out to your adviser who can help you navigate the process.

Interest deductibility and investment properties

Wed, 29 Jan 2025 03:51:01 GMT

With interest rates remaining stubbornly high, and some property investors bailing out altogether, others are taking steps to refinance their debt in order to secure a lower rate and obtain better terms.

Before deciding to go down the refinancing route there are broader financial issues to weigh up and you may need to seek separate financial advice that takes into account your personal and financial circumstances. This article only examines the tax consequences of refinancing your investment property loan and some other issues around interest deductibility.

Basic rule for interest deductibility

The basic rule is that where you borrow money to acquire an income producing asset, the interest is deductible against your assessable income generally, including income from salary and wages. It’s about following the money and being able to demonstrate that a loan was used for income producing purposes. Any security given over a loan does not determine the deductibility of the interest.

Maximising tax deductible debt

There is nothing improper or untoward about maximising your tax deductible debt. We live in an after tax world and it’s perfectly legitimate to factor tax into your financial decision making.

Lower rate on refinancing

Where the refinancing involves no more than obtaining a reduced rate or better terms, there has been no additional borrowing and the interest on the new loan remains deductible in full, assuming the property is let or available to let.

Releasing equity

Where the refinancing releases equity in the investment property, interest deductibility depends on how the additional loan funds are applied. If they are used to maintain or renovate the investment property (or to buy other income producing assets), all the interest payable on the increased loan balance will be deductible.

However, where all or part of the equity released is applied for private purposes (like renovating the house you live in, to pay for a holiday or to buy a car), the interest would need to be apportioned between the amount originally used to acquire the investment property (deductible) and the amount used for private purposes (non-deductible).

Refinancing costs

Refinancing costs for the investment property such as exit fees, valuation fees, break costs and legal fees are deductible over five years or the term of the new loan if that is shorter.

Change in use

What if there is a change in use of the investment property? You might decide to move into the property yourself or to make it available to a family member free of charge. As soon as the investment property stops being used to generate rental income, the interest associated with the loan taken out to acquire the property stops being deductible.

By the same token, if you move out of your main residence to go and live somewhere else and you put tenants in, any interest on the mortgage over the property will become deductible.

Debt in the wrong place

Sometimes, through circumstances beyond your control, you can end up having debt in the wrong place. For example, you may have a mortgage over the house you live in and inherit the house of a relative which is unencumbered by debt. If you decide to keep the inherited property and put tenants in, you will have non-deductible home mortgage interest as well as an investment property that is debt-free.

While you could borrow using the inherited property as security and use the funds to pay off your home mortgage, that would not get you a tax deduction, as the borrowed funds would have been used to pay off private debt. Remember, it’s the use to which the funds are put that determine tax deductibility – not the nature of the security provided. The only way to make the interest tax deductible in this situation would be through a change in use. For example, you may decide to move into the inherited property and let out your main residence.

Forced sale

Real estate values can go down as well as up, and sometimes life’s events (rising interest rates, unemployment, illness, divorce) can leave the property owner with no other option but to sell the property, sometimes with part of the borrowing remaining unpaid. Any interest on the outstanding balance would generally be tax deductible, although the ATO would expect the investor to make a reasonable effort to pay down the remaining debt rather than acquire more assets.

Before deciding how to refinance an investment loan or taking any other steps that could impact on the tax deductibility of interest, come in and have a chat with us. We may be able to help you protect the interest deductibility you are legitimately entitled to.

How does your super compare with others your age?

gemma@dickfosdunn.com.au (Brad Dickfos) — Mon, 20 Jan 2025 02:24:02 GMT

Have you ever wondered how your super balance compares to others in your age group? Or maybe you’re curious about how much you should have saved by now to ensure a comfortable retirement? It’s not always easy to figure out if your super is on track, but understanding how it stacks up can help you make smarter decisions now that will benefit you later. This article looks into the average super balances for people of different ages and explores how much you may need in retirement.

Average balances of Australians

The Australian Taxation Office (ATO) has released data showing average super balances for different age groups. The data gives a helpful overview of where Australians are at in terms of their retirement savings. Here’s how the averages break down:

Age

Averages ($)

Men

Women

Under 18

7,666

5,088

18-24

8,069

7,297

25-29

25,407

23,273

30-34

53,154

44,053

35-39

90,822

71,686

40-44

131,792

102,227

45-49

180,958

136,667

50-54

237,084

176,824

55-59

301,922

228,259

60-64

380,737

300,717

65-69

428,533

379,483

70-74

474,898

422,348

75 or more

487,525

416,279

Source: ATO Statistics 2021–22: Median super balance, by age and sex, 2021–22 financial year

You might be looking at your super balance right now, feeling either satisfied or a little worried about how it measures up to these averages. Remember, averages don’t tell the whole story. Your balance can be impacted by various factors like career breaks, part-time work, salary levels, or investment decisions. If you’ve made additional contributions or opted for higher-growth investment options, your balance may be above average. If it’s not quite where you’d like it to be, don’t worry – there’s still plenty of opportunity to take steps and get back on track.

How much super do you need in retirement?

Understanding what you’ll need in retirement can help you gauge whether your super balance is on track. The Association of Superannuation Funds of Australia (ASFA) provides clear benchmarks to define what a “comfortable” or “modest” retirement might look like.

A modest retirement covers basic living expenses, with most of the income coming from the age pension. On the other hand, a comfortable retirement allows for a higher standard of living, including private health insurance, a reliable car, household upgrades, and leisure activities like holidays.

Here’s what ASFA estimates you’ll need if you retire at 65, own your home outright, and are in good health:

Comfortable retirement

Modest retirement

Singles

About $595,000 in super for an annual income of $52,085

At least $100,000 in super, combined with the Age Pension, could provide an income of $33,134 for singles or $47,731 for couples

Couples

Around $690,000 in super to generate a combined annual income of $73,337

Source: ASFA retirement standard budget for retirees aged 65 to 84 (June quarter 2024)

Knowing these benchmarks can help you assess your progress and plan for the future you want.

Are you on track?

Now that you know what the average super balance look like, and you have a better idea of how much you may need, it’s time to check where your super stands. If your balance is lower than the targets set by ASFA, don’t panic – it’s never too late to take action. You can still take steps to boost your super and make it work harder for your retirement.

Consider making extra contributions, whether through salary sacrificing or personal after-tax payments. Reviewing your investment strategy to ensure it aligns with your goals and risk tolerance is also important. If you’re unsure about what changes to make, it could be helpful to speak to a financial adviser who can offer tailored advice for your situation.

Super is an essential part of your retirement planning, and understanding where you stand can help you make smarter choices today. Whether you’re feeling confident about your balance or realising there’s more work to be done, it’s always worth taking the time to review and plan ahead. The sooner you act, the more time your super will have to grow – putting you in a better position to enjoy your golden years.

That small farm dream... and tax deductions

Mon, 13 Jan 2025 02:02:40 GMT

Christmas is a time for giving, but it’s also a great time to give your future self the gift of financial security. Here are 12 simple superannuation tips to help you make the most of your super fund – wrapped up with a touch of festive cheer!

1. Consolidate your superannuation

If you’ve worked multiple jobs, you might have multiple super accounts. Consolidating them into one fund can save you money on fees, similar to decorating one Christmas tree instead of several. The good news is that consolidating is easy through ATO online services or your myGov account where you can also search for lost or unclaimed super. Before consolidating, consider potential impacts like the loss of insurance coverage, fees, investment options, and tax implications to ensure the transfer aligns with your needs and adds value.

2. Review your investment strategy

Your super is an investment for your future, so make sure it aligns with your goals and risk tolerance. Think of it like choosing the perfect star for your Christmas tree – get it right, and it will shine brightly for years. For self-managed super funds (SMSFs), it’s a legal requirement to have a documented investment strategy aligned with your objectives, which must be reviewed regularly. Now is a great time to ensure your strategy supports your retirement goals.

3. Check your insurance coverage

Many super funds offer default insurance, including life, total and permanent disablement (TPD), and income protection coverage. It’s essential to review your cover to ensure it provides adequate protection for you and your family. If you manage an SMSF, you’re also required to consider and document the insurance needs of each member as part of the investment strategy. Seek professional advice to ensure your current cover is sufficient for death, disability or illness.

4. Check your fund’s performance

Not all super funds are created equal, and performance can vary significantly. Regularly check your fund’s performance compared to others to ensure it’s performing. If your fund’s performance is underwhelming, consider revisiting your investment strategy or switching to another fund that better aligns with your retirement goals.

5. Nominate your beneficiaries

Super isn’t automatically part of your estate, so it’s important to nominate valid beneficiaries to ensure your funds go to the right people. Without a valid nomination, your super fund may decide who receives the benefits, regardless of your Will. Regularly review your beneficiary nominations, especially when circumstances change, to ensure they are up to date and reflect your preference.

6. Make extra contributions

Even small additional contributions can make a big difference to your super balance at retirement thanks to compounding returns. It’s like adding an extra treat to a Christmas stocking – small now, but a delightful surprise in the future. In addition to the 11.5% employer super guarantee contributions for 2024/25, adding extra contributions through salary sacrificing or personal after-tax payments can boost your retirement savings. Just be mindful of contribution caps to avoid extra tax. Small sacrifices now can lead to substantial benefits later.

7. Salary sacrifice

Salary sacrificing is an efficient way to boost your retirement savings and reduce your tax. By redirecting part of your pre-tax salary into your super fund, you can benefit from lower tax rates, allowing more money to work for you in the long term. It’s an easy way to start saving for the future without feeling the pinch today, and over time, compounding returns will help your super grow.

8. Claim your government co-contribution

If you earn below a $60,400 a year and make a voluntary contribution to your super, the government may top up your super with a part co-contribution. The maximum co-contribution is $500. To receive this maximum amount your income must be below $45,400 and you must contribute at least $1,000 as a personal after-tax contribution into super. This is a great way to boost your super savings and is a government bonus, much like finding an unexpected gift under the tree. To be eligible there are several other rules, so check if you qualify and take advantage of this opportunity to grow your retirement savings.

9. Explore spouse contributions

If your spouse earns less than $40,000 pa, you can contribute to their super fund and potentially claim a tax offset of up to $540. This is a great way to help boost their retirement savings and potentially reduce your taxable income in the process.

10. Plan for transition to retirement

If you’re nearing retirement, a transition-to-retirement (TTR) strategy could help you make the most of your savings and ease into retirement more comfortably. This strategy allows you to draw down some of your super while still working part-time, supplementing your income without fully retiring. It’s a way to boost your savings and ensure a smooth transition to retirement, making your golden years as stress-free as possible.

11. Review fees

Super funds charge various fees for managing your money, and these can add up over time, reducing your returns. It’s important to review the fees associated with your super to ensure you’re not overpaying. Much like trimming unnecessary expenses from your Christmas shopping list, minimising fees helps your super balance grow. Check if you’re getting good value for the services provided and whether switching to a more cost-effective option could be beneficial.

12. Seek professional advice

If you’re unsure about any aspect of your super, seeking advice from a financial adviser can be a great step. A financial adviser can provide tailored advice, helping you navigate decisions about your super, investments, and retirement planning. Think of them as your financial Santa’s helpers, ensuring your super journey stays on track and guiding you toward the best financial decisions for your future. It’s always worth consulting an expert to maximise the benefits of your super and financial planning.

The last word ...

By ticking off these 12 tips, you’ll be giving yourself the ultimate Christmas present: a brighter and more secure future. Merry Christmas and happy super planning!

Unwrap your future: 12 super tips for a merry and bright retirement

Mon, 16 Dec 2024 05:04:32 GMT

1. Consolidate your superannuation

2. Review your investment strategy

3. Check your insurance coverage

4. Check your fund’s performance

5. Nominate your beneficiaries

6. Make extra contributions

7. Salary sacrifice

8. Claim your government co-contribution

9. Explore spouse contributions

10. Plan for transition to retirement

11. Review fees

12. Seek professional advice

The last word ...

By ticking off these 12 tips, you’ll be giving yourself the ultimate Christmas present: a brighter and more secure future. Merry Christmas and happy super planning!

Christmas and Tax

Mon, 16 Dec 2024 04:56:41 GMT

With the festive season just around the corner (or already under way), many business owners will be gearing up for year-end celebrations with both employees and clients.

Knowing the rules around FBT, GST credits and what is or isn’t tax deductible can help avoid unwelcome surprises on the tax front.

Holiday celebrations generally take the form of Christmas parties and/or gift giving.

Parties

Where a party is held on business premises during a working day, is attended by current employees only and comes in at less than $300 a head (GST-inclusive), FBT does not apply, the cost of the function is not tax deductible and GST credits cannot be claimed.

Where the function is held off business premises, say at a restaurant, or is also attended by the employees’ partners, FBT applies where the GST-inclusive cost per head is $300 or more, but not where the cost is below the $300 threshold, as it would be regarded as a minor or infrequent benefit. Where FBT applies, it applies to the entire cost of the event, not just to the excess over $300, while the cost of holding the function is tax deductible and GST credits can be claimed.

Where clients also attend, FBT will not apply to the cost applicable to them (not being employees), but those costs will not be tax deductible and GST credits will not be available.

Gifts

Where the recipient of an entertainment gift is an employee, and the GST-inclusive cost is below $300, the minor or infrequent exemption may apply so that FBT is not payable, in which case the cost will not be tax deductible and GST credits are not claimable. For larger entertainment gifts to employees, however, FBT applies, the cost is deductible and GST credits can be claimed.

Where the gift is not in the nature of entertainment and it falls below $300, the FBT minor or infrequent exemption may apply – for example, Christmas hampers, bottles of alcohol, pen sets, gift vouchers. But because the entertainment rules do not apply, the cost of the gift is tax deductible and GST credits are claimable.

Where a gift is made to a client, the $300 FBT minor benefit exemption falls by the wayside, as long as it is not an entertainment gift and the gift was made in the reasonable expectation of creating goodwill and boosting future sales. Such gifts are uncapped (within reason) and are tax deductible to the business. GST credits are also claimable.

Best approach for employees

Provided it’s not a regular thing, taking employees out for Christmas lunch or dinner escapes FBT, as long as the cost per head stays below the $300 threshold. While the cost of the function will still be non-deductible, that has much less of a cash-flow impact on the business than the grossed-up FBT amounts.

Combined with a non-extravagant off-site Christmas party, making a non-entertainment gift costing up to $299 is a very tax-effective way of showing your appreciation. Gift cards are always well-received and even where they can be used to make a wide variety of purchases (including theatre tickets and the like), they will not be regarded as an entertainment gift, which means the cost is tax deductible and GST credits can be claimed.

Best approach for clients

While FBT is off the table for business clients, making a non-entertainment gift (tax deductible; no dollar limit) is actually much more tax-effective than wining and dining a key client (non-deductible entertainment). If you put some thought into what gift to buy a client and in some cases deliver it yourself, you may make much more of an impact than joining them in one of many restaurant meals in their already crowded Christmas calendar.

If you need help on the tax treatment of holiday celebrations and gifting, please give us a call.

Liability for Super Guarantee payments

Mon, 09 Dec 2024 00:33:31 GMT

Starting 1 July 2025, new parents will receive superannuation payments on top of their paid parental leave (PPL).

The change

Eligible parents with babies born or adopted from 1 July 2025 will get an extra 12% of their government-funded PPL as a superannuation contribution to their nominated superannuation fund.

The lump sum superannuation payment will be paid annually by the ATO after the end of each financial year. The contribution will also include an additional interest component to account for the delay.

Eligible parents can continue to apply for PPL through Services Australia who are responsible for assessing eligibility for the payment and superannuation contribution.

Who is eligible?

Currently, parents can get up to 22 weeks of government-funded PPL at the minimum wage, which will increase to 24 weeks from 1 July 2025 and to 26 weeks by 1 July 2026.

To be eligible, parents must meet the following requirements:

Have a newborn or have recently adopted a child
Have met an income test
Won’t be working during their PPL period, except for allowable reasons
Have met the work test
Have met the residency rules
Have registered or applied to register their child’s birth with their state or territory birth registry if they’re a newborn.

For further information regarding the government-funded PPL scheme see the Services Australia website.

What about employer-funded PPL?

PPL falls into two categories: government-funded PPL, or employer-funded PPL. If eligible, employees could receive both types.

Although it is not compulsory for employers to do so, many choose to support their employees with PPL. Generally, employers will set out a minimum service period that employees need to meet before they are eligible for employer-funded PPL, and the amount they receive (usually measured in weeks) varies from employer to employer. Employers will have their own policies when it comes to parental leave and the available benefits will depend on the employee’s agreement/contract. So while some employers offer PPL and pay superannuation on top of that, the new laws ensure parents using government-funded PPL will be able to have the same benefit.

Impact on families

As super isn’t currently paid on government-funded PPL, this change will enable employees to receive super contributions for the period they are on PPL. This change helps close the gap in superannuation savings, especially for women, by ensuring parents receive superannuation while on parental leave, improving financial security in retirement.

Super on parental leave pay is now law

Thu, 05 Dec 2024 00:10:09 GMT

Starting 1 July 2025, new parents will receive superannuation payments on top of their paid parental leave (PPL).

The change

Eligible parents with babies born or adopted from 1 July 2025 will get an extra 12% of their government-funded PPL as a superannuation contribution to their nominated superannuation fund.

Eligible parents can continue to apply for PPL through Services Australia who are responsible for assessing eligibility for the payment and superannuation contribution.

Who is eligible?

Currently, parents can get up to 22 weeks of government-funded PPL at the minimum wage, which will increase to 24 weeks from 1 July 2025 and to 26 weeks by 1 July 2026.

To be eligible, parents must meet the following requirements:

Have a newborn or have recently adopted a child
Have met an income test
Won’t be working during their PPL period, except for allowable reasons
Have met the work test
Have met the residency rules
Have registered or applied to register their child’s birth with their state or territory birth registry if they’re a newborn.

For further information regarding the government-funded PPL scheme see the Services Australia website.

What about employer-funded PPL?

PPL falls into two categories: government-funded PPL, or employer-funded PPL. If eligible, employees could receive both types.

Impact on families

What tax receipts do I need to keep?

Mon, 25 Nov 2024 04:19:10 GMT

Work-related expenses

But that isn’t quite right, as the tax rules in fact enable you to make legitimate claims for work-related expenses for up to $300 in a financial year without having receipts, provided:

· you have spent the money;

· the expense is directly related to earning your income;

· you haven’t been reimbursed by your employer;

· it is not of a private or capital nature; and

· you have a record of the expense (other than a receipt).

Work-related expenses can include, among other things, tools and small items of equipment, office supplies, union or professional association fees, uniforms and protective clothing and associated cleaning costs, newspapers and periodicals and many more.

The cost of laundering work uniforms and protective clothing can be included without having receipts for an amount of up to $150. These costs form part of the $300 deductible limit without needing receipts. However, where total work-related expenses exceed $300, it is not necessary to have receipts in relation to costs for laundering work uniforms for these expenses if they do not exceed $150. The ATO will accept a rate of $1 per load where the laundry is done at home, or half that amount when accompanied by private items. Dry cleaning costs are not included in the receipt-free $150. Minor items costing up to $10 can be claimed without a receipt, up to $200 per financial year, and are also included in the $300 limit. But again, where total work-related expenses exceed $300, it is not necessary to have receipts for these costs.

The record of the expense can be in the form of a diary that records how much you have spent, what you spent it on, how you paid for it and how it relates to earning your income. You will need to retain those records for five years.

Of course, there is nothing wrong with keeping all your receipts as you go along, just in case you unexpectedly overshoot the $300 limit later in the financial year. Where that happens, you will need receipts and invoices to substantiate your entire work-related expense claim – not just for the excess over $300.

Car expenses

Instead of keeping receipts and invoices for the actual running costs of the employment-related use of your own car, you can elect to claim on a cents per kilometre basis for up to 5,000 business kilometres. The rate you can claim is 88 cents per kilometre for the 2024-25 financial year (the maximum claim is $4,400).

The claimable use of a private car covers situations where, for example:

· you visit a client’s premises after arriving at your usual place of work;

· you’re working at another location that is not your usual place of work; or

· you drive to a work-related conference.

The cost of driving between home and work is generally regarded as a private expense.

You won’t need any receipts to claim on a cents per kilometre basis, but you do have to be using your own car and you will need to maintain a logbook or a diary that records your employment-related car use. Where two taxpayers use the same car for their respective work-related purposes they can each claim for up to 5,000 kilometres.

It also needs to be a requirement of the employer that you provide your own transport for work-related purposes. There was a recent AAT case where the applicant’s cents per kilometre claim failed spectacularly when it emerged in evidence that the employer provided a company car for traveling between different work sites.

Note this is not a standard deduction anyone can just claim. The ATO has previously made noises about how it has noticed there are many claims right on the cusp of the 5,000 kilometre limit and has been actively challenging some claims.

Working from home

With many employees still working from home in the wake of the COVID-19 pandemic, at least on a part-time basis, the ATO has developed an administrative method for claiming associated expenses. Working from home for the purpose of making a claim has to involve something substantive – minimal tasks such as occasionally checking emails or answering phone calls while at home are not regarded as enough.

While the option is always there to make a claim using the actual cost method (which would require receipts), taxpayers can also opt for the fixed rate method, which has been set at 67 cents per hour since 2023. The 67 cents per hour rate covers:

· energy costs;

· internet expenses;

· mobile and landline expenses; and

· stationery and computer consumables.

Depreciation on office furniture, computers and printers is available on top of the fixed rate deduction, as are repairs to those items. Since those claims fall outside the fixed rate method they will need to be supported by receipts or invoices.

A crucial requirement to qualify for the fixed rate method is to keep a diary or a timesheet of the hours worked from home during the financial year. This record needs to be maintained throughout the year – making an estimate at tax time will not be sufficient.

While you won’t need comprehensive receipts for the various items covered by the fixed rate method, the ATO will expect you to retain a sample copy of an invoice, bill or bank statement verifying you have incurred each of the expenses covered by the fixed rate method. All the information has to be retained for five years.

The Commissioner doesn’t like work-related expenses much, but Australian taxpayers love them which is why governments have been wary of getting rid of them.

While there are a number of specific exceptions to the need to have receipts to substantiate particular claims, all these “concessions” come with conditions attached, mainly to ensure that the expenses were actually incurred in earning assessable income. It’s important to be aware of all the legal and administrative requirements so that your work-related expense claim can survive an ATO audit.

What we know so far about payday super

Tue, 05 Nov 2024 05:27:13 GMT

The government has shared more details about its proposed new “payday super” plan, which will start on 1 July 2026.

What is payday super?

Starting in July 2026, employers must pay superannuation guarantee (SG) contributions to their employees at the same time they pay their salary and wages – weekly, fortnightly, or monthly. Currently, employers are legally required to pay their employees’ SG contributions on a quarterly basis.

What this means for employers

All employers, no matter the size, will have to make SG contributions when they pay their workers. This might affect cash flow, especially for small businesses, and could create an extra administrative burden if they don’t have the right systems in place (such as payroll software, etc).

What this means for employees

The goal of payday super is to make SG contributions more transparent and help boost retirement savings. For example, according to the Government, a 25-year-old earning the median income and receiving superannuation could have about $6,000 extra by retirement because of the proposed changes.

Further details announced

The government recently released further policy design details on the payday super measure.

Here’s what we know so far regarding the proposed payday super model:

Super must reach employees’ funds within 7 days of being paid, except for new employees or small, irregular payments.

For new employees, the timeframe will be 14 days after they commenced employment, and
SG contributions in relation to small and irregular payments can be made within seven days of the next regular ordinary time earnings (OTE) payment.

Super is still calculated based on an employee’s OTE which includes regular salary and wages but excludes overtime.

If employers don’t pay on time, they will continue to face penalties.

Small businesses will need to find alternative payroll software solutions to pay their employees’ super as the ATO’s small business clearing house will close from 1 July 2026.

Where to from here?

The government is still finalising its payday super plan and aims to introduce legislation soon. As always, we’ll keep you updated on this measure as more information comes to hand.

Buying a new home before selling the old one

Wed, 30 Oct 2024 02:42:09 GMT

There are many different issues to be considered, and matters to be juggled, when buying a new home (eg, financing, storage of furniture, etc – and timing, of course).

But a common issue is whether you should sell your existing home first and then buy – or buy first. (Most “experts” say you should sell first.)

But if you are caught in that situation (or choose to be in that situation) where you buy a new home first there is an important tax rule to consider.

And this centres on the capital gains tax (CGT) rule that you can’t have two CGT-free homes going for the same period or at the same time.

And where you buy a new home before selling the old home you technically have two CGT-exempt homes running at the same time – for which, in principle, you cannot get a full CGT exemption when you later sell one or the other.

However, there is an important CGT concession that can help you in this case – and it is the “changing main residence concession”.

This broadly grants you a six month period in which both homes will be entitled to the full CGT exemption for your home.

In particular, it allows you to claim a full CGT exemption on your original home provided you sell it within six months of buying the new home – even if you have lived in the new home as your main residence for much of that six month period.

In other words, it allows you a six month overlap period to treat both homes as your CGT-exempt main residence.

However, the practical application of the rules can be complex. For example:

What happens if you exceed the six month period? Which home retains the full CGT exemption? And how do you calculate the partial exemption on the other home?
What if you rent the original home during that six month period? Do you lose the benefit of the concession in this case?
And, crucially, does the ATO have a discretion to extend the six month period in extenuating circumstances? (And the answer to this is “no”!)

You may think that this is one of those tax rules that the ATO does not pay a lot of attention to – and you may be right. Nevertheless, it is still the law of the land.

Can you sell your SMSF assets to a related party?

Wed, 30 Oct 2024 02:37:06 GMT

Selling a property that may have been used for mixed rental and residence purposes has a lot of capital gain tax (CGT) issues – and some of these also involve exercising good judgment as to how to best use the relevant CGT concessions.

By way of example, if you retain your original home and rent it after you have purchased your new home, you will have to make a decision about whether you want to retain a full CGT exemption on the original home (or maximise it, at least) or whether you want the full exemption to apply to the new home.

(But there are also ways that you can, in effect, have your cake and eat it too!)

On the other hand, where you rent a property first and then afterwards live in it, then various concessions that may help reduce your CGT liability may not be available.

Further, there are important CGT rules and concessions that apply to a home that has been used for such mixed use where the owner dies and then it is later sold by beneficiaries. These can be complex, but if applied with good planning can have (very) good outcomes.

And then, of course, there is the issue of how you actually calculate any partial capital gain (or loss) in respect of a property that has been used for both rental and as a residence in circumstances where it is not possible to get a full exemption on it.

And these calculation issues can involve determining whether you can use a market value cost at any time in the process and how you can account for any non-deductible mortgage interest (and other non-deductible costs).

There is also the issue of whether you need to write-off any amounts for which you have claimed a deduction (such as building write-off deductions). In this regard, there is also the issue of whether you have actually claimed write-off amounts and therefore whether you need to write the amounts back in in any way (and the result may surprise you).

And crucially, there is also the issue of whether any partial capital gain can qualify for the very generous 50% CGT discount. (And in this regard, interestingly the tax concession that costs the government the most in foregone revenue in most financial years is the CGT discount applying to a partial exemption on a home!)

Of course, there are a lot of planning issues surrounding a property that you purchase with mixed intentions of both wanting to live in it and rent it.

For example, if you live in it first on a genuine (bona-fide) basis then you can access a concession that allows you to retain its full CGT exemption for up to six years.

Furthermore, if you rent it for more than six years and have to calculate a partial CGT exemption you can usually get the benefit of a market value cost at the time you first rent it to calculate this partial gain.

As can be seen, there are an array of CGT issues surrounding the selling of a property used for mixed rental and residence use – including the need to determine how to best use (and choose) various concessions to minimise any potential CGT liability.

So, if you are in this position – or even thinking of buying a property that may be used for this mixed purpose – come and have a chat to us.

Selling a property with mixed rental and residential use

Mon, 21 Oct 2024 01:26:40 GMT

(But there are also ways that you can, in effect, have your cake and eat it too!)

On the other hand, where you rent a property first and then afterwards live in it, then various concessions that may help reduce your CGT liability may not be available.

Of course, there are a lot of planning issues surrounding a property that you purchase with mixed intentions of both wanting to live in it and rent it.

For example, if you live in it first on a genuine (bona-fide) basis then you can access a concession that allows you to retain its full CGT exemption for up to six years.

So, if you are in this position – or even thinking of buying a property that may be used for this mixed purpose – come and have a chat to us.

What is the right business structure?

Wed, 09 Oct 2024 04:15:27 GMT

Making contributions later in life

Superannuation laws have been simplified over recent years to allow older Australians more flexibility to top up their superannuation. Below is a summary of what you need to know when it comes to making superannuation contributions.

Adding to super

The two main types of contributions that can be made to superannuation are called concessional contributions and non-concessional contributions.

Concessional contributions are before-tax contributions and are generally taxed at 15% within your fund. This is the most common type of contribution individuals receive as it includes superannuation guarantee payments your employer makes into your fund on your behalf. Other types of concessional contributions include salary sacrifice contributions and tax-deductible personal contributions. The government sets limits on how much money you can add to your superannuation each year. Currently, the annual concessional contribution cap is $30,000 in 2024/25.

Non-concessional contributions are voluntary contributions you can make from your after-tax dollars. For example, you may wish to make extra contributions using funds from your bank account or other savings. As such, non-concessional contributions are an after-tax contribution because you have already paid tax on these funds. Currently, the annual non-concessional contribution cap is $120,000 in 2024/25.

Super contribution options for people under 75

If you’re under 75, you can make and receive various types of contributions to your superannuation, such as:

Compulsory superannuation guarantee contributions
Salary sacrifice contributions
Personal non-concessional (after-tax) contributions
Contributions from your spouse
Downsizer contributions from selling your home
Personal tax-deductible contributions

Work test rule relaxed

After age 67, you’ll need to meet the “work test” or qualify for a “work-test exemption” to make personal tax-deductible contributions. To satisfy the work test, you must work at least 40 hours during a consecutive 30-day period each financial year. Prior to 1 July 2022, the work test applied to most contributions made by individuals aged between 67 to 75, but now it only needs to be met for personal tax-deductible contributions. The good news is that you don’t need to meet the work test for other types of contributions, so being retired won’t stop you from contributing to superannuation.

If you don’t meet the work test condition, you can use the “work test exemption” on a one-off basis if your total superannuation balance on the previous 30 June was less than $300,000 and you satisfied the work test requirements last financial year. Meeting this requirement will allow you to also make personal tax-deductible contributions to superannuation.

Super contribution options for people over 75

Once you turn 75, most superannuation contributions are no longer allowed. The only exceptions are compulsory superannuation guarantee contributions from your employer (if you’re still working) and downsizer contributions from selling your home.

If you’re about to turn 75 or have just passed that milestone, you still have one final chance to make or receive other contributions. Superannuation funds can accept contributions for up to 28 days after the month you turn 75. For example, if you turn age 75 in October, the contribution must be received by your superannuation fund by 28 November.

Final word

Changes to the contribution rules now allow more flexibility for people in their 60s and 70s to add to their superannuation. So whether you are still working or retired, you can continue to make superannuation contributions to benefit you in retirement and beyond.

Making contributions later in life

Fri, 04 Oct 2024 04:49:24 GMT

Making contributions later in life

Adding to super

The two main types of contributions that can be made to superannuation are called concessional contributions and non-concessional contributions.

Super contribution options for people under 75

If you’re under 75, you can make and receive various types of contributions to your superannuation, such as:

Compulsory superannuation guarantee contributions
Salary sacrifice contributions
Personal non-concessional (after-tax) contributions
Contributions from your spouse
Downsizer contributions from selling your home
Personal tax-deductible contributions

Work test rule relaxed

Super contribution options for people over 75

Final word

Separation and divorce: CGT consequences .... and relief

Thu, 19 Sep 2024 05:34:54 GMT

With apparently at least one in three marriages ending in divorce – and with countless more defacto relationships breaking down – the capital gains tax (CGT) roll-over provisions for “marriage and relationship breakdowns” has assumed increasing relevance.

These rules provide for the “roll-over” of any capital gain on the transfer of assets between the separating parties so that there is not any immediate CGT liability in the circumstances.

However, they (like all CGT concessions) are subject to important conditions to be met and special rules that apply to certain categories of assets.

The first and foremost of these conditions is that the transfer of the asset must take place in accordance with one of the specific ways set out in the provisions – and these are essentially by way of a relevant court order or a defined financial or maintenance agreement.

And here’s the first big planning opportunity: if one of the parties wants to realise a capital loss on an asset that they propose to transfer to the other spouse, then don’t transfer it under any of the ways specified in the CGT rollover provisions – do it by way of a private agreement with the other party.

The second key rule is that the roll-over does not apply unless the asset is transferred to the other spouse. It cannot be transferred to the other spouse’s discretionary trust or private company. It cannot even be transferred to the estate of the other spouse if that spouse dies during the separation proceedings.

The only possible exception to this rule is if the asset is transferred to a “child maintenance trust” – and even then strict conditions would apply.

In addition, not all assets can get roll-over under these rules. For example, trading stock is excluded and would be subject to the normal rules that apply to the disposal of trading stock outside the ordinary course of business.

Of course, if the rollover applies it does not mean CGT is avoided; it just means that it is deferred until the spouse to whom the asset is transferred later sells the asset or it is subject to a CGT event in their hands.

However, in this case they would generally acquire the other party’s “cost base” for the purposes of calculating any capital gain or loss. And they would also generally be entitled to the CGT 50% discount if it was held for the required time.

Nevertheless, there is an important and tricky rule that applies where the asset that is transferred is a dwelling (eg, a rental property) which is used for another purpose in the hands of the other spouse (eg, their home).

In this case, the spouse who acquires the asset will be liable for CGT for the gain that accrued while it was a rental property – even though it became their home from the time they acquired it from the other spouse until they later sold it.

Suffice to say, this type of scenario requires some careful negotiations between the parties before such a transaction is undertaken to make sure everything is “fair” for all the parties.

There are also special rules that apply when, say, an asset that is held by a family company or trust is transferred out of that company or trust to the other party as part of a settlement agreement.

Again, these rules can be complex and require good advice to ensure that all the issues are managed effectively.

So, all in all, if you are facing any spousal separation issues come and speak to us first about the ins-and-outs of the rules that apply on any transfer of assets.

And perhaps some of the impact of divorce or separation can be alleviated by making sure that the CGT rollover is used most effectively – because like death, divorce affords certain tax planning opportunities.

Who is a spouse under the tax laws, and why does it matter?

Mon, 09 Sep 2024 05:05:43 GMT

If you run a small business through a company and you decide to sell it, you have the choice of either selling the business assets themselves (together with any goodwill) or selling your shares in the company.

Usually, such decisions are made on the basis of relevant commercial considerations (eg due diligence and future liability issues).

However, if you are seeking to access the CGT small business concessions on any sale - then you should also consider whether it is better to sell the business assets per se or the shares in the company.

While in principle, there should be no difference in terms of the CGT outcome in selling either, it may well be easier to access the concessions by adopting one approach over the other.

For example, if you sell the business assets at the company level you will need to find one or more controllers of the company (ie broadly someone with a 20% or more interest in it at the relevant time) in order to be able to access the concessions.

And, depending on the circumstances, this can be both easier and harder than it looks.

Furthermore, in case of the “retirement exemption”, it is necessary to actually pay any exempted capital gain to this controller in order to be able to use the concession (or to put it into their superannuation if they are under 55 at the relevant time).

On the other hand, if you can use the “15 year exemption”, it is enough that such a person exists - without the need to pay the exempted gain to them.

Most importantly however, if you choose to sell the shares in the company, the company itself must have certain attributes – the most important of which is that 80% or more of its assets (by market value) must be assets used in carrying on a business.

This, in turn, raises the thorny issue of how money in the bank is to be treated – and there is often a fine line between whether it is considered to be used in carrying on a business or not.

Furthermore, if the company has “controlling interests” in any other entity, then the assets of any such entity has to be also taken into account in determining if this test is met.

And, of course, as with the application of the CGT small business concessions in any circumstances, the “taxpayer’’ must satisfy either the $2m turnover test or the $6m maximum net asset value (MNAV) test.

And where shares or units are sold, the “taxpayer’’ is the individual who owns the shares and where the business assets are sold the “taxpayer” is the company or trust itself.

In either case, the tests can be difficult to apply because the “taxpayer’’ includes affiliates and connected entitled (ie related parties).

And by way of example, if you sell the business assets of a company and you use the $6m MNAV test, then any person who has a 40% or more shareholding in the company will be a connected entity and their assets (other than personal ones such as super and their home) will also have to be taken into account. Importantly, this can include investment properties and shares.

And then there is the difficult task of determining what liabilities relate to those assets for the purposes of this test – especially where the business assets are sold.

Suffice to say, the issues surrounding the question of whether you should sell the business assets of a company or the shares in them when seeking to apply the CGT small business concessions are complex.

Furthermore, the same issues arise in respect of deciding whether to sell the units in a unit trust that operates a small business or the assets of the business itself.

In any of these scenarios we are here to help – as this is a matter which clearly requires the expertise of a tax professional.

Selling a small business operated through a company: Sell the shares or sell the assets?

Tue, 03 Sep 2024 02:59:18 GMT

A person who is not a resident of Australia for tax purposes is nevertheless liable for capital gains tax (CGT) on certain assets located in Australia. And these assets are assets which have a “fundamental” connection with Australia – and are broadly as follows:

real property (ie, land) located in Australia – including leases over such land;
certain interests in Australian “land rich” companies or unit trusts;
business assets used in carrying on a business in Australia through a “permanent establishment”; and
options or rights over such property.

This means that such assets will be subject to CGT in Australia regardless of the owner’s tax residency status.

Importantly, in relation to real property, this also includes a home that the foreign resident may have owned in Australia. And this home will not be entitled to the CGT exemption for a home if the owner is a foreign resident when they sell or otherwise dispose of it.

Furthermore, a purchaser of property from a foreign resident will be subject to a “withholding tax” requirement, whereby they have to remit a certain percentage of the purchase price to the ATO as an “advance payment” in respect of the foreign resident’s CGT liability. However, this requirement is subject to certain thresholds and variations.

Importantly, a foreign resident will generally not be entitled to the 50% CGT discount on any capital gain that is liable to CGT in Australia – subject to an adjustment for any periods when they owned the asset when they were a resident of Australia.

In relation to a foreign resident’s liability for CGT on certain interests in Australian “land rich” companies or unit trusts, this rule broadly requires the foreign resident to:

own at least 10% of the interest in the company or trust at the time of selling the interest (or at any time in the prior two years); and
at the time of sale, more than 50% of the assets of the company or trust (by market value) are attributable to land in Australia.

This means that interest owned by foreign residents in private companies and unit trusts can potentially be caught by these rules.

Moreover, the application of these rules can be very difficult, particularly as a foreign resident can be caught by them at certain times and not others.

It is also worth noting that if someone ceases to be an Australia resident and becomes a foreign resident for tax purposes, then they will generally be deemed to have sold such interests at that time and be liable for CGT on them. However, this is subject to the right to opt out of this deemed sale rule – but this “opt-out” has other important CGT consequences.

On the other hand, the rule that applies to make a deceased person liable for CGT in their final tax return for assets that are bequeathed to a foreign resident beneficiary does not apply to certain assets – and these assets are any of the above assets with a “fundamental” connection with Australia.

And this may be further complicated by the fact that, for example, at the time of making the will, the beneficiary may not have been a foreign resident.

The application of Australia’s CGT rules to foreign residents can be very complex – especially given the “variable” nature of some of the rules. Therefore, it is vital to speak to us if you have a “foreign residency” issue.

CGT & foreign residents: Complex rules apply!

Tue, 20 Aug 2024 03:12:58 GMT

real property (ie, land) located in Australia – including leases over such land;
certain interests in Australian “land rich” companies or unit trusts;
business assets used in carrying on a business in Australia through a “permanent establishment”; and
options or rights over such property.

This means that such assets will be subject to CGT in Australia regardless of the owner’s tax residency status.

In relation to a foreign resident’s liability for CGT on certain interests in Australian “land rich” companies or unit trusts, this rule broadly requires the foreign resident to:

own at least 10% of the interest in the company or trust at the time of selling the interest (or at any time in the prior two years); and
at the time of sale, more than 50% of the assets of the company or trust (by market value) are attributable to land in Australia.

This means that interest owned by foreign residents in private companies and unit trusts can potentially be caught by these rules.

Moreover, the application of these rules can be very difficult, particularly as a foreign resident can be caught by them at certain times and not others.

And this may be further complicated by the fact that, for example, at the time of making the will, the beneficiary may not have been a foreign resident.

Changes to preservation age

Wed, 14 Aug 2024 01:02:52 GMT

Since 1 July 2024, the age at which individuals can access their superannuation increased to age 60. So what does this mean for those planning on accessing their superannuation upon reaching this age?

What is preservation age?

Access to superannuation benefits is generally restricted to members who have reached ‘preservation age’ which is the minimum age at which you can access your superannuation benefits.

Prior to 1 July 2024, a person's preservation age could range from 55 to 60 as it depends on their date of birth. Preservation age has been slowly increasing over the years and has finally reached its legislated maximum age limit of age 60, as shown in the table above.

This means anyone born on or after 1 July 1964 will have a preservation age of 60.

Tip – it’s important to note that preservation age is not the same as your Age Pension age. To get the Age Pension, you must be age 67 or over, depending on when you were born (and other rules you need to meet). So even if you reach preservation age, it could be some time before you are eligible to receive the Age Pension from Services Australia (ie, Centrelink).

What does this change mean for me?

Once you have reached preservation age, you may receive your superannuation benefits as:

A lump sum or as an income stream once you have retired (or a combination of both), or
A transition to retirement income stream while you continue to work.

Furthermore, once you turn age 60 your superannuation benefits (ie, any lump sum withdrawals and/or pension payments) will generally be tax-free.

This change simplifies the tax rules as previously those between preservation age and age 60 were subject to tax on lump sum withdrawals and pension payments. Now, the tax treatment of superannuation benefits depends on whether you are above or below age 60 – there is no need to consider preservation age which is based on a person’s date of birth.

Need more information?

If you’re wondering what your superannuation withdrawal options are or how tax may apply to your superannuation benefits, transition to retirement or superannuation income streams, contact us today for a chat.

The importance of “Tax Residency”

Fri, 09 Aug 2024 06:49:01 GMT

A common question that is often asked is whether amounts can be added to a superannuation pension account once it has commenced.

The short answer

Unfortunately, the answer is no. Although your pension account can continue to increase due to investment earnings, such as interest and dividends, any further capital cannot be added to the current pension account. As such, once a pension (usually an “account-based pension”) has commenced, you cannot add any more contributions or money to that same pension account.

To recap, an account-based pension is a regular income stream bought with money from your superannuation when you retire. It is the most common type of superannuation pension as they offer regular, flexible and tax-effective income from your superannuation benefits.

The benefit of commencing an account-based pension is that investment earnings are tax free and once you turn 60, your pension payments will also be tax free. However the main trade-off for these tax concessions is that you have to withdraw a fixed amount of your pension balance each year based on your age.

The alternative solution

If you want to make additional contributions or consolidate an existing superannuation benefit with an account-based pension that you have already commenced, you will need to close your existing pension account and commence a new pension account.

Once you stop your pension, you can then add to it by making further contributions or combine it with any other existing superannuation benefits you may have in accumulation (ie, non-pension) phase. Once all amounts have been consolidated, you can then commence a new, larger account-based pension.

Alternatively, you can start another pension account with any new contributions that may come from your existing savings or from your existing account-based pension income that you haven’t spent. Taking this approach will ensure that no changes occur to your existing pension account.

Be aware of the transfer balance cap

As the name suggests, the transfer balance cap (TBC) limits the total amount of superannuation that can be transferred into a pension where there is no tax on investment earnings. The current TBC limit is $1.9 million as of 1 July 2024.

However, if you started your pension before 1 July 2023, your personal TBC will be somewhere between $1.6 to 1.9 million, depending on your circumstances. So if you are thinking about transferring more money into a pension account, note that this amount will towards your personal TBC.

It’s also worth noting that if you want to hold more than $1.9 million in your pension account, you will need to keep the remainder in accumulation phase. Penalties apply for exceeding your TBC and you will also be required to withdraw the excess amount from your pension account to bring it back within your TBC limit.

Last word

If you are considering adding more money to your pension account, or want to learn more about how to make the most of your pension account, let us know and we can help guide you in the right direction.

Can I add to my super pension?

Tue, 30 Jul 2024 06:17:07 GMT

A common question that is often asked is whether amounts can be added to a superannuation pension account once it has commenced.

The short answer

The alternative solution

Be aware of the transfer balance cap

Last word

The CGT main residence exemption concessions are very useful

Wed, 24 Jul 2024 02:44:24 GMT

Probably the most overlooked reason for the housing affordability crisis in Australia at the moment is the capital gains tax (CGT) exemption for a person’s home itself.

But not this alone.

Rather, it is probably the exemption in conjunction with all the various concessions a person can use to access the exemption.

And these concessions can be extraordinarily useful depending on a person’s particular circumstances.

So, let’s run through a few of the main concessions:

The concession for changing houses . This applies if you buy a new home before you sell the old one. It allows you to treat both homes as your CGT-exempt home for a period of up to six months while you sell the old home. But there are important conditions that must be met in order to use it.

The concession for moving into a house. This allows you to treat your new home as your main residence for the entire period you own it even though you may not have moved into it straight away. However, it is subject to important limits and restrictions – and generally requires you to move in “as soon as it is practicable” to do so.

The absence concession. This is an extraordinarily useful concession that allows you to treat your home as your “CGT exempt main residence” even though you may not be living in it for a lengthy period. In the case that you rent it in your absence this period lasts for six years, and if your home is not rented it lasts indefinitely. However, it is likewise subject to important conditions before you can use it – including that the residence must have been your home on a bona-fide basis. (And the ATO does track such matters!)

The building or renovation concession. This allows you to treat vacant land as your CGT exempt home for a period of up to four years where you build a new home on it and move in as soon as it is completed and live in it as your home for a period of at least three months. This concession can also be used where you leave your existing home to do major renovations – or even in a knock-down, re-build situation.

Again, these and other concessions are extremely useful depending on your particular circumstances – and can actually be used to allow you to access a full (or at least partial) CGT main residence exemption in a way that was probably never originally envisaged.

And in the case of the absence concession, for example, it even allows you to negatively gear the property during the six-year period of absence that you rent it!

On the other hand, there are also some CGT rules that can expose your home to a partial CGT exemption in a number of circumstances.

For example, there is a rule that spouses (including de-facto spouses and same sex spouses) cannot each have a CGT exempt main residence on different residences for the same period that they are spouses. And this may apply in a variety of situations. However, it seems to be a rule that the ATO does not actively pursue – nevertheless it is there in the tax law.

Another rule that may limit your ability to claim a CGT exemption on your home is where you may subdivide some of it off and sell it or transfer it to another party (eg, typically on the subdivision and sale of part of a large backyard). And this rule may be highly relevant in the current housing market – especially given more flexible council regulations.

If you are considering buying or selling a home – or find yourself thinking that you may need to use any of these concessions – we can advise you on their applicability to your case and how you can use them most effectively.

A fine line between property development and “merely realising an asset”

gemma@dickfosdunn.com.au (Brad Dickfos) — Mon, 08 Jul 2024 22:00:00 GMT

There can often be a fine line between whether a person is carrying on property development activities or is “merely realising an asset”.

For example, it may not be clear whether the extent of a person’s development activity in respect of, say, subdividing his or her backyard and building one or more units of accommodation and selling them either amounts to property development or merely realizing an asset – and one that has been used mainly for domestic purposes.

And a person may be considered to be carrying on property development activities if they are not in the business of property development and it is a one-off activity.

Suffice to say, the tax consequences between property development and “merely realising an asset” are entirely different.

In the case of carrying out property development activity, the gains are assessable as ordinary income (or as business income) – and, importantly, without the benefit of the capital gains tax (CGT) 50% discount which would otherwise reduce the assessable amount.

However, relevant expenditure incurred is generally deductible as it is incurred, ie, in the income year that it is incurred. And this may be of great benefit to the developer.

On the other hand, if a person is “merely realising an asset” then any gain is only accounted for under the concessionally taxed CGT regime (and with the benefit of the 50% CGT discount, if generally the land has been owned for more than 12 months).

Furthermore, in this case, if the property in question was acquired before 20 September 1985 then there will be no consequences (either CGT or ordinary income). And there are still quite a few pre-CGT properties around that are ripe for realisation.

So, how does the Tax Office tell the difference between the two when it is not abundantly clear from the nature of the activity itself?

Well, several factors are particularly important (among the many that can be taken into account).

These include the intention with which the person originally acquired the land. To develop it and on-sell it for a profit? Or merely for some other non-profit purpose? For example, to live in it as their home (although this distinction is getting harder to tell in the current property market!).

Another key factor is the extent to which the person gets involved in the activity. As a broad principle, where a person is less involved in the activity and merely acts passively it is generally considered to be “merely realising an asset”. But this is not a hard and fast rule.

There are also import GST consequences depending on the nature of the activity and the property involved.

Finally, it should be stressed that just because the nature of the activity is a one-off transaction it does not mean that the person is immune from being taxed on the profits as ordinary or business income.

So, if you are contemplating carrying out any such activity, come and have a chat to us first so we can help you do things with the best possible tax outcomes.

Division 293 tax, will you be caught?

Wed, 03 Jul 2024 01:28:26 GMT

If you’re a high income earner, you may soon be asked to pay an extra 15% tax on the amount of concessional contributions that exceed the $250,000 threshold.

What is Division 293 tax?

Division 293 tax is an additional 15% tax that is payable when your income and concessional contributions exceed $250,000 in 2023/24.

To recap, concessional contributions are before-tax contributions and are generally taxed at 15% within your fund. This is the most common type of contribution individuals receive as it includes superannuation guarantee payments your employer makes into your fund on your behalf. Other types of concessional contributions include salary sacrifice contributions and tax-deductible personal contributions.

It’s worth noting that the extra 15% Division 293 tax is payable in addition to the standard 15% tax that is paid on concessional contributions.

How does Division 293 tax work?

You will be liable for Division 293 tax on either your concessional contributions, or the amount of income that is over the $250,000 threshold – whichever amount is lower.

Income for the purposes of Division 293 includes taxable income from a range of sources, such as:

· Employment and business income

· Reportable fringe benefits

· Investment income

· Net financial investment losses, such as negative gearing losses where deductions attributable to an investment property exceed rental income

· Income you may receive due to a one-off event, such as making a capital gain, receiving a work bonus, or a redundancy or termination payment.

Purpose of Division 293 tax

The purpose of this extra tax is reduce the tax benefits that high income earners receive from the superannuation system and to level the tax playing field for average income earners.

Even though high income earners may pay tax on their concessional contributions at 30%, this is still less than the top marginal tax rate of 47% (including Medicare levy) that generally applies to high income earners who are liable for Division 293 tax. As such, making and receiving concessional contributions are still tax effective.

Liability to pay Division 293 tax

The ATO will determine if you need to pay Division 293 tax based on information in your tax return and data they receive from your superannuation fund(s). As a result, there is usually a delay between when the contribution is made and when Division 293 tax is payable.

The ATO will issue you with a notice of assessment stating the amount of tax payable and provide an authority to enable your superannuation fund to release the money. You also have the choice to pay the tax personally. Note that the tax is due within 21 days of the assessment being issued to you, and certain timeframes also apply if you elect to pay the amount from your superannuation fund.

Need more information?

Don't lose your super to scammers

Sun, 23 Jun 2024 21:46:45 GMT

Don’t be another victim – be on the lookout for scammers who call you about your superannuation!

ASIC on the lookout

The number of cold callers is on the rise. The Australian Securities and Investments Commission (ASIC) are urging people to hang up on cold callers and scroll past social media click bait that may be offering to help you compare and switch superannuation funds.

How cold callers operate

In many cases, cold callers will convince you to buy a product or sign up to a service. This could relate to any financial investment, product or service, but there has been a focus on scammers approaching people about their superannuation.

A typical superannuation cold calling experience includes:

A call from someone you don't know to see if you 'qualify' for a free review of your superannuation.
Contact from a cold caller who convinces you your existing superannuation fund is not performing.
A statement of advice (SOA) prepared by a financial advice firm the cold caller has an existing arrangement with.
'Cookie cutter' advice that is expensive, often unnecessary, doesn't consider your individual needs, and may leave you in a worse position.

The cold caller may benefit by getting a cut of the financial advice fees, which are deducted from your superannuation balance. In the end, you could end up paying for advice that may not even be right for you.

What to do

If you receive a call from a number you don’t know, ignore it. Otherwise, if you are contacted by a cold caller and answer the call, just hang up. Similarly if you receive a SMS message from a number you don’t know, ignore it and do not click on any links.

If you have given personal information about your superannuation or banking details to a cold caller, contact your existing superannuation fund or bank immediately and ask them to not allow any withdrawals.

You can also block a cold caller’s number and limit the calls you receive by joining the Do Not Call register .

Avoid social media click bait

You may have also come across some posts on your social media feed which question whether your superannuation is performing or encouraging you to compare your superannuation fund. If so, take care as some businesses try to grab your attention on social media before they try to sell you their services.

Beware of other sophisticated scammers

There are also reports that many Australians have fallen victim to sophisticated scammers who use technologies that use your bank’s legitimate phone number and texts on the same thread as genuine messages. Often, people are losing their money through no fault of their own as scammers either hack or manipulate a bank or other institution’s systems which will often see victims inadvertently providing information, such as a passcode, to the scammer. Be vigilant and never provide personal information, passwords or pass codes to anyone over the phone.

Beware of scammers

As the saying goes, if it sounds too good to be true it probably is. Avoid pushy sales tactics such as cold calling or social media click bait that rushes your decision-making. If you're thinking about making changes to your superannuation, you can always start by doing your own research, contact your existing superannuation fund, and consider using a licenced financial adviser to obtain quality financial advice about your superannuation.

Personal services income explained

Fri, 21 Jun 2024 02:59:59 GMT

The personal services income (PSI) rules apply to income that is earned mainly from the personal efforts or skills of a person.

It does not matter whether the income is earned by the individual in their own name or through an entity such as a business. The rules do not apply to income earned from being an employee.

A business structure

This can be a confusing concept. It does not mean that you conduct a business through an entity such as a company or a trust.

The term “business structure” is used to define a business (operated through any structure) that is large enough for it to be concluded that the income of the business is not being earned from the individuals in the business. Rather, the income is being earned by the “business structure”. This can still apply to quite small businesses.

The tests

The results test

This is an important test. If you pass the test, the PSI rules do not apply to you. An individual passes the results test if in relation to at least 75% of the individual’s PSI:

it is for producing a result, and
the individual is required to supply the equipment or tools of trade needed to perform the work, and
the individual is liable for rectifying any defect in the work.

Unrelated clients test

This test is passed if:

the PSI is gained from providing services to two or more entities that are not associates, and
the work has been gained by making invitations to the public or a section of the public.

Employment test

Broadly, this test is passed if:

one or more entities (other than associates) are engaged to perform work, and
those entities perform at least 20% by market value of the principal work. The test is also passed if an apprentice is engaged for at least half the income year.

Business premises test

Broadly, this test is passed if business premises are maintained:

at which the PSI is mainly gained, and
of which there is exclusive use, and
that are physically separate from premises the individual or associate uses for private purposes, and
are physically separate from premises of customers or associates of customers.

Personal services determination

The ATO can give you a ruling that the PSI rules don’t apply to you in certain circumstances. For example, there could be “one-off” changes in your circumstances that cause you to fail the PSI tests. You can apply to the ATO to have the PSI rules ignored by the ATO. If the ATO rules in your favour, this is called a “personal services determination”.

How myGov can help you track your super

Wed, 19 Jun 2024 06:32:03 GMT

Keeping track of your superannuation balance is key as it impacts how much you can contribute to superannuation and whether you are entitled to other superannuation concessions and measures.

Introduction

Your total superannuation balance (TSB) is an important concept as it impacts your eligibility for up to six favourable superannuation-related measures, including the:

· Bring forward non-concessional contribution (NCC) cap

· Carry forward concessional contributions

· Superannuation spouse tax offset

· Government co-contribution, and more.

In a nutshell, your TSB includes:

· Your superannuation accumulation account balance(s)

· Your superannuation pension account(s), and

· The outstanding limited recourse borrowing arrangement amount in your SMSF that you entered into from 1 July 2018 (in certain circumstances).

Your TSB for the current year is measured on 30 June of the previous financial year (ie, 30 June 2023) when determining your eligibility to make or receive certain types of superannuation contributions.

How to check your TSB

There are two main ways you can track your TSB.

Firstly, you can either contact your superannuation fund or refer to your fund’s statements and records for your TSB. When reviewing your annual statement, the TSB figure your fund reports to the ATO is generally referred to as ‘exit value’ or ‘withdrawal benefit’. This may be different to the 30 June ‘closing balance’.

The second way to check your TSB is by logging into your myGov account which will show your TSB for the previous 30 June as well as other helpful information, such as your:

· Eligibility to use the NCC (after-tax contribution) bring forward arrangement

· Concessional contribution cap

· Unused carry forward concessional contribution cap amounts that have accrued since 1 July 2018

· Employer contributions, and more.

Checking this information can be beneficial before you make any further contributions prior to 30 June 2024 as it can help you avoid exceeding your contribution caps.

***see image above

The following steps should be taken to track your TSB (and other related superannuation information):

1. Log into your myGov account by visiting my.gov.au. If you don’t have a myGov account you can create an account. Alternatively, if you have a myGov account but have not linked the ATO service to it, you can also link it here too.

2. Select the super tab, then click on the information option and then click on ‘total superannuation balance’ (as shown in the image below). Here you will be able to see your current TSB as recorded by the ATO.

3. You will be able to see your current TSB for each superannuation interest you hold, including your prior year’s 30 June TSB under the ‘History’ button.

Tip – check the information provided

You should take care when checking your TSB and other amounts displayed in myGov, as depending on the type of superannuation fund you have, your 30 June balance and contribution details may not have been reported to the ATO yet.

For example, SMSFs are not required to report their superannuation information to the ATO as regularly as large APRA-regulated funds so your contributions and your account balance may not be up to date in myGov. This is because the ATO obtains information about SMSFs from the annual return each year. This means any SMSF members will need to check their SMSF records to track their TSB and contribution caps if this information is not up to date in their myGov account.

Need help?

Please contact us if you need more information on how to check your TSB or if you require further information about your superannuation account.

Rental Properties - traps and pitfalls

Wed, 19 Jun 2024 06:25:26 GMT

Following the ATO’s claims that nine out of ten residential rental property investors who have been audited have been getting their returns wrong, it might be worth touching on some of the tax traps and pitfalls to be wary of. In no particular order, these include:

Apportionment of rental income and deductions

Where a rental property is jointly owned by two or more people, the income and deductions are split according to the owners’ respective shares of the legal ownership of the property. Joint tenancy between spouses is the most common situation, meaning a 50:50 split. In those situations there is no legal basis for the spouse with the higher marginal tax rate claiming a disproportionate share of the deductions for mortgage interest, rates, land tax, insurances, repairs and maintenance in their own return – even where they fund the payments from their own bank account.

Private use

Interest and other outgoings are not deductible to the extent the property was used for private purposes – eg. while you or a relative or friend lived in it for no or nominal consideration.

Interest deductions

Where the acquisition of a rental property has been funded by way of debt, the associated interest costs will be deductible. However, where a loan (or part of a loan) that is secured over a rental property is used for private purposes, such as buying a car or renovating the house you live in, interest can only be claimed on a pro rata basis.

Care needs to be taken when refinancing debt to ensure the tax deductibility of interest attributable to the rental property is not jeopardised.

Repairs vs improvements

The cost of genuine repairs to fix something that is broken or worn down due to wear and tear that happened while the property was tenanted is immediately deductible. Work that involves replacing the entirety of an asset would be a capital improvement and is deductible at 2½ %.

For example, your rental property might have an original 1960s bathroom, with leaky pipes and tiles that are broken or coming away. Fixing the leaks and replacing the tiles (even with something a little more modern) would fall on the repairs side of the line and be deductible outright. On the other hand, gutting the whole bathroom and replacing all the fittings with something out of Home Beautiful would be a capital upgrade and deductible at 2½ % per annum.

Initial repairs

Any deductions for repairs to your rental property have to be attributable to the time you were earning rental income from the property. If you buy a property that requires initial repairs before you can put tenants in, the cost of those repairs will not be deductible. You should still keep track of the amount you’ve spent on initial repairs as it will trigger off a capital loss when you sell the property down the track.

Certain initial repair works may be unavoidable, but defer non-urgent work if possible. So if your newly acquired rental property is in need of a coat of paint, maybe wait two or three years before contacting a painter.

Travel costs

The cost of traveling to visit your rental property to attend to things is no longer deductible. This matters especially to investors who have bought property interstate. There is an exception where an investor is in the business of letting rental properties – but very few are.

Depreciation

Second-hand depreciating assets acquired as part of the rental property can’t be written off against rental income, again unless you are in the business of letting rental properties. But the unclaimed depreciation can trigger off a capital loss on the eventual sale of the property. It’s important to keep track of these amounts in the meantime.

Cash jobs

It’s not unheard of for the tradesperson offering the best quote for a repair or maintenance job on your rental property to ask for payment in cash. Before rushing in to accept such a quote, just make sure they’re not keeping the job completely off the books and that you’ll still be getting an invoice that satisfies the substantiation rules. Otherwise you could end up blowing your cost savings (and maybe more) because you won’t be entitled to a tax deduction for the cash you’ve handed over.

What your tradie does in relation to his tax affairs is a matter between them and the Commissioner, but it shouldn’t cost you a tax deduction. Always insist on getting an invoice.

Holiday homes

Own a holiday home? Great for family holidays, but if the property is also offered for short-term rentals there are a few wrinkles you need to be aware of.

The main one is that the property needs to be genuinely available for rent, and not just at times when demand is seasonally low. So if you book the place out for yourself or family and friends for all or most of the school holidays and other peak times, the ATO will take the view that you’re not seriously trying to make a profit from any rental income you receive and will limit your deductions for mortgage interest, rates and land taxes, repairs and maintenance, insurance etc to the amount of your rental income. Likewise if you only charge mates’ rates when family and friends come to stay.

Some holiday house owners have even pretended to market their property by demanding excessive rents or imposing unrealistic conditions for short-term stays (eg. references, no pets, no kids). That is not likely to pass muster either.

Some limited personal use of the property is acceptable to the ATO, as long as you’re genuinely trying to turn a profit. Where this is the case, the deductions claimed need to be pro-rated to reflect the time the property was let or was genuinely available for rent.

Any disallowed deductions won’t be wasted entirely as they will create a capital loss on the sale of the property.

Please contact us if any of these issues raise concerns for you.

Take care with contribution timing this financial year

Wed, 19 Jun 2024 06:07:54 GMT

Are you are planning to maximise your superannuation contribution caps this financial year? If so, it’s crucial to get the timing right so your contribution is received by your superannuation fund in the current financial year.

Lessons from a recent court case

A recent court case ^[1] has confirmed that contributions are made on the date they are received by a member’s superannuation fund, not when they are made. The member in this case had intended that his contributions be attributed in the year the payments were made (ie, in late June) rather than on the dates they were received (ie, in early July).

However the ATO and the Administrative Appeals Tribunal ruled that the contributions were made on the dates the funds were received by his superannuation fund, rather than the date of payment initiation. This meant that the member’s contributions were deemed to be made in the next financial year which placed the transactions into the next financial year with other contributions the member made that year, causing the member to exceed his contribution caps.

The ATO view on when a contribution is made

The timing of when a contribution is made is important for a number of reasons, particularly when this occurs close to 30 June. For example, the timing can impact when the contribution will count towards your contribution caps, whether your fund is able to accept your contribution(s) or whether a tax deduction may be claimed for your contribution(s).

The ATO’s Taxation Ruling ^[2] on superannuation contributions confirms that a contribution is made when the capital of the fund is increased. This occurs when an amount is received, or ownership of an asset is obtained, or a fund otherwise obtains the benefit of an amount.

For example, a contribution of money via an electronic transfer is made when the amount is credited to your superannuation fund’s bank account, not when you press the button to effect the payment.

The above table summarises some of the common ways in which funds are transferred and when the contribution is deemed to be made. Please note this list is not exhaustive.

Timing is key

This year 30 June falls on a Sunday (a non-business day), so leaving it to the last minute and making a contribution over the weekend may not provide enough time for your contribution to reach your superannuation fund as transfers typically happen on business days.

If you are a member of a large APRA-regulated superannuation fund, make sure you know when the cut-off day is as this is the date your fund will accept contributions so that they will be allocated in that same financial year. Otherwise, there is no guarantee that contributions received after this date will be allocated before the end of the financial year. In the end, a contribution received by your fund on 1 July 2024 is a contribution that will be treated as belonging to the 2024-25 financial year.

On the other hand, if you have an SMSF, electronic transfers between accounts with the same bank generally happen immediately which means contributions will be made instantaneously and therefore count towards your contribution caps this financial year. This can be helpful if you end up making contributions last minute. However, a transfer between different banks is likely to take longer to clear which could see your SMSF receiving the transfer of funds after it was initiated by you as the contributor.

Superannuation clearing house delays

You should also take extra care if your employer makes contributions to your fund by using a superannuation clearing house as there can be a time delay from when your employer’s payment is made to the clearing house and when your superannuation fund receives the contribution. This is because contributions made by employers to a clearing house generally do not constitute the receipt of a contribution by a superannuation fund as a contribution cannot be recorded by the superannuation fund until it is received. This could see last minute 2023-24 superannuation contributions by employers not reach their employee’s fund in time to be recorded as a contribution in 2023-24 and may end up being recorded in the 2024-25 financial year. This could cause you to exceed your concessional contribution cap if you are also planning on making a personal superannuation contribution and claiming the amount as a tax deduction.

Key takeaway

The bottom line is to allow plenty of time to make your superannuation contributions well before 30 June in order for your contribution to be received by your superannuation fund this financial year because in the end, a contribution is deemed to be made at the time it is received by your superannuation fund, not when you process the transaction.

[1] Mackie v Commissioner of Taxation [2024] AATA 619, 3 April 2024.

[2] Taxation Ruling TR 2010/1.

Selling your home? Beware of a partial Capital Gains Tax Liability

Wed, 19 Jun 2024 05:59:40 GMT

Selling your home? Beware of a partial Capital Gains Tax liability!

With the temptation for homeowners to cash in on spiralling house prices around Australia, it is important to turn your mind to whether you may only have a partial CGT main residence exemption available to you, and not a full CGT exemption (because of the way you have used your home).

And while it seems that the ATO doesn’t actively chase up partial CGT main residence exemptions that may have been overlooked by homeowners themselves, there may come a time when the revenue lost from this source may pique the ATO’s interest.

But from the homeowner’s point of view, they may not even realise that they have a possible partial CGT liability in respect of their home.

So, what are some common ways that such a partial CGT liability may arise?

Didn’t move in “as soon as practicable

Firstly, when you bought your house you may not have been able to move into as “soon as practicable” (as required by the CGT main residence rules). And while in some cases this can be ignored, such as because of serious illness, in other cases it won’t be.

For example, if you bought your home subject to an existing lease that still has to run its course then you will be subject to a partial exemption because of the failure of your home to be your main residence throughout the entire period you owned it.

Likewise, the same rule will apply if for example you can’t move into your new home as “soon as practicable” because of commitment to, say, an interstate job.

In these types of cases the partial exemption will apply on a pro-rata basis to reflect the period of time during which you owned the home that you did not live in initially as your home (or were not able to treat it as your home under a relevant concession).

And this pro-rata rate will be calculated by reference to the amount you bought your home for - and not any larger subsequent market value.

Absent from home and rented it

Another way that you can lose your full CGT exemption on your home is if you are absent from it for a period (such as if you rent it while you live or work overseas or interstate) and you cannot use (or fully use) the “absence concession” to continue to treat it as your home.

This may happen, for example, if you rent it for more than six years or if you use the full main residence exemption in respect of another home you own while you are absent from your current home.

In such a case, the pro-rata calculation will usually be calculated by reference to your home’s market value when you first rent it – and thereby result in a lesser partial CGT liability.

However, the interaction of the “absence concession” rules and any rental use of your home can be complex (especially if you own another home at the time).

It therefore definitely requires good professional advice (if only to use the absence concession rules to the maximum effect, depending on your exact circumstances).

A partial exemption will also apply if you use part of your home to carry on a business (eg, consulting rooms or a shed for repair and maintenance works).

Two homes of spouses at same time

Finally, something that is often forgotten is the rule that prevents spouses (including de-facto and same sex spouses) from each being able to claim a separate main residence exemption on different homes they own and live in during a period when they are considered to be “spouses”.

In this case, the couple will have to either nominate one of the homes as their CGT-free main residence for that period or, in effect, claim a half exemption on each home for that period.

This rule can apply in a variety of situations such as where two young people become de-facto partners but each retain their own home and either each continue to live in their own home – or they live together while retaining a prior home (which they continue to treat as their main residence).

Suffice to say the CGT rules in this area are quite complex in their own right – but even more complex depending on the circumstances to which they are applied (especially given the “choices” that can be made as to how to apply them in the particular circumstances).

Again, while this area may not be one that the ATO looks at closely (and probably for good reason), it is still one that you should at least always raise with your adviser.

Conclusion

So, all in all, if you are thinking of selling your home to cash in on spiralling house prices, it is important to get advice about whether you may have a partial CGT exemption floating around – because, if nothing else, maybe one day the taxman may look more closely at such issues.

Mortgage vs super – where should I put my extra cash?

Thu, 23 May 2024 05:21:24 GMT

Many of us wonder about the best vehicle to use for our extra savings. Is it better to direct extra savings to your mortgage or superannuation? As with most financial decisions, there is no one-size-fits-all approach as it depends on a number of factors for each individual.

Paying extra off the mortgage

The priority for most people is to pay extra off their mortgage. This is because extra repayments can reduce the amount of interest payable and will help you pay off your loan sooner, freeing you up from mortgage repayment commitments.

Furthermore, if your home loan has a redraw or offset facility, you can still access your money if your circumstances change. However paying extra off your mortgage involves using after-tax money which is less advantageous than using pre-tax income to invest into superannuation which will eventually be used to pay off your mortgage.

Paying extra into superannuation

Paying extra to superannuation will usually involve pre-tax money by making salary sacrifice contributions. An effective salary sacrifice agreement involves an employee agreeing in writing to forgo part of their future entitlement to salary or wages in return for the employer providing them with benefits of a similar value, such as increased employer superannuation contributions.

As salary sacrifice contributions are made with pre-tax dollars and do not form part of your assessable income, this means these contributions are not taxed at your marginal tax rate and will instead be taxed at a maximum of 15% when received by your superannuation fund.

It is also worth noting that making pre-tax contributions such as salary sacrifice contributions count towards the concessional contribution (CC) cap which is currently $27,500 pa in 2023/24 (or $30,000 in 2024/25). As your employer superannuation guarantee (SG) contributions also count towards this cap, you will need to determine how much room you have left within your cap before you start salary sacrificing to superannuation. As discussed in the ‘Six super strategies to consider before 30 June’ article in this Newsletter, there is the ability to make larger CCs by utilising the carry forward concessional contribution rules if you meet certain eligibility criteria.

In a nutshell, once the money is in superannuation it is invested and will grow. The power of compounding returns along with the concessional tax nature of superannuation means that even small contributions can boost your retirement savings in the future. When the time is right and you are ready to retire, you can either withdraw a tax-free lump sum to clear your remaining mortgage or commence a superannuation pension and draw tax-free pension payments to meet your mortgage repayments from the age of 60 onwards.

Example – pre vs post tax money

Bill earns $150,000 per year and has a savings capacity of around $1,000 - $1,500 per month. Bill can either:

Direct this amount to his mortgage, or
Salary sacrifice $1,587 into superannuation as this contribution occurs before tax (ie, the after tax cost of $1,000 is $1,587).

Bill decides to salary sacrifice to superannuation. Bill’s contribution is taxed at 15% when it is received by his fund so his end contribution is $1,349. For the same out-of-pocket cost to Bill, his superannuation fund receives an extra $349 each month.

This example shows the difference between Bill’s marginal tax rate (37%) and the tax rate on contributions (15%) constitutes the benefit of salary sacrifice contributions. As mentioned above, Bill will need to ensure he does not exceed his CC cap by making extra salary sacrifice contributions to superannuation.

Final thoughts

So which option is better? Well it depends. The answer boils down to a number of factors that need to be considered, such as your mortgage interest rate, your income and marginal tax rate, your superannuation investment strategy, and your age to retirement. If you need extra information or advice on what you should do, make sure you speak to a financial adviser before you make any financial decisions when it comes to your mortgage or superannuation.

Six super strategies to consider before 30 June

Thu, 23 May 2024 05:16:39 GMT

With the end of financial year fast approaching, now is a great time to boost your superannuation savings and potentially save on tax. Below are six superannuation strategies to consider before 30 June 2024.

Tip 1 – Use the carry forward concessional contribution rules

If you want to make up for lost time and make extra contributions to top up your superannuation, you may be able to use the carry forward concessional contribution (CC) rules (otherwise known as “catch-up concessional” rules) to make large CCs this year without exceeding your CC cap.

This strategy can allow you to carry forward any unused CC cap amounts that have accrued since 2018/19 for up to five financial years and use them to make CCs in excess of the general annual CC cap (currently $27,500 in 2023/24).

You can then make a CC using the unused carry forward amounts this financial year provided your total superannuation balance (TSB) at 30 June 2023 was below $500,000.

Tip 2 – Make a personal deductible contribution

Carry-forward contributions may also provide you with an opportunity to make higher amounts of personal deductible contributions in financial years where you may have a higher level of taxable income, for example, due to assessable capital gains.

But if you’re not eligible to use the carry forward rules to make a larger contribution, you can still boost your superannuation by making a personal deductible contribution up to the general CC cap.

It’s important to note that personal deductible contributions are only deductible if you meet all of the following conditions:

You make the contribution to a complying superannuation fund
You are at least age 18 when the contribution is made (unless you derived income from carrying on a business or from employment-related activities)
You make the contribution within 28 days after the month in which you turn 75
You notify your superannuation fund trustee in writing of your intention to claim the deduction
The notice must be given by the earlier of:

‒ when you lodge your income tax return for the year the contributions were made, or

‒ the end of the financial year following the year the contributions were made

The trustee of your superannuation fund must acknowledge receipt of the notice, and you cannot deduct more than the amount stated in the notice.

Tip 3 – Spouse contribution splitting

You can split up to 85% of your 2022/23 CCs before 30 June 2024 to your spouse’s superannuation if your spouse is:

Under preservation age, or
Aged between their preservation age and 65 years, and not retired at the time of the split request.

This is an effective way of building superannuation for your spouse and can manage your TSB which can have several advantages, such as:

Equalising your balances to maximise the amount you both have invested in tax-free retirement phase income streams, or
Optimising both of your TSBs to access a higher NCC cap 1 , etc.

Tip 4 – Superannuation spouse tax offset

If your spouse is not working or earns a low income, you may want to consider making a NCC into their superannuation account. This strategy could benefit you both by boosting your spouse’s superannuation account and allowing you to qualify for a tax offset of up to $540.

You may be able to get the full offset if you contribute $3,000 and your spouse earns $37,000 or less pa (including their assessable income, reportable fringe benefits and reportable employer superannuation contributions).

A lower tax offset may be available if you contribute less than $3,000, or your spouse earns between $37,000 and $40,000 pa.

Tip 5 – Maximise non-concessional contributions

Another way to boost your superannuation is to make a NCC with some of your after-tax income or savings. The general NCC cap for 2023/24 is $110,000 and eligibility to utilise the cap depends on your TSB ¹ .

Although NCCs don’t reduce your taxable income for the year, you can still benefit from the low tax rate of up to 15% that is paid on superannuation on investment earnings.

This tax rate may be lower than what you might pay if you held the money in other investments outside superannuation.

Tip 6 – Receive the government co-contribution

If you're a low or middle-income earner earning less than $58,445 in 2023/24 and at least 10% is from your job or a business, you may want to consider making a NCC to superannuation before 1 July 2024. If you do, the Government may make a ‘co-contribution’ of up to $500 into your superannuation account.

The maximum co-contribution is available if you contribute $1,000 and earn $43,445 pa or less. You may receive a lower amount if you contribute less than $1,000 and/or earn between $43,445 and $58,445 pa.

Like the superannuation spouse tax offset, the definition of total income for the purposes of the co-contribution includes assessable income, reportable fringe benefits and reportable employer superannuation contributions.

Need help?

You’ll need to meet certain eligibility conditions before benefitting from any of these strategies. Contact us before 30 June if you’re thinking about investing more in superannuation so we can help you decide which strategies are most appropriate to your circumstances.

[1] Refer to the ‘Super contribution caps to increase on 1 July’ article in last month’s Newsletter (March 2024) for more information

Super contribution caps to increase on 1 July

Thu, 23 May 2024 05:05:28 GMT

For the first time in three years, the superannuation contributions are set to increase from 1 July 2024.

Contribution caps to increase

Due to indexation, the contribution caps will increase on 1 July 2024 as follows:

Concessional contributions cap – from $27,000 to $30,000
Non-concessional contributions cap – from $110,000 to $120,000
The maximum non-concessional contributions cap under the bring forward rules – from $330,000 to $360,000

What are concessional contributions?

Concessional contributions (CC) are before-tax contributions and are generally taxed at 15%. This is the most common type of contribution individuals receive as it includes superannuation guarantee (SG) payments your employer makes into your fund on your behalf. Other types of CCs include salary sacrifice contributions and tax-deductible personal contributions.

The government sets limits on how much money you can add to your superannuation each year. Currently, the annual CC cap is $27,500 in 2023/24.

What are non-concessional contributions?

Non-concessional contributions (NCC) are voluntary contributions you can make from your after-tax dollars. For example, you may wish to make extra contributions using funds from your bank account or other savings.

As such, NCCs are an after-tax contribution because your employer has already taken out the tax you need to pay on your income. Currently, the annual NCC cap is $110,000 in 2023/24.

What are the bring forward rules?

The bring forward rules apply to NCCs and allow you to make up to three years of NCCs in a single financial year, if you’re eligible. This means you can put in up to three times the annual cap of $110,000, which means you may be able to top up your superannuation by $330,000 within the same financial year.

Using the bring forward rules can be beneficial for individuals who have a large amount of cash to invest which may have come from an inheritance or from the sale of an asset/property.

However, how much you can make as a NCC will depend on your total superannuation balance (TSB) as at 30 June of the previous financial year (see table above).

Bring forward NCC amounts will also increase

In addition to the contribution caps increasing, the maximum NCC cap under the bring forward rules will also increase on 1 July 2024.

The table above shows the TSB thresholds that apply to determine how much you can contribute under the bring forward rules.

Take care before you contribute

The increase to the NCC cap under the bring forward rules will not apply to individuals who have already triggered the bring forward rule in either this year (2023/24) or last year (2022/23) and are still in their bring forward period. This is because the NCC cap that applies to an individual is calculated with reference to the standard NCC cap when they triggered the bring forward rule in their first year.

For example, if the NCC cap in the second and third year of a bring forward period changed to $120,000 due to indexation, your NCC cap will still be $330,000 ($110,000 x 3 years) and not $350,000 ($110,000 + $120,000 + $120,000).

For this reason, if you want to maximise your NCCs using the bring forward rule, you may wish to consider restricting your NCCs this year to $110,000 or less so you do not trigger the bring forward rule this year.

However, how much you can contribute and whether your fund is allowed to accept your contribution can depend on your age, your TSB and other eligibility criteria. The rules are complex and making contributions to superannuation that exceed the contribution caps can result in excess tax.

Give us a call if you need any further information or would like to chat about your options.

Don’t forget about the CGT small business rollover

Thu, 23 May 2024 04:59:02 GMT

For those who run a “small business” and decide to sell it, the various Capital Gain Tax (CGT) small business concessions are invaluable (as has been noted many times before).

Of course, it is great if you can qualify for the “15-year exemption” concession because this will mean that you won’t have to pay any CGT. But this requires, among other things, that you are 55 years or over and are “retiring in connection” with the sale, something that may just not be the case.

But if this is not the case, you may still be able to use the retirement exemption to eliminate up to $500,000 of capital gain.

However, if you are under 55 years of age at the time of the sale of the business then any qualifying capital gain must be paid into your super. You cannot take it directly. On the other hand, if you are 55 years or older you can take it directly without having to pay it into super and spend it as you wish.

But like the “15-year exemption” there are a number of hoops to jump through, especially if the capital gain has been made by a company or family trust you control. And these hoops require, among other things, that the exempt CGT amount is paid to you within the appropriate time limits.

As a last resort, you can use the roll-over in the CGT small business concessions to acquire a replacement asset. However, if a replacement asset is not acquired within two years, then the capital gain is reinstated and taxed at that time.

But this concession is far more than “a last resort”.

In fact, it is a significant (and acceptable) planning device in its own right. Furthermore, it can be used from the start in relation to the whole of the capital gain so that all its benefits can be fully utilised.

And these benefits include the ability to defer the assessment of the gain for up to two years to, say, allow time for you to turn 55 years of age so that you can then use the retirement exemption to take the capital gain CGT-free.

It can also be used to buy you time to meet other relevant conditions to qualify for the retirement exemption – so that when the rolled over gain is reinstated after two years you can then apply the retirement exemption to your benefit. This may be relevant where, for example, the capital gain was made by a family trust, and you need to find a “controller” of the trust in order to use the exemption.

And if nothing else the rollover can give you an extra two years just to think what you are going to do about things, including whether just to do the obvious and buy a replacement business asset (of any type) in the meantime.

So, once again, the advice of your accountant is invaluable in the matter of whether to buy a replacement asset or when (and how) it is best to realise your capital gain.

Stage 3 tax cuts – a tax saving opportunity?

Thu, 23 May 2024 04:47:27 GMT

Legislation giving effect to the government’s revised settings for the Stage 3 tax cuts has been passed by both houses of Parliament with the support of the Coalition.

The stage 3 tax cut changes:

Reduce the 19% tax rate to 16% for incomes between $18,200 and $45,000.
Reduce the 32.5% tax rate to 30% for incomes between $45,000 and the new $135,000 threshold.
Increase the threshold at which the 37% tax rate applies from $120,000 to $135,000.
Increase the threshold at which the 45% tax rate applies from $180,000 to $190,000.

A permanent tax saving

Many taxpayers and their advisers focus on timing issues around year-end by deferring income and bringing forward deductions. Legitimate steps can be taken to shift taxable income from one year to the next and most people would prefer to pay tax next year rather than this year. However, any benefit gained reverses in the following year when you have to do it all again just to stand still. It’s a lot of effort for a once off timing advantage.

The difference with the 1 July 2024 tax rate changes is that reducing your taxable income in 2023-24 and increasing it in 2024-25 (where it is taxed at a lower rate) produces a permanent saving over the two-year period – a saving you get to keep. That may make such timing issues worth another look.

How much can you save?

That depends on your where you sit on the income scales and how much taxable income is shifted. Very high income earners will have a marginal tax rate of 45% regardless of whether they shift income and deductions around, and those on lower incomes don’t pay much tax to begin with, so their potential savings are less.

But for anyone who expects to fall in the taxable income range of $120,000 to $135,000, for example, there is a permanent saving of 7% on up to $15,000 in taxable income that is shifted from 2023-24 into 2024-25.

Take someone in that income range who owns a rental property which is in need of a $15,000 paint job, and who was planning to get it done by Christmas. They could save themselves $1,050 by arranging to have the job done in May or June. Not a fortune, but not chickenfeed either.

So, how can you go about shifting taxable income into 2024-25?

Before looking at various options, it is necessary to point out that the tax laws include anti-avoidance rules that prevent tax planning strategies which have as their sole or dominant purpose the gaining of a tax advantage. However, if you are simply bringing forward ordinary business-related purchases that you would have made anyway, those rules are unlikely to be triggered. To make certain you stay on the right side of the tax rules you should check with us before taking any action.

Bringing deductions forward

Subject to that necessary reservation, and depending on your expected taxable income, bringing deductions forward into the 2023-24 income year offers the widest range of options for achieving a permanent tax saving. Bear in mind that bringing purchases forward does involve an earlier than planned cashflow impact that you would need to fund.

Options include:

Rental properties

If you have a rental property that is in need of any sort of maintenance or repairs, why not get on to it now? You’ll be bringing the deduction into 2023-24 and keeping your tenants happy at the same time. There can sometimes be a fine line between repairs (deductible immediately) and improvements (deductible over time). We can help you sort out which is which.

Gifts and donations

If you have a tradition of gifting and donating, maybe to telethons and appeals that occur later in the year, consider making those donations to the charities before the end of June 2024. Charities are more than happy to receive donations at any time of the year, and if the taxman can give it an extra boost, why not? Double check that your chosen charity is a deductible gift recipient.

Superannuation

Consider making after-tax contributions into your super fund. But be mindful of contribution caps and the additional 15% tax on contributions made by high income earners. You should seek financial advice prior to taking any action.

Sole traders and partnerships

Do you have a small business which you operate through your own name or in partnership? Consider some of these possibilities:

Depreciation : Could you do with a new laptop or other tools and equipment? Or even a modest motor vehicle? Legislation that is expected to pass Parliament before 30 June 2024 will set the small business threshold for claiming an outright deduction for the cost of depreciating assets to $20,000. If you’re planning to make these purchases anyway, you would be better off with that sort of deduction falling into the 2023-24 year where the tax rate is higher. So consider paying a visit to JB Hi-fi, Bunnings or the nearest car yard and start looking around.
Bad debts: Have a receivable you know isn’t going to pay, but you just haven’t wanted to admit it? Consider writing it off and take the deduction now. But remember, the debt must be more than simply doubtful and there are certain other requirements which must be met. We can help you with those.

Obsolete stock: Is that box of polaroid cameras really going to move anywhere other than to a museum? Write it out of stock before 30 June 2024 and take the deduction.

Bring forward deductible expenses : Buying two boxes of printer paper? Buy three instead. Stock up on printer ink, you never know when you’re going to have that big print run you hadn’t anticipated. Consider what other consumables you use and stock up for your short term needs before 30 June 2024.

Prepay deductible expenditure : All taxpayers are entitled to claim deductible prepaid expenditure where the expenditure is below $1,000 (excluding GST) or the expenditure is required by law (e.g., car registration fees). Where the expenditure is $1,000 or more, small business entities can deduct the full amount of prepaid expenditure if it relates to a period of 12 months or less. Note that this is also available to non-business expenditure of individuals (e.g., work-related expenses or rental property expenses).

Employee bonuses : Confirm commitments to pay employee bonuses are made by 30 June 2024, and don’t forget that PAYG withholding must be withheld when the bonuses are paid.

Skills and training : Take advantage of the small business entity skills and training boost before it ends on 30 June 2024. The Boost enables small businesses to deduct an additional 20% of expenditure that is incurred for the provision of eligible external training courses to their employees by registered providers in Australia.

Energy incentive : Take advantage of the small business entity energy incentive which provides a bonus deduction of 20%. Eligible assets include heat pumps and electric heating or cooling systems, and demand management assets such as batteries or thermal energy storage. Eligible assets or upgrades will need to be first used or installed ready for use by 30 June 2024.

Note: this incentive is provided for in the same Bill as the $20,000 instant asset write-off provisions, which is currently before Parliament and is expected to pass before 30 June 2024.

Deferring income

Options for shifting income into the 2024-25 year are more limited, but include:

Salary sacrifice

Consider salary sacrificing into super before 30 June 2024. As mentioned above, be mindful of the contribution caps, the additional tax for higher income earners and seek financial advice before taking any action.

Interest

Ensure term deposits mature after 30 June 2024.

Need help?

We are here to help you work through any of these options.

Returning to work after retirement

Thu, 23 May 2024 04:35:01 GMT

Most people look forward to retirement as it is a chance to finally take time to relax, enjoy life and do things they never had time for when they were working. But sometimes things change and some people feel the urge to return to work. If a return to work is inevitable, it is important to understand the superannuation retirement rules when it comes to working and accessing your superannuation.

Introduction

Many new retirees find that after a few months the novelty of being on ‘permanent vacation’ starts to wear off. Some people may miss their sense of identity, meaning, and purpose that came with their job, the daily structure it brought to their days, or the social aspect of having co-workers.

In fact, figures from the Australian Bureau of Statistics (ABS) have revealed financial necessity and boredom are the most common factors prompting retirees back into full or part-time employment ^[1] . As such, it is not uncommon to want to return to work after retirement, even if only on a part-time or casual basis. Whatever your reasons or motivations might be, there are a range of factors to consider if you wish to return to work depending on your age.

There are three ways in which you can retire, access your superannuation and then return to work, which are summarised below.

1. Retire on or after reaching preservation age

Individuals can retire after reaching their preservation age ^[2] , ending gainful employment and declaring that they intend never to return to any ‘gainful employment’ for 10 hours or more each week.

It is illegal to access your superannuation with a false declaration of intention so your intention to retire must be genuine at the time. This is why your superannuation fund may require you to sign a declaration stating your intent.

That said, you can return to work while still accessing your superannuation as long as your intention to retire at the specific time was genuine and that you didn’t plan to return to work all along. Your intentions are allowed to change even though you may have retired and have already accessed your superannuation or are receiving age pension payments.

2. Ceasing an employment arrangement after age 60

From age 60, you can stop an employment arrangement (ie, resign from a job) and obtain full access to your superannuation without having to make any declaration about your retirement or future employment intentions.

If you are in this situation, you can return to work without any issues because there was no requirement for you to declare your retirement permanently. For example, you could resign from a job with one employer and start work with a different employer and access your superannuation.

3. Retire after age 65 or older

Once you turn age 65, you can access your superannuation regardless of your work status and do not need to make any declaration about your retirement status. You only need to be retired if you want to access your superannuation before you turn age 65.

Whether you are accessing your superannuation or not, you can return to work at any time.

Your super after returning to work

Regardless of what age category you fall into, you may have taken your superannuation as a lump sum, income stream or a combination of both. If your circumstances change and you return to work, any amounts in your superannuation fund, including any pension payments you may be receiving will remain accessible and can continue to be paid.

However upon recommencing any future employment, any future superannuation contributions and earnings from subsequent employment and any voluntary contributions will remain preserved until a further condition of release is met, such as retirement or reaching age 65.

Impact on age pension

If you are receiving the age pension and decide to return to work, your employment income will count towards Centrelink’s income test which may impact your age pension entitlements.

Having said that, Centrelink has a ‘Work Bonus’ scheme which reduces the amount of your employment income, or eligible self-employment income, which Centrelink applies to your rate of age pension entitlement under the income test. Fortunately, you don’t need to apply for the Work Bonus, rather Centrelink will apply the Work Bonus to your eligible income if you meet all the eligibility requirements. All you need to do is declare your income.

More information

If your intentions or circumstances have changed and you have decided that you would like to return to work, contact us if for a chat about your options.

[1] ABS – Retirement and Retirement Intentions, Australia , rel eased 29/8/2023

[2] Refer to ‘Using super to pay the mortgage’ article for more information on preservation age

Using super to pay the mortgage

Thu, 23 May 2024 04:28:58 GMT

Have you reached preservation age and still have a mortgage? If so, you may be able to use your super to deal with your rising mortgage repayments if you meet certain conditions.

Introduction

The constant increase to interest rates over the last two years have left some borrowers strapped for cash. Fortunately, those that have reached preservation age can access their superannuation via a special type of pension, known as a transition to retirement (TTR) pension, even if they haven’t retired.

What is preservation age?

Your preservation age is the earliest age you can access your superannuation. The preservation age that applies to you depends on your date of birth and ranges from age 55 to 60, as shown in the table above.

Alternatively, you will also reach preservation age when you reach age 65, even if you are still working.

What is a TTR pension?

A TTR pension allows you to supplement your income by allowing you to access some of your superannuation once you’ve reached your preservation age. You can start a TTR pension by transferring some of your superannuation to an account-based pension (ABP), which is a regular income stream bought with money from your superannuation fund.

Once you start a TTR pension, you need to withdraw payments between a minimum and maximum range each year. The minimum drawdown rate depends on your age and is 4% for those under 65 years old. The maximum amount you can withdraw is 10% of your account balance as at 1 July of each financial year (or 10% of the value from the date your TTR pension started in that financial year). This means you can choose pension payments anywhere between your minimum and maximum payment limit each year.

Tip – if you commence a TTR pension halfway through the year, the minimum payment percentage is pro-rated to reflect the number of days the pension is in place in that first financial year. The minimum will be recalculated at 1 July based on your TTR pension balance and your age at that time to factor in a whole year’s worth of pension payments.

But note that a TTR pension does not allow you to withdraw your superannuation as a lump sum. This can generally only be done once you’ve reached your preservation age and met certain conditions of release, such as retirement.

Example

Justine is 60 years old and has $650,000 in superannuation. Justine’s adviser recommends she commences a TTR pension with $600,000 to help ease her financial difficulties. Justine must draw a minimum of $24,000 (ie, 4% x $600,000) or up to a maximum of $60,000 (ie, 10% x $600,000) in pension payments in the 2023-24 financial year.

Justine can use the additional TTR pension payments to help supplement her employment income and meet her mortgage repayments. She could also use a TTR pension as a strategy to pay down her mortgage much quicker than planned even if she could easily afford her repayments.

Factors to consider

If you are 55 to 60, the taxable amount of your income from your TTR pension is taxed at your marginal tax rate, less a 15% tax offset.
Once you turn 60, your TTR pension payments are all tax free.
Any investment earnings generated from your TTR pension are subject to the same maximum 15% tax rate as superannuation accumulation funds.
Once you reach age 65 or retire, your TTR pension will automatically convert to an ABP. This means more flexibility as the 10% maximum pension limit will no longer apply.

Need help?

You should seek financial advice before deciding if a TTR pension is right for you as it could help you understand the possible benefits and implications for your particular circumstances.

Collectables – and inherited jewellery

Fri, 17 May 2024 08:51:06 GMT

Collectables

Capital gains tax does not just apply to “big ticket” items such as real estate, farms and shareholdings. It also applies to a special class of assets known as “personal use assets” and, in particular, those personal use assets known as “collectibles”.

“Collectables” are specifically defined under the tax law to mean the following items that are "used or kept mainly for your personal use or enjoyment":

artwork, jewellery, an antique, or a coin or medallion; or
a rare folio, manuscript or book; or
a postage stamp or first day cover.

However, for an asset to be a collectable, it must have cost more than $500. Otherwise, collectables acquired for $500 or less are exempt from CGT (but subject to important rules to get around or avoid this threshold test).

However, the most important rule about a collectable is that if you make a capital loss on selling or disposing of a collectable, that capital loss can only be offset against capital gains from other collectibles. It cannot be offset against the capital gain from, say, shares or real estate, and nor can it be offset against your other income.

Furthermore, that jewellery you inherit from your mother will retain its “character” as a collectable (if it was acquired by her after 20 September 1985). So, this too is something to be aware of.

Personal use assets

As for “ personal use assets ” per se (ie assets used for personal use or enjoyment which are not “collectables” – such as furniture, clothing, pianos etc) they are only subject to CGT if they cost more than $10,000. More importantly, however, is that you cannot claim a capital loss made on a personal use asset.

But is it a business?

Finally, of course, it is often the case that a person who owns such collectibles does so for the purpose of trading in them. In this case, the CGT rules take a backseat to the fact that the profit from such activities is assessable in the same way as ordinary income, as if you were operating a business.

So, if you find yourself dealing with such items, it is necessary to get good tax advice on the matter.

Tax issues when dealing with volunteers

Fri, 17 May 2024 08:45:26 GMT

From bushfire relief groups, sporting clubs, environmental groups, charity associations and many more, volunteers are an indispensable workforce and support network for many organisations. For most, if not all, having volunteers ready to lend a hand is pivotal in them being able to function or survive.

Given that there are many hundreds of volunteers propping up all sorts of good works throughout the nation, and in the spirit of thorough tax planning, an important practical consideration for many may be if payments to volunteers constitute assessable income and whether their expenses are tax deductible.

What’s a volunteer?

There is no common law definition of “volunteer” for tax purposes, although it typically means someone who enters into any service of their own free will, or who offers to perform a service or undertaking. A genuine volunteer does not work under a contractual obligation for remuneration, and would not be an employee or an independent contractor.

Volunteers can be paid in cash, given non-cash benefits or a combination of both – payments include honorariums, reimbursements and allowances. Generally, receipts which are earned, expected, relied upon and have an element of periodicity, recurrence or regularity are treated as assessable income.

Conversely, where a person’s activities are a pastime or hobby – rather than income producing – money and other benefits received from those activities are generally not perceived as assessable income.

The examples below shed light on whether typical payments such as honorariums, reimbursements and allowances constitute assessable income.

Is an honorarium assessable income?

An honorarium is either an honorary reward for voluntary services, or a fee for professional services voluntarily rendered, and can be paid in money or property.

Example 1

Q . Alex works as a computer programmer at the local city council and volunteers as a referee for the local rugby union. This year he organised an accreditation course for new referees. He applied for a grant, arranged advertising, assembled course materials, and booked venues. Michael is awarded an honorarium of $100 for his efforts.

A . No , the honorarium is not assessable income as honorary rewards for voluntary services are not assessable as income and related expenses are not deductible.

Example 2

Q . Mindy has an accounting practice and volunteers at the local art gallery. Mindy prepares the gallery’s annual report using her business’s software and equipment. At the gallery’s annual general meeting, Mindy is awarded an honorarium of $800 in appreciation of her services.

A . Yes , this honorarium constitutes assessable income because it is a reward for services connected to her income-producing activities.

Is a reimbursement assessable income?

A reimbursement is precise compensation, in part or full, for an expense already incurred, even if the expense has not yet been paid. A payment is more likely to be a reimbursement where the recipient is required to substantiate expenses and/or refund unspent amounts.

Example 3

Q . Matthew is an electrical contractor. He volunteers to mow the yard of a local not-for-profit childcare centre. Matthew purchases a $15 spare part for the centre’s mower. The childcare centre reimburses Matthew for the cost of the spare part.

A. No , the $15 reimbursement is not assessable income because Matthew has not made the payment in the course of his enterprise as an electrician.

Example 4

Q . Rose has a gardening business. She volunteers to prune the shrubs of a local nursing home and uses materials from her business’s trading stock.

A. Yes , any reimbursement she receives for the cost of the materials is assessable income because the supplies were made in the course of her enterprise.

Is an allowance assessable income?

An allowance is a definite predetermined amount to cover an estimated expense. It is paid even if the recipient does not spend the full amount.

Example 5

Q . Andy volunteers as a telephone counsellor for a crisis centre. He is rostered on night shifts during the week and is occasionally called in on weekends. When Andy works weekends, the centre pays him an allowance of $150. The allowance is paid to acknowledge Andy’s extra efforts and to compensate him for additional costs incurred.

A: Yes , these payments to Andy are considered assessable income because he received the allowance with no regard to actual expenses and there is no requirement to repay unspent money.

Expenses incurred by volunteers

On the tax deductibility of volunteer expenses, a volunteer may be entitled to claim expenses incurred in gaining or producing assessable income – except where the expenses are of a capital, private or domestic nature.

For instance, expenditure on items such as travel, uniforms or safety equipment could be deductible, but expenses incurred for private and income-producing purposes must be apportioned – with only the income-producing portion of the expense being tax deductible.

Example 6

Q . Robert operates a commercial fishing trawler and uses navigational charts in his business. He also volunteers as an unpaid training officer at the volunteer coastguard. Robert purchases two identical sets of navigational charts – one for his business, the other as a training aid in coastguard courses.

A. Yes , Robert can claim the part incurred in gaining or producing assessable income – in this case, half the total cost.

What about donations? Are these deductible?

It is also common for volunteers to donate money, goods and time to not-for-profit organisations. To be tax deductible, a gift must comply with relevant gift conditions, and:

be made voluntarily
be made to a deductible gift recipient, and
be in the form of money ($2 or more) or certain types of property.

Donors can claim deductions for most, but not all, gifts they make to registered deductible gift recipients. For instance, a gift of a service, including a volunteer’s time, is not deductible as no money or property is transferred to the deductible gift recipient. However, individuals may be entitled to a tax deduction for contributions made at fundraising events, including dinners and charity auctions.

Example 7

Mila buys a clock at a charity auction for $200. This is not a gift even if Mila has paid a lot more than the value of the clock. Payments that are not gifts include those to school building funds as an alternative to an increase in school fees and purchases of raffle or art union tickets, chocolates and pens.

Example 8

Clive receives a lapel badge for his donation to a deductible gift recipient. As the lapel badge is not a material benefit or an advantage, the donation is a gift.

Consult this office for more information on which volunteer payments are considered assessable income and which expenses are typically tax deductible.

Federal Budget 2024-25

Thu, 16 May 2024 07:01:44 GMT

The Federal Budget for 2024-25 was handed down on Tuesday 14 May 2024. It contains a range of proposed measures across the areas of income tax, superannuation, tax administration and related cost of living measures.

Some of these may affect you directly or indirectly. We have provided a summary of these measures and what they may mean for you.

Please feel free to contact this office if you have any queries about them or how they may impact you in your circumstances.

Taxation Measures

Instant asset write-off threshold of $20,000 extended

The $20,000 instant asset write-off for small businesses with an aggregated annual turnover of less than $10 million has been extended to expenditure incurred up to 30 June 2025. Without this extension, the threshold would have dropped back to $1,000 as from 1 July 2024. This measure now provides certainty to the issue.

What this means:

Given the extension, there is no longer the same urgency in having depreciating assets used or installed ready for use by 30 June 2024 as items costing less than $20,000 acquired over the following 12 months will still be eligible for an immediate write-off for small businesses using the simplified depreciation rules. However, it might still make sense for unincorporated small businesses to acquire depreciating assets costing less than $20,000 before 1 July 2024 as the Stage 3 tax cuts will make the immediate deduction less valuable in 2024-25 than in 2023- 24 (subject to cashflow considerations).

CGT changes for foreign residents

Changes will be made to the way foreign residents are subject to CGT in Australia by broadening the types of Australian assets that foreign residents will be taxed on in Australia and in tightening the rules that make a foreign resident liable to CGT in respect of interests in “land rich” companies or trusts. In addition, the measures will require foreign residents disposing of shares and other membership interests exceeding $20m in value to notify the ATO, prior to the transaction being executed.

What this means:

Whether these changes will apply to investment shares held on the ASX by foreign investors is not clear. In any event, the proposed measures will only apply to sales occurring from 1 July 2025 – which will, depending on the final form of the legislation, give time to consider any necessary strategies.

No extensions for training and energy efficiency boosts

The additional 20% boosts for expenditure on employee training and energy efficient assets for small businesses with an annual aggregated turnover of less than $50 million are scheduled to expire on 30 June 2024 and these incentives have not been extended in this year’s Budget.

What this means:

There are only about six weeks left to benefit from these incentives, and it may be worthwhile brining forward expenditure you were otherwise planning to incur later in the year, cashflows permitting.

ATO discretion not to offset old tax debts on hold

Last year the ATO began to offset some older tax debts that had been put on hold prior to January 2017 against current BAS refunds. While in some cases the revived tax debts were relatively small, the ATO was not always able to explain what the debts represented. The ATO suspended the practice pending clarification of what its powers were not to collect these older amounts. The Government will now give the ATO the explicit power not to offset debts put on hold before 1 January 2017.

What this means:

If you see any unexplained offsets against a current BAS refund, you should contact us in case we can have the ATO remove the offset.

Refund frauds and likely delays in processing BAS refunds

The Government has now addressed this issue in the Budget by extending the period within which the ATO has to notify a taxpayer that it intends to retain a BAS refund for further investigation from 14 days to 30 days. The measure takes effect in the first income year commencing after enactment of the relevant law (which could be as soon as next month if the government is quick off the mark with its legislation).

What this means:

If necessary, you may need to be prepared to engage with the ATO about what is behind your BAS refund – eg, you are an exporter or you have recently purchased a significant item of equipment.

Student loans repayments to be reduced

The Budget proposes to introduce measures so that indexation of the Higher Education Loan Program (HELP) debt will be limited to the lower of either the Consumer Price Index or the Wage Price Index - with effect retrospectively from 1 June 2023.

What this means:

The Budget papers also said that this will also apply to “other student loans”. Presumably, this measure will help lower the cost of living burden on younger Australians – “and for this relief, much thanks!” (Shakespeare, Hamlet)

Instant asset write-off threshold of $20,000 extended to 30 June 2025

As widely expected, the $20,000 instant asset write- off for small businesses with an aggregated annual turnover of less than $10 million has been extended to expenditure incurred up to 30 June 2025. Without this extension, the threshold would have dropped back to $1,000 as from 1 July 2024.

Senate amendments boosting the instant asset write-off regime for 2023-24 to $30,000 for businesses with an annual turnover of less than $50 million are not likely to be accepted by the government in the House of Representatives. It is expected that the measure will eventually be passed in the form originally proposed in last year’s Budget – ie, a $20,000 threshold for entities with an aggregated annual turnover less than $10 million.

What this means:

No extensions for training and energy efficiency boosts

What this means:

ATO discretion not to offset old tax debts on hold

Following complaints by tax practitioners and others, the ATO suspended the practice pending clarification of what its powers were not to collect these older amounts. The government has now signaled it will give the ATO the explicit power not to offset debts put on hold before 1 January 2017.

What this means:

If you see any unexplained offsets against a current BAS refund, you should contact us in case we can have the ATO remove the offset.

Refund frauds and likely delays in processing BAS refunds

The ATO has come under criticism recently in relation to more than a few cases where people have successfully made claims for fraudulent GST refunds, sometimes for over a period of time and for large amounts. In responding to this criticism, the ATO had pointed out that its processes have been more geared to getting refunds out to the vast majority of honest taxpayers promptly and worrying about cases of fraud after the event. Given the scale of the refund frauds detected, however, the ATO has suggested that it may need to consider taking more time to process refunds so that they can prevent fraudulent claims.

The government has addressed this issue in the Budget by extending the period within which the ATO has to notify a taxpayer that it intends to retain a BAS refund for further investigation from 14 days to 30 days. The measure takes effect in the first income year commencing after enactment of the relevant law, which could be as soon as next month if the government is quick off the mark with its legislation.

What this means:

If necessary, you may need to be prepared to engage with the ATO about what is behind your BAS refund – eg, you are an exporter or you have recently purchased a significant item of equipment.

Superannuation Measures

Super to be paid on paid parental leave

Super guarantee contributions will be paid on government-funded paid parental leave (PPL) for parents of babies born or adopted on or after 1 July 2025. Eligible parents will receive an additional 12% SG payment on their PPL payments, as a contribution to their superannuation fund. Payments will be made annually to individuals’ superannuation funds from 1 July 2026.

What this means:

To get government-funded PPL, you will need to meet certain criteria such as be caring for your newborn or adopted child, meet an income test, work test and other residency rules.

Social security, cost of living and other measures

Social security deeming rates frozen

Social security deeming rates will be frozen at their current levels for a further 12 months until 30 June 2025. The lower deeming rate will remain at 0.25% and the upper deeming rate will remain at 2.25%.

Flexibility for carer payment recipients

From 20 March 2025, the existing 25 hours per week participation limit for carer payment recipients will be amended to 100 hours over 4 weeks. Also, the participation limit will only apply to employment and will no longer include study, volunteering activities and travel time.

Eligibility for higher rate of Jobseeker payment extended

Eligibility for the higher rate of Jobseeker payment will be extended to single recipients with a partial capacity to work of zero to 14 hours per week from 20 September 2024.

Commonwealth Rent Assistance increase

The maximum rates of the Commonwealth Rent Assistance (CRA) will increase by 10% from 20 September 2024 to help address rental affordability challenges for recipients.

Lower foreign investment fee for build- to-rent properties

Foreign investors will be allowed to purchase established build-to-rent properties with a lower foreign investment fee. The lower foreign investment fee will be conditional on the property continuing to be operated as a build-to-rent development.

Compensation from your bank or financial institution – is it taxable?

Thu, 16 May 2024 02:21:54 GMT

Unfortunately our financial institutions have not always acted as ethically as we consumers would like.

Whether you’ve received bad advice or paid for advice you didn’t receive at all, our supervisory and regulatory bodies have sought not only to improve the system so it won’t happen again, but also to ensure that if you are on the receiving end of such bad behaviour, you could be entitled to receive financial restitution.

If you’ve recently received a compensation payment, you might be wondering whether you need to pay tax on it.

The answer is - it depends!

It depends on how your investment was held 1 and the type of compensation you received.

For example, if you’ve disposed of the investment and previously reported a capital gain in your income tax return, your compensation payment increases the capital gain (you may be able to claim the 50% discount too if you held the investment for more than 12 months). You may need to amend your income tax return to include this additional capital gain.

If you haven’t yet disposed of the investment, and you hold it as a capital investment 1 , then the compensation payment reduces its cost for when you do dispose of it in the future (make sure keep details of the compensation payment with your tax records to provide to us later).

Where your compensation payment includes an amount that is a refund or reimbursement of adviser fees, and these fees were previously claimed a tax deduction by you, then the amount you received as a refund or reimbursement will generally be taxable to you in the income year you receive it. Similarly, any part of the payment that represents interest should also be included in your tax return in the year you receive it.

If you’ve received an amount of compensation and not sure whether it is taxable, or if you need to amend a prior year tax return for a payment you received, please reach out to us.

1 Note the tax treatment described may be different if a compensation payment relates to an investment that is held on trust, as a revenue asset, or received by a business or superannuation fund.

Qualifying as an interdependent or financial dependent

Wed, 29 Nov 2023 00:00:25 GMT

A question that often gets asked when dealing with death benefit nominations is whether a person will qualify under the interdependency or financial dependency definitions. This is an important consideration as meeting the dependency criteria will enable potential beneficiaries to qualify as a dependent and therefore allow them to receive a death benefit.

Interdependency relationship

Put simply, an interdependency relationship exists between two people if all of the following conditions are met:

They have a close personal relationship
They live together
One or both provides the other financial support
One or both provides the other with domestic support and personal care.

However, if two people satisfy the close personal relationship requirement but cannot satisfy the other three requirements, they can still satisfy the interdependency relationship if:

Either or both of them suffer from a physical, intellectual or psychiatric disability, or
They are temporarily living apart (eg, overseas or in jail).

There is no easy way in determining whether an interdependent relationship exists, however superannuation law provides the following list of considerations to help superannuation fund trustees determine if an interdependency relationship exists (or existed before one of the parties died):

Duration of relationship
Whether or not a sexual relationship exists
Ownership, use and acquisition of property
Degree of mutual commitment to a shared life
Care and support of children
Reputation and public aspects of the relationship
Degree of emotional support
Extent to which the relationship is one of mere convenience
Any evidence suggesting that the parties intend the relationship to be permanent
A statutory declaration signed by one of the persons to the effect that the person is or was in an interdependency relationship with the other person.

It is not necessary that each of these factors exists in order for an interdependency relationship to exists. Instead, each factor is to be given the appropriate weighting depending on the circumstances.

Financial Dependent

If a beneficiary fails to meet the interdependency relationship criteria, they may qualify as a financial dependent. Being financially dependent on the deceased generally means you relied on them for necessary financial support. This also applies to children over 18 years old as they must be financially dependent on the deceased to be considered a financial dependent.

That said, the term financial dependent is not expressly defined in superannuation or tax legislation, so it takes on the ordinary meaning of that term. As such, the definition of financial dependent is reliant on case law and comes down to the facts of each case.

In most cases, it is not the value of payments received from the member that establishes financial dependency but the degree of dependency on that payment. This includes the extent the person relies on the financial support provided by another person to meet basic living expenses.

For example, a grandparent who chooses to pay school fees for their grandchild is unlikely to have their grandchild qualify as a financial dependent. This is mainly due to the fact that the payment is seen to be more discretionary in nature than providing for an essential element of life, such as food or shelter.

In summary, superannuation case law provides more flexibility for someone to be partially or wholly dependent, whereas tax dependency takes a stricter approach as a substantial degree of dependency is required.

The conditions for the existence of an interdependency and financial dependency relationship under the law can be complex. If you require further information on this topic, please contact us for a chat.

Tip - If you are uncertain whether an interdependency relationship exists (i.e., where adult siblings have been living together, or where an adult child has been living with their parents), you can always request a private ruling from the Australian Taxation Office as the definition for interdependency is the same under both superannuation and tax law.

How to nominate a superannuation beneficiary

Wed, 22 Nov 2023 04:45:55 GMT

There are many types of nominations offered by different funds. Knowing which one suits your circumstances is key to ensure your superannuation ends up in the right hands.

Types of nominations

Individuals can direct or influence their superannuation fund trustee as to how they want their death benefits distributed by completing a death benefit nomination form.

Superannuation funds offer a range of death benefit nominations, including:

Non-binding death benefit nominations
Binding death benefit nominations
Non-lapsing binding nominations
Reversionary pension nominations, and
In the case of an SMSF, executing a trust deed amendment or using one of the above types of nominations.

However not all funds will provide all options to their members, and completion of these forms is best done by the member in conjunction with their adviser and an estate planning lawyer in the first instance.

Non-binding death benefit nomination

The is the most common type of death benefit nomination and is offered by most superannuation funds. A non-binding nomination is an expression of wishes which is not binding on trustees. The trustee of your superannuation fund will look at the nomination you make, but will exercise discretion to determine which of your beneficiaries receives your superannuation and in what proportions.

Binding death benefit nomination

A binding death benefit nomination is a written direction from a member to their superannuation trustee setting out how they wish some or all of their superannuation death benefits to be distributed. The nomination is generally valid for a maximum of three years and lapses if it is not renewed.

If this nomination is valid at the time of your death, the trustee is bound by law to follow it.

Non-lapsing binding death benefit nomination

This is a written direction by a member to their superannuation trustee establishing how they wish some or all of their superannuation death benefits to be distributed. These nominations generally remain in place forever unless you cancel or replace it with a new nomination. If this nomination is valid at the time of your death, the trustee is bound by law to follow it.

Reversionary pension nomination

If you are in receipt of an income stream, you can nominate a beneficiary (usually your spouse) to whom the payments automatically revert upon your death. With this type of death benefit nomination, the fund trustee is required to continue paying the superannuation pension to your beneficiary if your benefit nomination is valid.

SMSFs and death benefit nominations

If you are an SMSF member and want to make a death benefit nomination, it is important to review your fund's trust deed requirements to determine the rules regarding death benefit nominations. Although the High Court recently ruled in the case of Hill v Zuda Pty Ltd [2022] that traditional three-year lapsing death benefit nominations do not apply to SMSFs, many trust deeds expressly include the traditional requirements. If this is the case, they must be complied with, and the nomination will lapse.

What if there is no nomination or an invalid nomination?

If you have not made a nomination, your superannuation fund will have rules for determining the death benefit recipient(s). In many cases, funds will either exercise discretion and follow the same process as if a member had a non-binding nomination, or pay your benefit to your legal personal representative (LPR). The risk with this option is if you don't have a Will, your benefit may be distributed under the relevant state laws for dealing with intestacy!

Similarly, if your nominated beneficiary does not meet the definition of a superannuation law dependent at the time of your death, the nomination will be deemed invalid. Again, it will come down to your fund's rules which may determine that your benefit must be paid to your LPR or alternatively that the trustee exercise their discretion.

Check your nomination

Remember to regularly review your superannuation death benefit nominations when your circumstances change to ensure it remains up to date and ends up in the hands of the right person(s).

Who can I nominate as my super beneficiary?

Wed, 15 Nov 2023 22:45:55 GMT

Your superannuation death benefits must be paid to someone when you die. That somebody will usually be your estate or your nominated beneficiary (also known as your dependents).

Paying death benefits to your estate

Unlike other assets such as shares and property, your superannuation and any insurance benefits you have in superannuation do not form part of your estate. That's because your superannuation is not held by you personally, rather it is held in trust for you by the trustee of your superannuation fund.

However, you can direct your superannuation death benefit to your estate by nominating your 'legal personal representative' (LPR), who will usually be the executor of your estate.

If you nominate your estate or LPR, you must also specify in your Will who you want to distribute your superannuation money to. This can include eligible beneficiaries as well as anyone else you wish to leave your death benefits to.

As such, it's important that the directions stated in your Will are up to date as your LPR pays our your death benefits (as well as your other estate assets) as per your wishes.

Paying death benefits to a beneficiary/dependent

If you want your superannuation death benefits to be paid to a person, that person must be a 'dependent' for super purposes.

The meaning of dependent is important as it determines who can receive a death benefit, whether the death benefit will be taxed and in what form your death benefit can be paid out (i.e. lump sum, income stream, etc.). In particular, superannuation law determines who can receive your super directly from your super fund without having to go through your estate. These people are your superannuation dependents. Tax law on the other hand determines who pays tax on your superannuation death benefit. These people are considered tax dependents.

The table below summarises the difference between:

a superannuation dependent and tax law dependent, and
the types of death benefit that can be paid to each category of dependents.

As can be seen, the key differences between the superannuation and tax dependent definitions are:

a tax dependent does not include an adult child (whereas a super dependent does), and
a tax dependent includes a former spouse (whereas a super dependent does not).

Although your financially-independent adult children are your superannuation dependents and can receive a death benefit directly from your superannuation fund, they are not tax dependents. This means they will not receive more favourable tax treatment than a tax dependent would receive unless they qualify under an 'interdependency relationship' or are financially dependent on you.

A tax dependent will generally not pay any tax on superannuation death benefits. In contrast, a non-tax dependent is taxed on any taxable components of a superannuation death benefit. This could be up to 15% tax plus Medicare levy on any taxable component and potentially up to 30% plus Medicare levy for any taxable untaxed elements within your fund.

Need help? Please contact us if your would like further information about who you can nominate to receive your superannuation death benefits.

How to Reduce Your Income Tax Bill Using Superannuation

Tue, 24 Oct 2023 01:14:01 GMT

Did you know you can reduce your income tax bill by making a large personal tax-deductible contribution from your take-home pay to your super? This strategy may be particularly useful if you will be earning more income this financial year or if you have sold an asset this year and made a large capital gain.

What is a personal deductible contribution?

A personal deductible contribution is a type of concessional contribution that you make with your own money and claim as a personal tax deduction in your tax return, subject to meeting certain eligibility criteria,

Other types of concessional contributions include superannuation guarantee (SG) contributions from your employer and amounts you salary sacrifice to superannuation.

The cap on concessional contributions is currently $27,500 per year in 2023/24. However certain individuals may be eligible to use the "catch-up" concessional contribution rules to make a larger contribution.

What are catch-up concessional contributions?

You can carry forward any unused concessional contribution cap amounts that have accrued since 2018/19 for up to five financial years and use them to make concessional contributions in excess of the annual concessional contribution cap.

You can make concessional contribution using the unused carry forward amounts provided your total superannuation balance at the end of the previous financial year (ie. 30 June 2023) is below $500,000.

Once you start to use some of your unused cap amounts, the rules operate on a first-in first-out basis. That is, any unused cap amounts are applied to increase your concessional contribution cap in order from the earliest year to the most recent year. So, when you use some of your unused cap from prior years (by making additional superannuation contributions), the unused cap form the earliest of the five-year period is used first.

And remember, if you don't use your accrued carry forward amounts after five years, your unused cap amounts will expire. So it's best to use it before you lost it!

Carry forward contributions may provide strategic opportunities to make larger personal deductible contributions in financial years where you may have a higher level taxable income, for example, due to assessable capital gains.

See the example:

Joe earns $90,000 and only receives SG contributions from his employer (ie. 9.5% for 2018/19 - 2020/21, 10% in 2021/22, 10.5% in 2022/23 and 11% in 2023/24).

He sold some shares in 2023/24 realising a net (discounted) capital gain of $30,000.

After factoring in his SG contributions, Joe's cumulative unused concessional contribution (CC) cap amount in 2023/24 is $103,500.

Having an unused concessional contribution cap amount of $103,500 will allow Joe to make a personal deductible contribution of $30,000 to fully offset the amount of the capital gain and still remain well within his concessional contribution cap.

As a result, by contributions $30,000 as a personal deductible contribution, Joe will have boosted his superannuation while also saving $5,850 in tax being the difference between the tax payable on the capital gain of $10,350 (ie. $30,000 x 34.5% marginal tax rate) and 15% contributions tax of $4,500 ($30,000 x 15%).

It's important to seek advice before you make any superannuation contribution. Getting it wrong could mean a loss of all or part of your deduction and may also cause you to exceed the contribution caps which can lead to paying excess contributions tax.

Discounting Your Capital Gain

Wed, 20 Sep 2023 22:48:42 GMT

The capital gains tax (CGT) discount can reduce by 50% a capital gain that you make when you dispose of (sell) a CGT asset that you have owned for 12 months or more. However, the discount is only available to:

individuals (but not foreign or temporary residents)
complying superannuation funds (33% discount applies, not 50%)
trusts; and
life insurance companies in respect of a discount capital gain from a CGT event in respect of a CGT asset that is a complying superannuation asset.

The most notable omission from this list is companies. They are not eligible for the general discount. They are not eligible for the general discount. This should be factored in when assessing which entity is chosen to acquire a CGT asset.

12-Month Requirement

The tax legislation requires that to qualify for the general discount, the asset must have been acquired at least 12-months before the time of the CGT event (sale).

The 12-month period requires that 365 days (or 366 in a leap year) must pass between the day the CGT asset was acquired and the day on which the CGT event happens...effectively 12-months and two days! If a taxpayer is nearing the 12-month mark, they should consider delaying the sale where possible until this timeframe is satisfied and therefore becomes eligible for the discount.

For the purposes of satisfying the 12-month holding period, beneficiaries can treat an inherited asset as though they have owned it since:

the deceased acquired the asset, if they acquired it on or after 20 September 1985
the deceased died, if they acquired the asset before 20 September 1985.

Note more generally that for CGT assets acquired before 20 September 1985, no CGT is payable anyway.

Foreign Residents

The CGT discount no longer applies to discount capital gains of foreign or temporary residents or Australian residents who have a period of foreign residency after the below date. However, the CGT discount will still apply to the portion of the discount capital gain of a foreign resident individual that accrued up until 8 May 2012 (the date of announcement).

This measures applies where:

an individual has a discount capital gain, including a discount capital gain as a result of being a beneficiary of a trust, from a CGT event that occurred after 8 May 2012, and
the individual was a foreign resident or a temporary resident at any time on or after 8 May 2012.

The effect of the measure is to:

retain the full CGT discount for discount capital gains of foreign resident individuals to the extent the increase in value of the CGT asset occurred prior to 9 May 2012
remove the CGT discount for discount capital gains of foreign and temporary residence individuals accrued after 8 May 2012, and
apportion the CGT discount capital gains where an individual has been an Australian resident, and a foreign or temporary resident, during the period after 8 May 2012. The discount percentage is apportioned to ensure the full 50% discount percentage is applied to periods where the individual was an Australian resident.

If you have any questions about the 50% discount, please contact us.

Self-Education: When is it Deductible?

Thu, 07 Sep 2023 02:51:42 GMT

If the subject of self-education leads to, or is likely to lead to, an increase in the taxpayer's income from current (but not new) income-earning activities, a deduction for self-education expenses incurred will be allowable.

There is no specific provision in the income tax legislation that allows a deduction for self-education expenses. Rather the expenditure falls for consideration under the general deductibility provision of the Tax Act. In broad terms this allows for, but also limits, deductible expenses to those incurred in the course of earning assessable income. This requires a close nexus between the outgoing and assessable income: the outgoing must be incidental and relevant to the gaining of the assessable income.

Principle 1 - the self-education maintains or improves current skills or knowledge

Where a taxpayer's income-earning activities are based on the exercise of a skill or some specific knowledge, a deduction for self-education expenses incurred will be allowable where the subject of self-education enables the tax payer to maintain or improve that skill or knowledge. The High Court decision of FC of T v Finn [1961] HCA 61; 106 CLR 60 is a leading authority for this principle. In this case, Finn, a senior government architect, was allowed deductions for expenses incurred on an overseas tour focused on the study of architecture.

This principle requires an assessment of a taxpayer's current skills and knowledge compared against the subject of self-education, and a consideration of how close the subject is to those current (not future) income-earning activities. (The ATO advises the relevant employment activities are the duties and tasks expected of an employee to perform their job and are usually set out in an employee's duty statement / contract of employment.)

Principle 2 - the self-education leads to, or is likely to lead to, an increase in income from current income-earning activities

It is not necessary for the expected increase in income or promotion to be realised for self-education expenses to be deductible, for example, if the taxpayer's employment was terminated before gaining the promotion or increase. However, the expenses should be incurred whilst the taxpayer was employed (even if on leave without pay), and generally with a real prospect or likelihood of leading to such an increase or promotion.

The important thing for taxpayers is to retain their receipts in relation to their self-education. If you have any questions around what expenses are claimable, contact us.

Work-Related Car Expenses Updated

Thu, 27 Jul 2023 04:34:31 GMT

The ATO has just announced that the cents per kilometre rate has increased to 85 cents per kilometre for 2023/24.

The recap, there are two methods to claim work-related car expenses:

1. Cents per kilometre method

This method is easier for record keeping, involves a more simple calculation, and is generally suited to those with less vehicle use.

You simply keep a record of the number of kilometres you're traveling for work or for business over the duration of the year and you claim these using the set rate.

The drawback of this method is that you are limited to a maximum of 5,000 work-related or business kilometres per year. That gives you a total maximum claim of $4,250. Thus, if you're using your car a lot for work, you may find this method quite limiting.

2. Logbook method

This method can allow for greater claims depending on how much you're using your car for work or business.

However, there are more recordkeeping requirements - the main one being that you must keep a 12-week logbook that records all of your trips, both business and private, for those 12 weeks.

At the end of the 12 weeks, you calculate your work-related or business percentage use, and you can claim that percentage for all deductions for your car.

you also need to keep all receipts for fuel, insurance, registration, interest, and servicing throughout the year.

As mentioned, despite the additional effort, it can often lead to a greater claim if you are using your car a lot for work and business.

Comparison

Cents per km method

Pros:

Simple calculation and record keeping
No need to keep all receipts for running expenses

Cons:

Total claim limited to 5,000kms or $4,250 (2023/24)
No separate depreciation claim available

Logbook method

Pros:

Potentially allows for larger deductions
Ability to claim a percentage of actual expenses as well as depreciation of the vehicle

Cons:

More onerous recordkeeping requirements
Must keep records for all car expenses

Summary

As you can see, both methods have their downsides and can have their benefits too depending on your situation. consider which is best for you, taking into account:

If you have the time or the ability to save all of your car-related records
The level of your business-related vehicle use

Fair Work Changes

Wed, 19 Jul 2023 23:39:56 GMT

Although not related to tax, there are a number of changes on the Fair Work front that employers should be aware of.

Minimum Wage Increase

The National Minimum Wage applies to employees who aren't covered by an award or registered agreement.

From 1 July 2023, the new National Minimum Wage will be $882.80 per week or $23.23 per hour.

The new National Minimum Wage will apply from the first full pay period starting on or after 1 July 2023. This means if your weekly pay period starts on Monday, the new rates will apply from Monday, 3 July 2023.

Note that if a worker is covered by a registered agreement, the minimum wage increase may apply to them. This is because the base pay rate in a registered agreement can't be less than the base pay rate in the relevant award. Check your agreement by searching for it on the Commission's website: https://www.fwc.gov.au/agreements-awards/enterprise-agreements/find-enterprise-agreement

Award Minimum Wage Increase

The Fair Work Commission has also announced that minimum award wages will increase by 5.75%.

Most employees are covered by an award. Awards are legal documents that outline minimum pay rates and conditions of employment in your industry or occupation. If you're not sure which award applies to a worker, use: https://services.fairwork.gov.au/find-my-award

This increase will apply from the first full pay period starting on or after 1 July 2023. This means if your weekly pay period starts on Monday, the new rates will apply from Monday, 3 July 2023.

Secure Jobs, Better Pay: 6 June Changes to Workplace Laws

From 6 June 2023, changes also came on stream related to:

requesting flexible working arrangements
extending unpaid parental leave
agreement-making
bargaining.

For more information, visit: https://www.fairwork.gov.au/newsroom/news/secure-jobs-better-pay-changes-to-australian-workplace-laws

Aged Care Sector

Direct care and some senior food services employees in the aged care sector will receive a 15% wage increase from 1 July 2023.

For more information, visit: https://www.fairwork.gov.au/newsroom/news/15-per-cent-wage-increase-aged-care-sector

Paid Parental Leave Scheme

From 1 July 2023, the Paid Parental Leave Scheme is changing.

From this date the current entitlement to 18 weeks' paid parental leave pay will be combined with the current Dad and Partner Pay entitlement to two weeks' pay. This mean partnered couples will be able to claim up to 20 weeks' paid parental leave between them. Parents who are single at the time of their claim can access the full 20 weeks'.

These changes affect employees whose baby is born or placed in their care on or after 1 July 2023.

Other changes include:

allowing partnered employees to claim a maximum of 20 weeks' pay between them, with each partner taking at least two weeks (except in some circumstances)
introducing a $350,000 family income limit (indexed annually from 1 July 2024) for claiming paid parental leave pay
expanding the eligibility rules for fathers or partners to claim paid parental leave pay
making the whole payment flexible so that eligible employees can claim it in multiple blocks until the child turns two
removing the requirement to return to work to be eligible for the entitlement.

Super Guarantee Increases to 11%

Fri, 07 Jul 2023 04:51:44 GMT

The increase to the superannuation guarantee (SG) rate from 1 July 2023 will see more employees (and certain contractors) entitled to additional SG contributions on their pay. But what happens when income earned before 30 June is paid after 30 June 2023 - will employers be entitled to the higher SG rate of 11%?

SG is based on when an employee is paid

On 1 July 2023, the SG rate increased from 10.5% to 11%. In some cases, an employee's pay period will cross over between June and July when the rate changes.

However, the percentage employers are required to apply is determined based on when the employee is paid, not when the income is earned. The rate of 11% will need to be applied to all ordinary time earnings (OTE) that are paid on or after 1 July 2023, even if some or all of the pay period it relates to is before 1 July 2023.

This means if the pay period ends on or before 30 June, but the pay date falls on or after 1 July, the 11% SG rate applies on those salary and wages. The date of the salary and wage payment determines the rate of SG payable, regardless of when the work was performed.

Example

Nicholas is an employee of ABC Pty Ltd.

If Nicholas performed work:

- In June (or partly in June and partly in July) but he was paid in July, the SG rate is 11% on his entire payment and contributions, totaling 11% of his OTE for the September 2023 quarter. This must be made to his superannuation fund by 28 October.

- In July, but was paid in advance (before 1 July), the SG rate is 10.5% and contributions totaling 10.5% of his OTE for the June 2023 quarter must be made to his superannuation fund by 28 July.

SG rate will continue to rise

Employers should prepare for ongoing, annual increased to the SG rate over the coming years. The following already-legislated increases to 12% by 2025 will proceed as follows:

Period SG rate (%)

1 July 2020 - 30 June 2021 9.5

1 July 2021 - 30 June 2022 10

1 July 2022 - 30 June 2023 10.5

1 July 2023 - 30 June 2024 11

1 July 2024 - 30 June 2025 11.5

1 July 2025 onwards 12

Basis of SG

SG is only payable on a workers' OTE. OTE is the amount you pay employees for their ordinary hours of work, including things like commissions and shift loadings, but not in relation to overtime hours (being those outside the ordinary hours stated in a worker's award or other employment agreement).

More information? If you are still uncertain around the application of the new SG rate or need guidance on which payments constitute OTE, reach out to us.

Do you have a side-hustle?

gemma@dickfosdunn.com.au (Brad Dickfos) — Mon, 19 Jun 2023 22:46:18 GMT

With the cost-of-living skyrocketing, have you taken up a side-hustle? With new and emerging ways to make money, the ATO is reminding taxpayers to consider if they are 'in business' and to declare to their tax agent if they are engaged in a side-hustle.

Record number of taxpayers are now working multiple jobs or supplementing their income with 'side-hustles' or 'gig' economy activities.

ATO Assistant Commissioner Tim Loh said if you earn money through continuous and repeated activities for the purpose of making a profit, then it's likely you're running a business.

"While there are always new and different ways to make money, the tax obligations remain the same. Don't fall into the trap of forgetting to include all your income thinking the ATO won't notice. You also need to declare any additional income earned through that side-hustle.

Businesses have a range of obligations depending on their structure and turnover, including registering for an Australian business number (ABN), keeping the right records and lodging the right type of tax return. They may also have to register for GST.

The ATO is running an advertising campaign to remind taxpayers about their obligations if their side-hustle is generating income.

Mr. Loh said:

"With tax time just around the corner, if you are bolstering your income with new activities, make sure all your records are up-to-scratch. This could be anything from animal breeding to earning income through digital platforms, such as ride share or food delivery, or even online content creation, like social media influencers.

If your home has become more like a warehouse and is stocked to the hilt with goods to sell, then you may in fact be running a business. If you're running bootcamp sessions, in addition to your 9-5 job, well this is a side-hustle and you need to declare this to the ATO.

If you're an online content creator earning money or receiving gifts, you're also likely to be running a business and there are tax obligations you need to comply with."

Mr. Loh acknowledged sometimes it's hard to tell if you're 'in business' and we recognise not everything you do to make money is considered a business. The ATO won't consider activities as 'in business' when they are a one-off transactions (unless it is the first step in carrying on a business or intended to be repeated) or an activity from which you don't seek to make a profit.

The ATO has sophisticated data-matching and analytical tools to identify taxpayers that under-report their income. From 1 July 2023, the Sharing Economy Reporting Regime will commence and the ATO will receive data from more electronic distribution platforms. The ATO will match this information with the information taxpayers provide on their tax return or activity statement to identify income that has not been included.

Mr. Loh said:

"It doesn't matter whether you are carrying on a business or simply earning additional income through a digital platform, such as a website or even an app, you must keep accurate records of your income and include it in your tax return."

If you are finding your feet in business, we are here to support you.

ATO Tax Time - Focus Areas

Wed, 07 Jun 2023 02:01:22 GMT

With the end of the financial year on our doorstep, the ATO has announced its three key focus areas for 2022-23 Tax Time - rental property deductions, work-related expenses, and capital gains tax (CGT). To maximise your claims in this area and protect yourself from ATO audits and adjustments, be sure to keep the appropriate records.

Work-Related Expenses

This year the ATO is particularly focused on ensuring taxpayers understand the changes to the working from home methods and are able to back up their claims. To claim your working from home expenses as a deduction, you can use the actual cost method, or the revised fixed rate method, provided you meet the eligibility and record-keeping requirements.

In relation to depreciating of assets and equipment you will need records that show:

when and where you bought the item and its cost
when you started using the item for a work-related purpose
how you work out your percentage of work-related use, such as a diary that shows the purpose of and use of the item for work.

Chat to us if you have any questions around which method to use and the record to keep.

Capital Gains Tax

Capital Gains Tax (CGT) comes into effect when you dispose of assets such as shares, crypto, managed investments or properties. Inform us as your accountant if you have disposed of such assets between 1 July 2022 to 30 June 2023.

On the disclosure front, be mindful that the ATO has extensive data-matching capabilities, and, as such, will likely be able to detect the sale of most CGT assets.

Rental Property Deductions

Many landlords will expect large amounts of deductions to be claimed when their returns are lodged. However, your record keeping will significantly impact the deductions that can be claimed. Talk with us around the record keeping requirements if you are unsure.

Keep records of the following:

bank statements showing the interest charged on money you borrowed for the rental/commercial property
loan documents
land tax assessments
documents or receipts that show amounts you paid for:
advertising (including efforts to rent out the property)
bank charges
council rates
gardening
property agent fees
repairs or maintenance etc.
documents showing details of expenses related to:
the decline in value of depreciating assets
any capital work expenses, such as structural improvements
before and after photos for any capital works
travel expense documents, if you are eligible to claim travel and car expenses such as:
travel diary or similar that shows the nature of the activities, dates, places, times and duration of your activities and travel (you must have this if you travel away from home for six nights or more)
receipts for flights, fuel, accommodation, meals and other expenses while travelling
receipts for items you used for repairs and maintenance that you paid for when you travel to, or stayed near, the rental property.
documents that show periods of personal use by you or your friends
document that show periods the property is used as your main residence
loan documents if you refinance your property
documents, receipts and before and after photos for capital improvements
tenant leases
when you sell a property:
contract of sale
conveyancing documents
sale of property fees.

This year, the ATO is particularly focused on interest expenses and ensuring rental property owners understand how to correctly apportion loan interest expenses where part of the loan was used for private purposes (or the loan was re-financed with some private purpose).

Upcoming Trust Distribution Strategies - Latest Developments

Tue, 06 Jun 2023 22:29:38 GMT

If you run your business through a family trust, there's some good news on the distribution front.

In mid-April, the ATO responded to the landmark trust distribution case, namely the Guardian AIT appeal ruling in January by the Full Federal Court, with a decision impact statement that where the ATO concedes that it will have to amend its position on trusts, section 100A of the Income Tax Act, and reimbursements agreements. In the Guardian appeal, the Full Federal Court rejected the ATO's position that a reimbursements agreement existed in the Guardian case and so section 100A did not apply.

To recap, the ATO in February 2022 updated its guidance around trust distributions made to adult children, corporate beneficiaries, and entities that are carrying losses. Depending on the structure of these arrangements, potentially the ATO may take an unfavourable view on what were previously understood to be legitimate trust distribution arrangements. The ATO is chiefly targeting arrangements under section 100A, specifically where trust distributions are made to a low-rate tax beneficiary, but the real benefit of the distribution is transferred or paid to another beneficiary usually with a higher tax rate. In this regard, the ATO's Taxpayer Alert (TA 2022/1) illustrates how section 100A can apply to the quite common scenario where a parent benefits from a trust distribution to their adult children.

Moving forward, there are a number of tax-effective strategies that can be employed that will not fall foul of the ATO's interpretations in this area, including:

Only distribute to mum and dad

This would be quite safe from section 100A scrutiny. No person pays less tax as a result of any agreement, and this is unlikely to be seen as high-risk by the ATO.

Continue to distribute to young adult beneficiaries, but hand over the money

If you are happy to give money to your children, this can be achieved while at the same time optimising tax.

Charge board and current university fees

If adult beneficiaries are living at home, they should pay board (just as if they had a job). This will not add up to large sums, but arm's-length board for a full year could come to about $18,000. This allows for some tax arbitrage without handing the kids any money.

Use of bucket company

Having a private corporate beneficiary caps the tax rate imposed on trust income. Franked dividends can subsequently be flexibly allocated through having a trust structure interposed between the bucket company and the beneficiaries. The present entitlement can be lent back to the trustee for use in the business of the trust, although there are minimum repayment conditions. Avoid having the main trust as a shareholder in the bucket company. The ATO considers circular income flows to be high-risk.

Be alert for the "no reimbursements agreement" argument

If you are contemplating making a gift or an interest-free loan to another person, ask questions about the circumstances behind this plan. If it was not in contemplation at the time of the relevant appointment of trust income (up to two years ago), but has arisen because family circumstances have changed recently, there may not be a reimbursements agreement.

If making gifts, go once and go big

There are also other slightly bolder strategies.

If you operate your affairs through a discretionary trust, chat with us around your distribution options prior to the 30 June deadline.

Financing Motor Vehicles

Mon, 15 May 2023 23:04:12 GMT

One of the most common decisions facing business is how to finance and account for the acquisition of a motor vehicle. There are numerous way of doing do, with each resulting in differing accounting, taxation and GST treatment.

Options

How should you you go about purchasing a vehicle? While it may seem a relatively straightforward question, there are numerous ways of doing so. Some of the more common methods are:

Outright purchase
Lease
Hire purchase, or
Chattel mortgage.

Outright Purchase

The advantage of purchasing a vehicle outright, as opposed to financing the acquisition of the vehicle, is that there will be no ongoing costs of finance. This is a real benefit now that interest rates are on the rise. On the downside, the outright purchase of a vehicle can impact greatly on the cash resources of an entity when those funds may be better utilised elsewhere. It is far easier to obtain finance for the acquisition of a vehicle than it is for the acquisition of trading stock. Care should therefore be taken not to cripple your business's cashflow if considering an outright purchase.

Lease

Rather than choosing to acquire a vehicle outright, your business may elect to finance the acquisition. The central issue that surrounds any form of financing, and how it is to be accounted for, is whether the person providing the asset under the finance arrangement is the legal owner of that asset. This issue goes to the heart of how the finance transaction is to be treated and is often the subject of ATO scrutiny.

The ATO has warned taxpayers about the trap of claiming deductions for what appear to be lease payments when in fact the finance arrangement is a hire purchase or similar type of transaction. The only way to identify the difference is to read the terms and conditions of the finance agreement.

The ATO will consider a finance arrangement to be a lease when:

there is no option to purchase the vehicle written into the agreement, and
the residual value reflects a bona fide estimate of the vehicle's market value at termination.

If these two conditions are not met, the ATO considers the finance agreement to be a hire purchase or other instalment type agreement.

Under a leasing arrangement, the lease payments are a deductible amount to the extent the vehicle is used for income producing purposed, and the financed sum is not typically booked on the balance sheet of the entity.

Hire Purchase

This is simply another form of finance. Its tax and GST treatment however is vastly different from both that of leasing and acquisition by chattel mortgage. As a result, this form of finance needs to be considered on its own merits.

In essence, a hire purchase arrangement is an agreement to purchase goods by instalments. The term hire purchase is defined as:

"a contract for the hire of goods where:

the hirer has the right or obligation to buy the goods; and
the charge that is or may be made for the hire, together with any amount of payable under the contract (including an amount to buy the goods or to exercise an option to do so), exceeds the price of the goods; and
title in the goods does not pass to the hirer until the option to purchase is exercised; or
where the title in the goods does not pass until the final instalment is paid".

Unlike a lease, where there is no obligation to acquire the goods at the end of the instalment period, a hire purchase arrangement provides for this obligation and as such the goods will be eventually owned by the purchaser.

Chattel Mortgage

A chattel mortgage from the perspective of recording the asset purchase and recognising the liability is identical to that of a hire purchase arrangement. The difference between a chattel mortgage and other forms of finance such as hire purchase and lease comes when dealing with the GST consequences.

Not sure? Please contact us if you would like to discuss your options and the tax consequences.

Temporary Full Expensing: get in quick!

Wed, 03 May 2023 23:22:50 GMT

This could be the final opportunity for your business to take advantage of Temporary Full Expensing ( TFE )…but get in before 1 July!

To recap, TFE encourages and supports businesses by allowing an immediate deduction for the business portion of the cost of a depreciating asset. There is no cost threshold - the whole cost of the asset can be written off in the relevant year. However, cars can only be depreciated up to the car limit which is currently $64,741. The car limit does not, however, apply to vehicles fitted out for use by people with a disability. For background, a car is defined as a motor vehicle designed to carry a load of less than one tonne and fewer than nine passengers (excluding motor cycles and similar). Therefore, for those vehicles, the car limit has no application, and full depreciation is available.

Benefits

The principal benefit of TFE is cashflow. TFE enables business to bring forward their depreciation claims, and therefore their deductions upfront, into a single year rather than having them spread out over multiple future years. Ultimately, this assists cashflow which itself is one of the main challenges faced by businesses.

Eligibility

The vast majority of businesses including sole traders will be eligible for TFE as their aggregated annual turnover will be less than $5 billion. Until 30 June 2023, under TFE, businesses can claim both new and second-hand depreciating assets where those assets are used or installed ready for use for a taxable purpose. From a timing standpoint, this means you will not be eligible for TFE in this financial year if you merely order or pay for an eligible asset before 1 July 2023 - rather, the asset must be used or installed ready for use in your business before this date.

Ineligible Assets

Most business assets are eligible including machinery, tools, furniture, business equipment etc. There are however some ineligible assets as follows:

buildings and other capital works for which a deduction can be claimed under the capital works provisions in division 43 of the Income Tax Assessment Act 1997
trading stock
CGT assets
assets not used or located in Australia
where a balancing adjustment event occurs to the asset in the year of purchase (e.g. the asset is sold, lost or destroyed)
assets not used for the principal purpose of carrying on a business
assets that sit within a low-value pool or software development pool, and
certain primary production assets under the primary production depreciation rules (including facilities used to conserve or convey water, fencing assets, fodder storage assets, and horticultural plants (including grapevines)).

Business Plan

Because under TFE you cannot claim any extra depreciation deductions than under the standard depreciation rules, you should stick to your business plan and only continue to buy assets that align with that plan and that you were contemplating buying anyway...and then enjoy the cashflow benefits of TFE.

If you have any questions about TFE - especially around asset eligibility and timing leading up to 30 June - reach out to us.

Lost Super

Wed, 26 Apr 2023 23:27:39 GMT

Did you know there is around $16 billion in lost and unclaimed superannuation across Australia? The ATO recently indicated this is an increase of $2.1 billion since last financial year and is urging Australians to check their account to see if some of the money is theirs.

How to find lost or unclaimed super

Finding lost or unclaimed superannuation is easy and can be done in a matter of minutes.

To find and manage your superannuation using ATO online services:

Sign in or create a myGov account
Link your myGov account to the ATO
Select "Super"

You can then find and consolidate your super.

Alternatively, if you are unable to access ATO online services, you can call the ATO's lost super search line on 13 28 65. You will need to provide information such as your personal details, contact details and superannuation fund details.

Who can have lost super?

People often lose contact with their superannuation funds when they change their job, name, address, live overseas, or simply forget to update their details.

Lost super is superannuation money held by superannuation funds. You become a "lost member" and your superannuation becomes "lost" if you are:

Uncontactable - the fund has lost contact with you and your account hasn't received a contribution or rollover for at least 12 months.
Inactive - your account hasn't received a contribution or rollover in five years.

Your fund will hold your lost super until they find you. If they can't find you, some types of lost super will be transferred to the ATO.

Who can have unclaimed super?

Unclaimed super is money funds and are required to transfer to the ATO twice a year.

Generally, super will be transferred to the ATO from superannuation providers for any of the following:

Unclaimed super of members aged 65 years or older, non-members spouses and deceased members
Superannuation of former temporary residents who have left Australia for six months or more and their visa has expired
Small lost member accounts (with balances of less than $6,000)
Insoluble lost member accounts (ie. lost accounts which have been inactive for a period of five years and have insufficient records to ever identify the owner of the account.
Inactive low balance accounts
Accounts held in eligible rollover funds that were transferred to the ATO before they wind up
Amounts your fund transferred to the ATO on a voluntary basis when they determine that it is in your best interest.

Don't wait, start looking!

Superannuation is one of the most important investments many Australians will have during their lifetime. Make sure you search for any lost of unclaimed super you may have as bringing it all together may help you save on fees and will also make it easier to manage your retirement savings.

For information on how to manage your superannuation and view all your superannuation accounts, including lost and unclaimed super in myGov, contact us today.

Proposed Tax on $3m Super Balances

Tue, 11 Apr 2023 23:08:00 GMT

Individuals with large superannuation balances may soon be subject to an extra 15% tax on earnings if their balance exceeds $3m at the end of a financial year.

What has been proposed?

Recently, the government announced it will introduce an additional tax of 15% on earnings for individuals whose total superannuation balance (TSB) exceeds $3m at the end of a financial year.

Those affected would continue to pay 15% tax on any earnings below the $3m threshold but will also pay an extra 15% on earnings for balances over $3m.

The proposal will not impose a limit on superannuation account balances in the accumulation phase, rather it is about how generous the tax concessions are on higher balances.

The government has confirmed the changes will not be applied retrospectively and will apply to future earnings, coming into effect from 1 July 2025. This means your balance in superannuation at 30 June 2026 is what matters initially.

What counts towards the $3m threshold?

The $3m threshold is based on your TSB and includes all of your superannuation accounts. This includes your accumulation and pension accounts and all superannuation funds you may have (such as your SMSF and any APRA-regulated superannuation funds you have).

Further, the $3m threshold is per member, not per superannuation fund. This means a couple could have just under $6m in superannuation/pension phase before being impacted by the proposals.

How will earnings be calculated?

Put simply, the extra 15% tax is unrelated to the actual taxable income generated by your superannuation fund. Rather, it is a tax on earnings or increases in account balances over $3m (including unrealised gains and losses).

This means any growth in balances will include anything that causes your account balance to go up - such as interest, dividends, rent, and capital gains on assets that have been sold, including any notional or unrealised gains on assets that increase in value, even if your fund hasn't sold them.

Apart from the extra 15% tax, the taxation of unrealised gains is what has caused a stir, as currently individuals do not pay tax on income or capital gains on assets that have not been sold.

When looking at how to capture growth in a person's TSB over a financial year, earnings will be calculated based on the difference in TSB at the start and end of the financial year, and will be adjusted for withdrawals and contributions.

It is also worth noting that negative earnings can be carried forward and offset against this tax in future years' tax liabilities.

How is the extra 15% tax calculated?

Superannuation funds, including SMSFs, will not be required to calculate the earnings attributable to a member's balance above $3m. Rather, the ATO will use a three-step formula to calculate the proportion of total earnings which will be subject to the additional 15% tax.

How will the extra tax be paid?

Individuals will be notified of their liability to pay the extra tax by the ATO. This means the ATO, not their superannuation fund, will issue members with a tax assessment.

Individuals will have the choice of either paying the tax themselves or from their superannuation fund(s) (if they have multiple funds).

The tax will be separate to the individual's personal income tax liabilities.

Don't fret just yet - The measure is due to start from 1 July 2025, so superannuation funds and members still have time to consider their options.

Remember, this measure is still a proposal and must be passed into legislation by Parliament to become law. So don't rush to remove benefits below the $3m limit just yet as once amounts have been withdrawn from superannuation, it's hard to get them back in.

If you have any questions or would like to discuss this proposal in further detail, please contact us for a chat.

Trust Distribution Landscape Now More Settled

Mon, 03 Apr 2023 01:53:00 GMT

If you carry on your business affairs through a trust structure, there is now more clarity around the law on distributions following much uncertainty through the year.

Neither the taxpayer, Mr. Springer, nor the Commissioner has appealed against the Full Federal Court decision handed down in January 2023 ( Commissioner of Taxation v Guardian AIT Pty Ltd ATF Australian Investment Trust [2023] FCAFC 3).

Readers will recall that the Full Court ruled against the Commissioner on the section 100A issue, but upheld his Part IVA determination for the 2013 year on the basis that the taxpayer has not demonstrated that absent the scheme (involving a distribution to a corporate beneficiary that was paid back to the trust as a franked dividend and on-paid to the non-resident, Mr. Springer, without any top-up tax) the trust would have done something other than making a distribution directly to Mr. Springer. The Commissioner was unsuccessful with his Part IVA appeal for the 2012 year, when events were still said to be evolving.

Mr. Springer may well have decided he's done well enough, having succeeded in challenging all but one of the income years attacked by the Commissioner.

The Commissioner may have been disappointed with the section 100A outcome, but will probably rationalise the decision on the basis that it turned very much on its own facts - at the time the 2013 resolution was made to appoint trust income there was no certainty that the corporate beneficiary would pay a franked dividend back up to the trust.

But he would have been quite pleased with the Part IVA result, which confirms that the 2013 amendments have been effective in disposing of the "do nothing" alternative postulate that was successfully relied upon by RCI, News Corp and Futuris .

The legal and practical upshot of the Part IVA decision is that the taxpayers can now be taxed on notional transactions with a very high tax cost that they would not have contemplated entering into in a million years. Just goes to show that taxpayer success in the courts can be undone by the stroke of a legislative pen.

The Full Federal Court ducked the issue of the ordinary dealing exception, which it was entitled to do, given its conclusion that there was no reimbursement agreement. But that outcome is regrettable at a broader level. Absent further guidance from the Full Court, we are left with some encouraging comments from Logan J at first instance (about the lack of artificiality) which the Commissioner reads down in TR 2022/4.

Hopefully the Full Court's decision in a case known as BBlood , expected later this year, will shed further light on the issue. Given the decision at first instance, it seems unlikely the taxpayer will succeed on the ordinary dealing question in that case. However, the appeal decision may include some helpful guidance from the Full Court, even if the taxpayer is unsuccessful.

In the meantime, 30 June is rushing towards us, and family trusts need to be considering their position in relation to upcoming trust resolutions. Chat with us to establish your distributions for this year which may be governed, among other things, by your appetite for risk within the confines of the law.

FBT and Car Logbooks

Thu, 23 Mar 2023 22:46:52 GMT

With the end of the FBT year approaching, are your car logbooks in order?

The operating cost method is used by many employers to calculate their car FBT liability. This method is particularly effective where the business use of the vehicle is high. Keeping a logbook is essential to use the operating cost method.

Employees need to prepare a logbook for any vehicle that you provide them with where there is an element of private use. The logbook period is for 12-weeks, which must be representative of typical usage. For example, a period where an employee is taking a block of annual leave is not representative.

Where employees share a vehicle during a year, each employee will need to prepare a logbook to substantiate their respective business use percentage.

Logbooks are valid for five FBT years (including the year the logbook is prepared), provided there is no significant change in the vehicle's business use. Once the five-year period expires, a new logbook will need to be kept if you wish to continue using the operating cost method. Therefore, if a logbook was last prepared in 2017/18, a new logbook is required for this FBT year (2022/23).

As noted, a new logbook will need to be prepared where there is a significant change in the business use of a vehicle. Indeed, it is in an employer's interests for a new logbook to be prepared where the business use of the vehicle increases, as this will result in a decreased FBT liability.

With just weeks to go in the FBT year, if a new logbook is required to be kept, but has not yet been...don't panic! The 12-week period can overlap two FBT years provided it includes at least part of the relevant year.

The logbook must contain:

- when the logbook period begins and ends

- the odometer readings at the start and end of the logbook period

- the total number of kilometres travelled during the logbook period

- the number of kilometres travelled for each journey. If you make two or more journeys in a row on the same day, you can record them as a single journey

- the business use percentage for the logbook period

- the make, model, engine capacity and registration number of the car.

For each journey, record the:

- reason for the journey (such as a description of the business reason or whether it was for private use). Note that a generic description of a journey, such as "business use", is not adequate

- start and end date of the journey

- odometer readings at the start and end of the journey, and

- kilometres travelled.

These entries should be made contemporaneously, as soon as possible after each trip.

It's a common misconception among employers with commercial vehicles such as dual-cab utes that they are automatically exempt from FBT and therefore there is no requirement to maintain a logbook. This is generally only the case where the private use is negligible.

If you are uncertain about your FBT logbook obligations, contact us.

New Work From Home Record Keeping Requirements

Mon, 06 Mar 2023 00:03:03 GMT

Are you one of the five million Australians who claim work from home deductions? If so, stricter record-keeping rules may now apply.

For this financial year and moving forward, there are now only two methods to calculate your work from home claim:

Revised fixed rate method (with new rules applying)
Actual costs method (unchanged).

The actual costs method has never been all that popular because you need to keep records of every expense incurred and depreciating asset purchased, as well as evidence to show the work-related use of the expenses and depreciating assets. By way of example, to claim electricity expenses, the ATO suggest that you need to find out the cost per unit of power used, the average amount of units used per hour (power consumption per kilowatt hour for each appliance) and the number of hours the appliance was used for work-related purposes.

For this reason, the fixed rate method has been preferred (or in recent years the COVID shortcut method where you could simply claim 80 cents for each hour worked from home. Note however that the COVID method is no longer available).

The fixed rate method has now been revised. The revised fixed-rate method increases your claim from 52 cents to 67 cents per-hour. However, this rate now includes internet, phone, stationery and computer consumables. Therefore, you can't claim these expenses separately in addition to your home office fixed-rate deduction. Cleaning expenses and depreciation on office furniture are no longer included in the fixed rate. Therefore, you can now claim these expenses separately.

The record-keeping requirements under the revised fix rate method are now more onerous, also. You now need to keep a record of actual hours worked from home. The ATO will accept a record in any form, but it suggests either:

- Timesheets

- Rosters

- Logs of time spent accessing systems

- Time-tracking apps; or

- A diary.

The ATO will no longer accept estimates, or a four-week representative diary.

This new, strict record-keeping requirement applies from 1 March 2023. For the period before it (1 July 2022 to 28 February 2023) the ATO will accept a four-week representative diary.

Further, under the revised fixed rate method, you will now also need to provide at least one documents for each type of expense to demonstrate that you actually incurred that expense. For example, if you receive electricity bills quarterly, you will need to keep one of those quarterly bills as a record to represent that year's electricity expenses.

If you have any questions around these stricter rules, and how they may impact you, reach out to us.

ATO Finalises Section 100A Guidance for Family Trusts

Fri, 03 Feb 2023 01:02:15 GMT

Do you operate your business via a family trust? The ATO released its final guidance material on the application of section 100A on 8 December 2022 - TR 2022/4 and PCG 2022/2. In doing so, it has fortunately clarified a number of issues.

To recap, the ATO in February 2022 updated its guidance around trust distributions made to adult children, corporate beneficiaries and entities that are carrying losses. Depending on the structure of these arrangement, potentially the ATO may take an unfavourable view on what were previously understood to be legitimate distribution arrangements. The ATO is chiefly targeting arrangement under section 100A of the Tax Act, specifically where trust distributions are made to a low-rate tax beneficiary but the real benefit of the distribution is transferred or paid to another beneficiary usually with a higher tax rate. In this regard, the ATO's Taxpayer Alert (TA 2022/1) illustrates how section 100A can apply to the quite common scenario where a parent benefits from a trust distribution to their adult children.

The final guidance is not the law and represents no more than the ATO's view about how the law applies. It carries no legal authority, and clients in consultation with us as your advisor may consider venturing out into deeper and rougher waters, depending on your circumstances.

Following the release of the ATO material, there are a number of risk management options going forward:

Only distribute to Mum and Dad

This would be quite safe from section 100A scrutiny. No person pays less as a result of any agreement, and this is unlikely to be seen as high-risk by the ATO.

Continue to distribute to young adult beneficiaries, but hand over the money

If you are happy to give money to your children, this can be achieved while at the same time optimizing tax.

Charge board and current university fees

If adult beneficiaries are living at home, they should pay board (just as if they had a job). This will not add up to large sums, but arm's length board for a full year could come to about $18,000. This allows for some tax arbitrage without handing the kids any money.

Use of bucket company

Having a private corporate beneficiary caps the tax rate imposed on trust income. Franked dividend can subsequently be flexibly allocated through having a trust structure interposed between the bucket company and the beneficiaries. The present entitlement can be lent back to the trustee for use in the business of the trust, although there are minimum repayment conditions. Avoid having the main trust as a shareholder in the bucket company. The ATO considers circular income flows to be high-risk.

Be alert for the "no reimbursement agreement" argument

If making gifts, go once and go big

You are unlikely to escape ATO attention if you have beneficiaries making gifts or loans year-after-year. So, where there is a strong argument to support the ordinary dealing exception, try to make it once-off, and for a significant amount if possible.

If you are impacted, reach out to us to determine which option is best for you and your business.

Can You Use Your SMSF Property Upon Retirement?

Fri, 03 Feb 2023 00:57:09 GMT

Many SMSF trustees wonder if they can live in their SMSF property once they retire. This is a common question particularly as property is such a popular SMSF investment.

However, despite superannuation being your own money, there are certain rules around accessing your superannuation which prohibit you from not only using your superannuation to purchase a property, but to live in it now and in retirement.

Property as an SMSF Investment

Superannuation law allows SMSF trustees to purchase property via their SMSF. However there are strict rules regarding the purchase of property and how it can be used.

For Example, the law allows you to purchase property through your SMSF provided the property:

Meets the 'sole purpose test' of solely providing retirement benefits to fund members.
Complies with the SMSF's investment strategy which must allow the acquisition of property.
Is not acquired from a related party of a member (except for business real property).
Is not lived in by a fund member or any fund members' related parties, and
Is not rented by a fund member or any fund members' related parties (except for business real property).

It should also be noted that the title of the SMSF property must be held by the trustees on behalf of the superannuation fund and rent from the SMSF property must also be paid into the SMSF. As owner of the property, your SMSF is responsible for all costs related to the upkeep and maintenance of the property.

As can be seen, the rules around how a SMSF manages investments are stringent and therefore prohibit you from living in a property owned by your SMSF.

What is the Sole Purpose Test?

The sole purpose test is an important rule that must be considered when purchasing investments, such as property, by your SMSF.

For your SMSF to be eligible for concessional tax treatment, your fund must meet the sole purpose test. The sole purpose test required a superannuation fund to be maintained for the sole purpose of providing retirement benefits to its members, or to their dependents if a member dies before retirement.

In other words, the superannuation sole purpose test dictates that your investments must be for the benefit of your retirement and therefore cannot enhance your own personal lifestyle needs. Your SMSF will fail to meet the sole purpose test if your SMSF provide a pre-retirement benefit to yourself as a member of the SMSF.

The risk of contravening the sole purpose test could cause your fund to lose its concessional tax treatment and you as a trustee could also face civil and criminal penalties.

What are my Options at Retirement?

Upon retirement, the only way you can move into a property that has been purchased by your SMSF is by transferring the property from your SMSF to you as a member in your own personal capacity. This is also known as an 'in-specie transfer' meaning your SMSF transfers its asset to you personally.

Undertaking an in-specie transfer will avoid breaching the sole purpose test in the event that you reside in the property as you will not be obtaining a present-day benefit or personal use of an SMSF asset.

An in-specie transfer is only possible once you meet a condition of release (such as retirement after reaching your preservation age or ceasing a gainful employment arrangement after reaching age 60) and are legally allowed to access your superannuation.

Beware of Perils of Tax and Duties

It is important to carefully consider any potential capital gains tax (CGT) on a transfer of property between an SMSF and the members of an SMSF in their personal capacity. Generally speaking, if a property solely supporting the payment of one or more pensions for fund members, CGT may not apply. Further, any potential transfer or stamp duty must also be considered as it may apply depending on your state or territory jurisdiction.

TAKE CARE! Just because you have reached preservation age or are retiring doesn't mean you can use or live in your SMSF owned property after retirement. If you're thinking about investing in property via your SMSF or are thinking about taking your SMSF-owned property out of your SMSF so you can use it for yourself, be sure to contact us for a chat before you make any decisions.

The SMSF Annual Audit

Sun, 19 Jun 2022 10:00:00 GMT

The SMSF Annual Audit

All SMSF trustees or directors must appoint an approved SMSF auditor to audit their fund every year. Not only is an annual audit mandatory but it must be conducted by an approved SMSF auditor who is registered with the Australian Securities and Investments Commission (ASIC).

But who is an approved SMSF auditor and what do you need to consider when appointing one for your SMSF?

Who is an Approved SMSF Auditor?

An SMSF auditor is responsible for analysing your fund’s financial statements and makes sure that your fund is compliant with superannuation law. They must report any non-compliance issues to all fund trustees and the ATO.

To qualify as an approved SMSF auditor, a person must demonstrate:

they hold the necessary academic qualifications, such as a degree (minimum three years) in accounting which included a course in auditing
they have at least 300 hours experience auditing SMSFs in the previous three years under the direction of an approved SMSF auditor
they have passed a competency exam, and
ASIC is satisfied that they:
are unlikely to contravene the ongoing obligations of an approved SMSF auditor
are capable of performing the duties of an approved SMSF auditor
are a fit and proper person to be an approved SMSF auditor
hold adequate and appropriate professional indemnity insurance
are an Australian resident
are not subject to an enforceable disqualification or suspension order.

To maintain their approved SMSF auditor status, auditors must satisfy continuing professional development requirements, maintain adequate and appropriate levels of professional indemnity insurance and report to ASIC annually.

Appointing an Approved SMSF Auditor

As an SMSF trustee, you must appoint your SMSF auditor no later than 45 days before your SMSF annual return (SAR) is due to be lodged.

Your SMSF auditor must be:

registered with ASIC’s “Search SMSF Auditor register” which can be found on ASIC’s website. This register will show the SMSF auditor’s number which you need to provide on your SAR, and
independent – they should not audit a fund in which they hold any financial interest, or where they have a close personal or business relationship with members or trustees.

Before an SMSF auditor can start an audit, you or your adviser must provide the auditor with all relevant documentation about your accounts and transactions for the previous financial year so they can conduct and finalise the audit. If your SMSF auditor requests more information from you, it must provided to the SMSF auditor within 14 days of the SMSF auditor’s written request.

Tip – an audit is still required even if no contributions or payments are made in the financial year.

SMSF Audit to be Finalised Before the SAR is Lodged

Your SMSF audit must be finalised before you lodge your SAR, as you'll need some information from the audit report to complete the SAR. You must also ensure that your auditor’s details are provided in the SAR, otherwise you may be penalised.

Your auditor should advise you of any breaches of the superannuation rules. As trustee, you should rectify any contravention as soon as possible.

Your auditor is also required to report certain contraventions to the ATO. Even if you terminated an auditor engagement or the auditor does not finish the audit, if they have identified a reportable contravention, they are obliged to report the contravention to the ATO.

Appoint an SMSF Auditor Early

Approved SMSF auditors have a critical role in helping to maintain the integrity of the SMSF sector through the annual audit of each SMSF. Make sure you appoint an approved SMSF auditor early to ensure the audit can be performed in sufficient time for the SAR to be lodged on time otherwise you could face severe financial penalties if you don’t appoint an auditor by the due date.

Reimbursement Versus Allowances

Sun, 12 Jun 2022 10:00:00 GMT

Reimbursement Versus Allowances

According to the ATO, the treatment of allowances is one of the most misunderstood areas of payroll. Whether it be misclassifying an amount as an allowance (when it’s actually a reimbursement) or applying the incorrect Payment Summary treatment, PAYG withholding, superannuation or payroll tax treatment, mistakes in this area are easy to make.

The Distinction

It’s important to define an allowance, and in particular distinguish it from a reimbursement as the payment summary, PAYG withholding, superannuation and payroll tax treatment can differ significantly. On the one hand, allowances:

Are generally assessable income to the employee
May be included on an employee’s payment summary
May attract superannuation, and
The employee may be able to claim a deduction against the allowance for a work-related expense incurred.

On the other hand, reimbursements:

Are generally not taxable to the employee
Will be fringe benefit taxable to the employer where they constitute an expense payment fringe benefit or a Living away from home allowance (LAFHA)
May be liable for payroll tax where they constitute a fringe benefit
Will not attract superannuation, and
The employee will not be able to claim a tax deduction for the original expense incurred.

According to Taxation Ruling TR 92/15, an “allowance” is “a definite sum of money allotted or granted to meet expenses or requirements”. An allowance usually consists of the payment of a definite or predetermined amount to cover an estimated expense, and is paid regardless of whether the recipient incurs the anticipated expense. An amount is not an allowance if it’s just folded in to normal salary and wages. Rather an allowance must be a separately identifiable payment made to an employee for:

Working conditions – e.g. a danger allowance, on-call allowance
Qualifications or special duties – e.g. first aid officer allowance
Expenses that cannot be claimed as a tax deduction by the employee – e.g. travel between home and work, or
Work related expenses that may be able to be claimed as a tax deduction by the employee – e.g. travel between work sites or a uniform allowance for a compulsory uniform.

On the other hand, a payment is a reimbursement when the employee is compensated exactly (i.e. precisely, not approximately), for an expense they have already incurred. In the case of a reimbursement, the employer considers the expense to be their own, with the employee effectively incurring the expenditure on behalf of the employer. With a reimbursement, the employee will almost always be required to produce evidence to the employer of the exact amount and nature of the expense (e.g. receipt), before the amount is reimbursed to them.

Be aware that reimbursements may constitute an expense payment fringe benefit. The main exception is where the expense would otherwise be deductible to the employee had they paid the expense themselves. In that case, it would generally be FBT exempt.

SMSFs Borrowing to Invest

Sat, 21 May 2022 21:00:03 GMT

SMSFs Borrowing to Invest

Thinking about using your SMSF to borrow to invest? SMSF borrowing has become a popular way of maximising retirement savings because it allows you to increase the amount available to invest within your SMSF.

SMSFs are generally not allowed to borrow money. However there are some limited exceptions including borrowing to invest under a specific type of borrowing arrangement called a ‘limited recourse borrowing arrangement’ (LRBA).

What is an LRBA?

An LRBA is a type of loan structure designed for SMSFs that involves establishing a ‘holding trust’ (also called a ‘bare trust’) where the trustee of this trust (also known as the custodian) legally holds the asset on behalf of the SMSF trustee/director.

The borrowing must be on a ‘limited recourse’ basis for the purpose of acquiring an asset that is held on trust until the borrowing has been repaid. This means the lender’s recourse is limited to the asset being bought under the arrangement. For example, if your SMSF is unable to meet its loan obligations, the bank can only access the asset that was purchased using the loan (ie, the bank cannot take other assets of the fund).

However, to protect themselves from this happening, most banks require you to provide a personal guarantee for the loan so that in the event of a default, the bank would seize your personal assets given that they can’t access your SMSF assets. This potential personal exposure should be factored in when contemplating entering into an LRBA.

The Holding Trust

As mentioned above, a LRBA involves establishing a ‘holding trust’ for the sole purpose of legally holding the asset on behalf of the SMSF for the duration of the loan. This holding trust arrangement recognises that the asset is to be held by the trust until the debt is repaid, at which point legal ownership can pass to the SMSF.

The asset that is held on trust for the SMSF must be an asset that the SMSF would be permitted to invest in directly. In most cases, an LRBA is used to purchase real property. However, it may also be possible to purchase a parcel of shares in the same company or units in a managed fund using an LRBA, subject to certain conditions being met.

The diagram below illustrates the structure of a typical LRBA.

Once the loan has been repaid, the arrangement can then be unwound and legal title to the asset transferred to the SMSF or the holding trust can continue to hold the asset.

The Pros

Using a LRBA can allow your SMSF to purchase an asset (ie, property) which may otherwise be out of reach were the SMSF not to borrow.

Your SMSF will receive all of the income and deductions, without having to fund the entire purchase price upfront.

Growth of the asset occurs in the concessionally taxed superannuation environment. That is, superannuation funds pay tax at a maximum rate of 15% and the rate of tax on capital gains where an asset is held for more than 12 months effectively reduces to 10% on the ultimate disposal of the asset. Further, if the asset is a segregated pension asset and fully supports a retirement phase pension interest at the time of disposal, capital gains tax may not be payable at all.

SMSF members can make contributions to superannuation, including tax deductible contributions, in order to pay down the LRBA.

The Cons

Potential personal exposure in the event of a loan default by the SMSF (see earlier).

LRBAs are complex as certain conditions must be met in order for the LRBA to comply with superannuation law. This means advice from qualified professionals is needed to set them up which can increase the set up costs when compared to borrowing outside of the superannuation environment.

Potential stamp duty costs and implications can arise from setting up the LRBA structure.

If the strict requirements of the LRBA rules are not met, the fund will be in breach of the superannuation law which could result in severe penalties for your SMSF.

An LRBA can only be used to purchase a ‘single acquirable asset’, which can be quite restrictive.

Although gearing can deliver benefits when the capital value of the investment increases, gearing can also magnify losses if the capital value of the investment falls. Thus, the profitability of a gearing strategy depends on the income and capital growth of the proposed investment being greater than the borrowing and ongoing costs.

Potential illiquidity risk – if the asset acquired represents a large portion of the SMSF's total assets and the asset cannot be sold quickly in order for the SMSF to meet its obligations, the SMSF may need to sell the asset at an inappropriate time, such as when it is valued at less than the amount outstanding on the loan.

If the asset is property:

There is a potential risk that tenants are unable to pay rent, or the property is not rented.
There are restrictions on the type of work that can be carried out on a property while the LRBA is still in place. This is because SMSFs cannot significantly change the character of the property while it is subject to borrowing. For example, a vacant block of land could not be built on, nor subdivided, while the loan is still in place.

The outstanding balance of the LRBA entered into from 1 July 2018 is included in your total superannuation balance if:

You satisfy a condition of release that allows you full access to your superannuation (ie, such as retirement, terminal illness, permanent incapacity and reaching age 65), or
The loan is provided by an associate, which includes members of the SMSF, relatives and related entities (such as companies and trusts).

As can be seen, there are a number of rules to follow so it is crucial you seek specialist advice to determine whether LRBAs are right for your SMSF.

This information is general in nature. It has been prepared without taking into account your objectives, personal or business circumstances, financial situation or needs. Because of this, you should, before acting on this information, consider in consultation with your adviser, its appropriateness, having regard to your objectives, personal or business circumstances, financial situation and needs.

Extra Deductions for Staff Training

Sat, 07 May 2022 21:00:04 GMT

Extra Deductions for Staff Training

One of the key features of the recent federal budget handed down by the government was a proposal for extra deductions for employers for expenditure incurred in training their staff. Let’s take a closer look.

Proposal

Small businesses with an aggregated annual turnover of less than $50 million will be able to deduct an additional 20% of expenditure incurred on eligible training courses provided to employees. The 20% boost will apply to eligible expenditure incurred from 7:30pm (AEDT) on 29 March 2022 (Budget night) until 30 June 2024.

Of course, this measure is subject to the passage of legislation through Parliament, which may also be subject to the government winning the upcoming election. For its part, the opposition has not ruled out adopting this proposal should it form the next government.

Key Points

There are a few key points to note about the new 20% bonus deduction proposal:

It appears to apply only to expenditure on eligible training courses provided to employees . Therefore, depending on how the legislation is drafted, it may not apply to people acting under their own steam e.g. as sole traders

The announcement referred to training delivered by “organisations registered in Australia”. This may potentially mean only training delivered by registered training organisations (RTOs) will be eligible. Again, this will depend on the final form of the legislation.

Private components, such as side tours, would remain private and non-deductible. There are also questions around whether the legislation will extend the bonus deduction to “holiday conferences” – again this will depend on the wording used. It may require conferences to be split into non training costs (the travel and accommodation) on the one hand, and training costs (such as the actual course fee) on the other hand.

The good news though is that even if the above criteria is not met in relation to the new 20% bonus deduction proposal, businesses may continue to deduct expenditure that is ineligible for the bonus deduction in accordance with the existing tax law which is wider than the proposed new 20% bonus deduction. In this sense, the new bonus deduction proposal is in addition to the existing law, it does not appear to change it.

Timing

For expenditure incurred from Budget night to 30 June 2022, the ATO advise to claim 100% in your upcoming 2021/22 tax return, and then the extra 20% in your 2022/23 return (subject of course to the passage of the legislation).

The bonus 20% for eligible expenditure incurred between 1 July 2022 and 30 June 2024, will be included in the income year in which the expenditure is incurred.

Transitioning to Retirement

Mon, 02 May 2022 21:00:03 GMT

Transitioning to Retirement

Thinking about easing into retirement and maintaining your lifestyle? The transition to retirement (TTR) strategy can help you achieve this and help you access some of your superannuation while you keep working.

How the TTR Strategy Works

If you've reached your preservation age (between 55 and 60) and are still working, setting up a TTR pension could provide you with greater financial flexibility by enabling you to withdraw up to 10% of your superannuation each financial year while continuing to work.

You can start a TTR pension by transferring some of your superannuation to an account-based pension (ABP), which is a regular income stream bought with money from your superannuation fund.

However, you should keep some money in your superannuation fund to continue to receive your employer’s compulsory superannuation guarantee (SG) contributions, or any other voluntary contributions you wish to make to your fund.

There are two main TTR strategies that can be used to help you:

Supplement your income if you reduce your work hours, or

Boost your superannuation and save on tax while you keep working full time.

Using a TTR Strategy to Reduce Your Work Hours

If you want to reduce your work hours and ease into retirement, a TTR strategy can top up your income.

Some of the main advantages of this strategy include:

Ease into retirement – you can start easing into retirement without retiring completely.

You continue to receive SG contributions – these contributions help to replace the money you take out as pension payments.

You pay less tax on income (discussed below).

Using a TTR Strategy to Reduce Your Tax

By setting up a TTR pension, you could choose to work less, or continue working the same hours while salary sacrificing or making personal, deductible contributions into superannuation.

In both cases, you could use the income from your TTR pension to supplement any reduction in your take-home pay.

Some of the main advantages of this strategy include:

Boost your superannuation – a TTR pension can be used with salary sacrificing to top up your superannuation as you approach retirement.

Save tax – you pay 15% tax on salary sacrificed contributions which is likely to be lower than your marginal tax rate (MTR).

You pay less tax on income (discussed below).

How Much Can be Withdrawn From My TTR Pension?

You must draw a minimum of 4% with a maximum of 10% of your TTR pension balance at the start of each financial year. This means you can choose pension payments anywhere between your minimum and maximum payment limit each year.

But note that a TTR pension doesn’t allow you to withdraw your superannuation as a lump sum. This can generally only be done once you’ve reached your preservation age and met certain conditions of release, such as retirement.

How are TTR Pensions Taxed?

If you are 55 to 59, the taxable amount of your income from a TTR pension is taxed at your MTR, less a 15% tax offset.

Once you turn 60, your TTR pension payments are tax free.

Investment earnings of a TTR pension are subject to the same maximum 15% tax rate as superannuation accumulation funds.

What Happens When I Decide to Permanently Retire?

Once you reach age 65 or advise your superannuation fund that you’ve retired permanently, your TTR pension will automatically convert to an ABP.

Although a TTR pension has the same rules as an ABP, it does have the following additional restrictions:

Lump sum withdrawals are generally not permitted, and

A 10% maximum income stream payment restriction applies each financial year.

Thus, a TTR pension converting to an ABP may have more advantages/flexibility as it will continue to give you a regular income in retirement and you won’t be limited to what you can withdraw, even though there are annual minimum withdrawal amounts that must be made each year.

Seek Advice

You should seek financial advice before deciding if a TTR strategy is right for you as it could help you understand the possible benefits and implications for your particular circumstances.

Small Business Lifetime CGT Cap

Mon, 25 Apr 2022 21:00:06 GMT

Small Business Lifetime Cap

Are you a small business owner selling your business or disposing of an active business asset? If so, did you know you might be able to disregard some or all of any capital gain by putting the proceeds into superannuation?

Lifetime CGT Cap

If you are a small business owner and want to sell your business or dispose of an active asset, you may be eligible to disregard some or all of the capital gain resulting from the disposal under the small business CGT concessions.

In addition, you may be able to contribute some or all of the sale proceeds to superannuation and elect for the contributions to count towards the lifetime CGT cap.

The lifetime CGT cap for 2021/22 is $1.615 million (indexed annually) and operates separately from the non-concessional contribution (NCC) and concessional contribution (CC) caps, allowing you to get more money into superannuation.

Amounts that Qualify Under the Lifetime CGT Cap

Although there are four small business CGT concessions, only two are relevant for superannuation contributions. Amongst other eligibility criteria that must be met, you must generally have aggregated business turnover of less than $2 million or have net assets of less than $6 million.

The two small business concessions that count against the lifetime CGT cap for retirement purposes include:

The 15-year CGT exemption, and
The retirement exemption.

The 15-year Exemption

The 15-year exemption counts towards the lifetime CGT cap before other small business CGT concessions are applied. The exemption allows the capital gain received from the sale or disposal of an active business asset to be disregarded if it has been owned by the small business for at least 15 years.

This means you may be able to use the entire lifetime CGT cap of $1.615 million as this amount can include all proceeds from the sale of active business assets.

However, if you are claiming this concession, you must be older than 55 at the time of the sale or disposal and the amount received must be in connection with your retirement.

If the 15-year exemption does not apply, you can consider other available CGT small business concessions (ie, the 50% active asset reduction, the CGT rollover exemption, and/or the 50% general CGT discount for individual taxpayers).

The Retirement Exemption

This concession can exempt a capital gain on a business asset, up to a lifetime limit of $500,000 (non-indexed) per qualifying individual.

If you wish to contribute more of the sale proceeds, it must be done as CC or NCC, assuming you’re eligible to contribute to superannuation.

Note, there is no requirement for you to retire despite the name of this concession. Upon meeting certain conditions, even an individual under the age of 55 could be eligible for this tax concession.

Seek Advice

There are important conditions that must be met to use the small business CGT concessions and the lifetime CGT cap. Therefore, it is worthwhile checking with your tax adviser to confirm whether you meet the basic eligibility requirements.

As well as considering your personal circumstances and objectives, your tax or financial adviser can also help explain:

The timing rules which determine when a contribution must be made if it is to be applied against the lifetime CGT cap, as the rules vary depending on whether the active asset is owned individually or by a company or trust.

The paperwork that must be provided to your superannuation fund if you want it to count towards the lifetime CGT cap.

More Super for Lower-income Workers on the Way

Sun, 27 Mar 2022 21:00:03 GMT

More super for lower-income workers on the way

Did you know that lower-income earning individuals who earn less than $450 per month are currently not eligible for superannuation guarantee (SG) contributions from their employer?

The $450 per month threshold also applies if an employee has more than one part-time or casual job and they earn more than $450 per month from all jobs combined. It simply comes down to the amount earned per job which can disadvantage many younger or lower-income workers.

But not for long …

The good news is that the $450 threshold will be abolished from 1 July 2022 due to recent legislative changes. This means that all employers will have to pay SG contributions for all employees, regardless of how much they earn per month.

The removal of the $450 per month threshold will benefit an estimated 300,000 people or 3% of employees [1] , who are mainly young and/or lower-income and part-time workers, approximately 63% of whom are female [2] . These changes will help these workers start accumulating super earlier as well as help address the gap in super savings between women and men.

The SG payment rate

Under the SG rules, employers must pay a minimum percentage of employee earnings into their super fund. The current rate of SG is 10% of an employee's earnings and will increase to 10.5% from 1 July 2022.

The SG rate will continue to increase a further 0.5% each year until it reaches 12% from 1 July 2025.

How is SG calculated?

An employer is required to pay SG contributions based on an eligible employee’s ‘ordinary times earnings’ (OTE).

This may seem straightforward, that is, OTE is what an employee earns for their ordinary hours of work. However OTE also includes a range of other earnings which can cause an employer to make mistakes when determining what an employee’s earnings base is.

For example, OTE can also include leave (annual, sick or long service), allowances, bonuses, commissions, shift loadings, but generally doesn’t include overtime payments for work performed outside an employee’s ordinary hours of work.

It should also be noted that any salary sacrifice super contributions will also be included in an employee’s OTE.

For a more detailed list of what payments make up OTE, refer to the ATO’s ‘List of payments that are ordinary times earnings’ page (QC 33860).

Example – how SG is calculated

Frank is an employee earning $90,000 per annum.

Frank enters into a salary sacrifice arrangement with his employer to salary sacrifice $10,000 of his future OTE to super.

Frank will have an OTE base of $90,000, consisting of:

OTE of $80,000, and
Sacrificed OTE amounts of $10,000

Frank’s employer will pay him SG as follows:

OTE x 10% = minimum super to be paid

$90,000 x 10% = $9,000 per annum

What if an employer doesn’t pay the SG?

Employers who don’t pay the SG on time (at least quarterly), and to the correct super fund, are liable to pay a ‘superannuation guarantee charge’ (SGC). They also will need to lodge an SGC statement with the ATO.

The SGC amount is more than the super they would be required to pay to an employee’s super fund and is not tax-deductible. An administration fee also applies for each employee, so it’s in the employer’s best interests to pay the required SG on time and in full.

Employees who believe their employer has not made contributions on time and in full, can use the ATO’s web tool “Report unpaid super contributions from my employer” to let the ATO know. The situation will then be investigated by the ATO based on the information provided.

Source:

[1] Estimates based on ATO Single Touch Payroll data for July 2019, provided to the Retirement Income Review, published in the Retirement Income Review – Final Report. Canberra: Commonwealth of Australia, 2020, pp 298, 301.

[2] Ibid, pp 45, 300-301

GST Refresher for Your Business

Sun, 20 Mar 2022 21:00:04 GMT

GST refresher for your business

Most businesses are familiar with how GST works. But here’s a few reminders to make sure you’re being compliant and maximising your GST claims.

GST is paid at each step in the supply chain. and Businesses charge GST in the price of goods, services or anything else they supply, subject to various exemptions. If an entity is registered for GST, it can in many instances claim input tax credits from the ATO for any GST included in the price paid for goods, services or anything else bought for the business. However, for GST registered enterprises, the liability to pay GST rests on the supplier of goods and services, not on the consumer. In other words, even if the business incorrectly does not include the GST in the price of goods and services supplied, it is still liable to pay it to the ATO.

Coffee or cars anyone?

As a new year begins, you may be thinking of rewarding the office with an impressive new coffee machine for the staff room, or perhaps you are thinking a bit bigger, say a new vehicle. Either way you may want to keep some of these GST issues in mind:

Second-hand goods*

Buying second-hand can often be cheaper. However, if you purchase from a non-registered seller (eg, a friend, or privately via Gumtree, eBay etc) unless the seller is a re-seller of second-hand goods registered for GST, in most cases you will not be able to claim GST on the purchase (because it won’t be charged in the first place). (And if you are registered for GST, don’t forget to charge GST when you sell your business assets regardless of whether the purchaser is registered for GST or not).

(*excludes goods containing valuable metals)

Deposits

The purchase of a significant asset often requires a deposit to be paid. If you report GST on a cash basis, you will not be entitled to claim a GST input tax credit on the deposit at the time of paying (you may be entitled to claim it if you have paid an amount in addition to the deposit, or if you report GST using the non-cash accounting method and hold a tax invoice). If you haven’t claimed GST at the time of paying the deposit, make sure to claim GST on the full purchase price, including the deposit, when the deposit is later applied towards the cost of the asset (which may occur in a later BAS reporting period).

Purchasing a car for more than the car limit

Your GST input tax credit will be limited if you purchase a car with a cost that exceeds the car cost limit for depreciation. The car cost depreciation limit is the maximum you can claim as depreciation deductions for income tax purposes ($60,733 in 2021-22). Where the cost of your car exceeds this value, your GST claim is limited to 1/11th of the car limit ie, $5,521 (1/11th x $60,733). Importantly, there are some exceptions to this rule where your GST entitlement will not be limited, including on the purchase of a commercial vehicle (those not designed to carry passengers) or motor homes and campervans.

Be aware, however, that on the disposal of the car there is no corresponding reduction or adjustment to the GST on the sale proceeds ie, you must pay the ATO 1/11th of the full sale proceeds. This is the case, even if your GST and depreciation claims were limited on the purchase under these rules.

Cancelling your GST registration

A cost that is often overlooked when considering winding up a business is the potential need to repay GST previously claimed in respect of assets you still hold. In most cases (there are a few exceptions), you must cancel your GST registration within 21 days of selling or closing your business. You can also choose to cancel your GST registration if your GST turnover is below the turnover threshold ($75,000). If, when you cancel your GST registration, you still hold business assets on which you previously claimed GST, you may need to repay some of those credits, depending on how long you have owned the asset and its original cost. The adjustment will generally be 1/11th of the GST inclusive value of the asset at the time of cancelling your registration (where this value is lower than its original cost).

Benefits of a Corporate Trustee Structure Trustee for your SMSF

Sun, 20 Feb 2022 19:43:16 GMT

Thinking about setting up an SMSF? Or do you already have an SMSF with an individual trustee structure? If so, now might be the time to consider adopting a corporate trustee structure for your fund.

With over 60% of all SMSFs having a corporate trustee structure, there are many benefits in setting up a company to be the trustee of your SMSF.

For background, each member of an SMSF is required to be a trustee of the fund. Alternatively, you can choose a corporate trustee model (ie, a company to act as the trustee of the fund), which means each SMSF member must also be a director of the trustee company.

Benefits of Corporate Trustee Structure

Greater asset and trustee protection – as companies are subject to limited liability, a corporate trustee will provide improved protection for the directors where a party sues the corporate trustee for damages. For example, if a SMSF owns a property and a tradesperson suffers an accident on the property, the trustees can be sued and held liable for accidents on their property. However if the trustee is a company, your personal liability is generally limited to the assets held in the SMSF (rather than your entire wealth). This means assets that you own outside of your SMSF are protected. That same protection does not apply to SMSFs with individual trustees. Thus, individuals acting personally as trustees of an SMSF are jointly and severally liable for any actions taken against their SMSF.
Continuous succession – a company has an indefinite lifespan as it does not die. This means a corporate trustee can ensure control of an SMSF remains certain following the death or mental or physical incapacity of a member.
Administrative efficiencies – when changes occur to the membership of the fund, eg, new members join the fund, or members die or become incapacitated which affects their mental capacity and leaves them unable to be a trustee, or members get divorced/separate and one member wants to leave the fund, etc, the corporate trustee does not change as a result. All that is required is for the member to cease to be a director of the corporate trustee. Thus, when a SMSF has a corporate trustee, the change is relatively simple and can be managed by the remaining directors. By contrast, if the trustees are individuals, it's much harder as the legal names on all of the investments have to change to the new individuals/members.
Sole member SMSF – having a corporate trustee allows an SMSF to have one individual as both the sole member and the sole director. Conversely, single member funds with an individual trustee structure cannot have just one individual trustee (other than under certain circumstances). Thus, a single member fund with individual trustees must have at least two trustees. This means you will need a corporate trustee if you want your own SMSF with yourself as sole member/director of the fund.
Six member SMSF – the case for a corporate trustee is arguably made even stronger if you wish to increase the membership of your SMSF to six members. There are many reasons for this, but one key reason is that the Trustee Acts of most Australian States and Territories still only allow a maximum of four individual trustees for SMSFs. So if you want to take advantage of the increased membership in your fund, you will need to have a corporate trustee (rather than individual trustees) in order to satisfy the trustee limit in the relevant Australian State or Territory legislation.
Complete separation of SMSF and personal assets – the super rules require that an SMSF's assets must be kept completely separate from the members' own assets. This requirement is easy to achieve and prove to auditors and the ATO when there is a completely separate legal owner, being the corporate trustee.

Tax & Property Price Increases

Sun, 13 Feb 2022 19:39:42 GMT

Tax and Property Price Increases

With residential property values on a sharp upward trajectory, from a tax standpoint, what does this mean for owners and investors of this style of dwelling?

Introduction

Domain's End of Year Wrap revealed that in 2021, Australian house prices rose an astonishing 21.9%, the fastest annual rate of growth on record! Viewed through a taxation prism, these increases mean practically nothing unless the owner is selling or otherwise disposing of their property. If the property is retained, then the increases are merely a "paper gain". By holding onto the property there generally won't be any CGT consequences.

The obvious question then arises, what are the consequences from a tax perspective where an owner does decide to cash in on the boom and sell their residential property?

Rental Property

If an owner has a typical rental property that they have not lived in, then 100% of the property will typically be subject to CGT upon the sale. It follows that sellers will be paying more CGT as property prices increase (but of course enjoying more sale proceeds at the same time).

Broadly, the legal owner of the property (the party whose name is on the title deed) will be liable for any capital gain made from the property when it is sold.

If a property is owned as tenants in common – whereby the co-owners' agreement specifies equal or unequal shares in the property co-ownership (e.g. 30% and 70) – the taxation consequences will be shared in those proportions.

If a property is owned as joint tenants, then the taxation consequences are generally shared 50/50.

Tax Rate

Where individuals own the property, any capital gain or revenue earned from the sale will be assessed at individual marginal tax rates, plus Medicare levy. Consequently, net capital gains can be taxed at up to 47% before applying any discounts. For this reason, it is more tax effective for lower income earners to have the property in their name solely. For example, a spouse who does not work.

On the other hand, if an owner is negatively gearing a property, then it is more beneficial from a tax perspective for a high-income earner to own the property. Put very simply, this is because their taxable income (which is reduced by negative gearing) is taxed at a higher rate and therefore they will get more bang for their deduction. Be mindful that where a negative gearing strategy is being considered, the owner needs to be able to sustain the losses that come from this. With negative gearing, the property expenses are more than the rent…can the owner sustain these losses long-term?

Tax Tip

Aside from tax, there are other key factors to consider when determining whose name or which tax structure (for example, company etc.) the property should be in, including asset protection. These factors should be discussed with your advisers.

Family Home

If the property being sold is the family home and it qualifies for the main residence exemption, then the owner can cash in on the current property boom with no CGT consequences upon sale!

To recap, the main residence exemption offers a full exemption from CGT where the following conditions are met:

The owner is an individual
The dwelling was the individual's main residence throughout the period of ownership
The individual did not acquire the ownership interest either as a beneficiary or trustee of a deceased estate.

Note that there is a two-hectare limit on the area of land that is covered by the exemption. Further, spouses (and also an individual) can generally only have one main residence at any one time.

Partial Exemption

However, only a partial exemption from CGT will be available where the dwelling was a person's main residence for only part of their ownership period. This can occur where:

The dwelling was not occupied as a main residence when it was first practicable to do so after its acquisition
In renting out the property, the six-year rule was exceeded (under this rule, an owner can rent out their main residence for up to six years at any one time and maintain the full main residence exemption provided they do not claim another dwelling as their main residence during this time – other conditions also apply)
The four-year period for building a dwelling on vacant land has been exceeded
The home was used to produce income, such as part of it was used as a place of business, or it was rented out in part or in full.

If an owner is only eligible for a partial exemption, any capital gain or loss is pro-rated by reference to the part of the ownership period in which the dwelling was not their main residence:

Key Points

While property prices are on a steep incline, no CGT consequences arise from this unless the property is disposed of.
Be mindful of the 50% CGT discount for owning a property for 12 months or more. If an owner was nearing the 12-month ownership threshold, they may wish to consider if possible delaying any planned sale until this time requirement is met.
If an owner inherited a main residence, to dispose of it tax-free, they must do so within two years of inheriting it. Various conditions apply.
If a potential owner was contemplating purchasing residential property to rent out, it would be prudent for them to discuss the ownership structure and the tax consequences with their accountant.

Single Touch Payroll 2: The Time Has Come

Sun, 06 Feb 2022 22:00:00 GMT

In the May 2019 Federal Budget, the Government announced that Single Touch Payroll (STP) would be expanded to include additional information, building on the first stage of STP which was made compulsory for most employers from 1 July 2019.

For background, the STP regime is a government initiative which is designed to reduce an employer's burden when reporting to Government agencies such as the ATO. Under the regime, employers report employee payroll information to the ATO each time they are paid via STP-enabled software.

Start date

The start date for Phase 2 reporting was 1 January 2022, however the ATO has advised that employers who provide the additional reporting required under Phase 2 by 1 March 2022 will be accepted as having met the deadline.

Digital service providers (DSPs) can apply for a deferral if they need more time to make changes and update their solutions. Such a deferral then automatically applies to customers of that provider. For example, Xero have advised that they have been granted a deferral until 31 December 2022. This means that all customers using Xero Payroll will also have until that date to report their first STP Phase 2 pay run. Check with your provider if a deferred start date applies.

For businesses that need more time to transition, you may apply for an extension beyond your software provider's deferral. Registered accountants and bookkeepers will also be able to apply on your behalf.

On the compliance front, under Phase 2, genuine reporting mistakes will not be penalised in the first year until 31 December 2022.

ATO: Benefits for Employers

1. TDN Declarations

Employers will no longer need to send employee TFN declarations (they will still need to be collected and filed in employee records, however).

2. Closely held payees

For businesses using concessional reporting, such as is the case for closely held payees, this can be communicated through income types.

3. Lump Sum E Payments

When making Lump Sum E payments, employers won't need to provide Lump Sum E letters to employees.

4. Payroll Data Integrates with Services Australia

Payroll information employers provide to the ATO will be shared in near real-time with Services Australia, who can use it to streamline requests.

What Isn't Changing?

· The way you lodge, pay and update events

· The due date for lodging events

· The types of payments that are needed

· Tax and super obligations

· End of financial year finalisation event requirements

In Practice

Once your STP 1 solution is upgraded to offer phase 2 reporting, you can transition at any time throughout a financial year. The way you transition from STP 1 to STP Phase 2 reporting will depend on your circumstances and the solution you use.

You should follow your digital service provider's instructions to upgrade your solution.

WARNING: STP 2 IS NOT JUST A SOFTWARE UPGRADE

The sheer volume of additional data is perhaps the most notable feature of STP 2. Phase 2 requires employers to develop an understanding of what data is required, in the multitude of STP 2 labels and codes in order to properly drive STP 2 software.

All told, there are 16 new reporting labels and approximately 100 different codes and reporting options. STP2 reported data will help shape employee social security, Child Support Agency and income tax outcomes.

It may the case that the complexities around STP 2 will be too great for many small business owners, and they will need input of their accounting or bookkeeping advisor.

Accounting, Tax, Accountant, Business Specialists, Dickfos Dunn, Southport, QLD, Australia

Division 296 tax is now law: What it means for your super

While it mainly affects people with large super balances, it’s still important to understand what’s changing and why.

Six changes impacting your super in 2026

Superannuation rules are always evolving, and 2026 is shaping up to be another year of important changes. Some of these updates may only affect a small group of people, while others could impact almost everyone with super.

Whether retirement feels a lifetime away or it’s already on the horizon, understanding what’s changing can help you make smarter decisions and avoid costly mistakes. Here are six key changes to keep on your radar.

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Permanent incapacity and super - what it means if you’re totally and permanently disabled

Most people think of superannuation as money they can’t touch until retirement, but there are important exceptions. One significant exception is the permanent incapacity condition of release, which can allow people who are totally and permanently disabled to access their super earlier.

Understanding how this works can make a real difference at a time when income, medical costs, and financial security are often under pressure.

CGT: Buying a new home before selling the old one

If you find yourself in the position of having bought yourself a new home before you sold your existing home, there are important CGT issues to consider – and these centre on the fact that under the CGT rules, you cannot have two or more CGT exempt homes at the same time.

﻿

﻿ ...However, there is an important concession that allows you to treat both the new home and the existing home as exempt from CGT for up to a period of six months – provided the new home actually becomes your main residence.

Firstly, the existing home must have been your home for a period of at least three months in the 12 months period before you sold it. And, secondly, it must not have been used for the purpose of producing taxable income in any part of that 12-month period when you did not live in it.

(But if this was the first time you rented it and it would otherwise have been entitled to a full main residence exemption just before you rented it, then you would calculate this partial CGT liability by reference to its market value when you first rented it and the amount you sell it for.)

However, the stringency of these conditions about the use of your existing dwelling in the 12-month period before you sell it can be alleviated by using another concession (the “absence concession”) to continue to treat it as your main residence, even if you rent it in this period.

In a similar fashion, you can use another concession (the “building concession”) to treat any land you acquire on which to build a new home as your new home for the purposes of this six month overlap rule.

However, in both these cases the application of these particular concessions, and their interaction with the rule that allows you to treat an existing home and new home as CGT exempt for up to six months, can be quite complex. And much will depend on the precise facts of the case.

If you find yourself in the position of having bought yourself a new home before you sold your old one (or are intending to do this) come and speak to us – and we will show you how the rules operate in your circumstances, and how they can be applied most advantageously.

Surviving (and maybe avoiding) an ATO audit

This article focuses on self-employed clients. If you’re a salary earner or retiree, you might find one of our other blogs more helpful.

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It goes without saying that at tax time you should disclose all your assessable income and only claim legitimate business deductions. Failure to do so exposes you to the risk of penalties and interest on top of the underpaid tax.

And the chances of popping up on the ATO’s radar are not negligible. It runs an active small business compliance program that uses industry benchmarks and other information, including “dob ins” received from community members.

Cash jobs

Benchmarks

Averages are just that, and some businesses will be under while others are over. Having an idea of where you sit on the spectrum and why may help you engage with the ATO if and when the time comes.

Lifestyle factors

The audit

Protective measures

Come and see us to help get you ready for an ATO audit (or avoid one altogether).

The 50% CGT discount: More than meets the eye

There is much in the media about how the 50% capital gains tax (CGT) discount has contributed to the housing affordability problem in Australia (although no doubt the problem is a lot more complex than attributing it mainly to any taxation measure or measures).

But the rules for applying the discount are not as straightforward as you would think.

But these rules are very messy and need to be looked at closely if the need arises.

Could you be missing out on thousands in lost super?

Most of us keep a close eye on our bank accounts. But superannuation can be easier to lose track of, especially if you’ve changed jobs, moved house, changed your name, or simply set up a new fund and assumed everything followed you.

That’s why the Australian Taxation Office (ATO) has issued a timely reminder. There is now $18.9 billion in lost and unclaimed super sitting across Australia. That’s up $1.1 billion since 2024 and spread across just under 7.3 million accounts.

In other words, a lot of Australians have retirement savings that aren’t currently working for them and some of it could be yours.

What “lost” or “unclaimed” super actually means

A special note if you have an SMSF

How to check for lost super (it only takes minutes)

Simple habits that help you stay on top of super

Can the cost of clothing be tax deductible?

Sometimes it can be, but only in limited circumstances.

Conventional clothing

Occupation-specific clothing

Compulsory uniforms

Non-compulsory uniforms

Protective clothing

Laundry and dry-cleaning costs and repairs

Record keeping

Allowances

Feel free to come and see us for advice as to whether your expenditure on work clothing is deductible.

Division 296 Tax Revisited

Big news for anyone with a large super balance – the government has gone back to the drawing board on the controversial Division 296 tax , and the changes are a big step toward fairness and common sense.

A quick recap

What’s changing

Here’s what’s new under the revised Division 296 tax:

So what does this mean in practice? Think of it as a tiered tax system:

How it will work

What’s still up in the air

While these updates make the system much fairer, there are still a few unanswered questions:

What it means for you

But don’t rush. These rules aren’t law yet, and if you take your super out, it’s hard to put it back because of contribution limits. It’s best to wait for the final legislation and get professional advice before making any decision to withdraw benefits from super.

Christmas and Tax

(<With the festive season fast approaching, business owners will be turning their mind to year-end celebrations with both employees and clients.>)

Knowing the rules around Fringe Benefits Tax (FBT), GST credits and what is or isn’t tax deductible can help keep tax costs to a minimum. Holiday celebrations generally take the form of Christmas parties and/or gift giving.

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If you’re not sure and you need help in sorting out the tax treatment of your upcoming holiday celebrations and gifting, don’t hesitate to give us a call.

Reducing your tax bill while topping up your super

﻿ Let’s say you’ve just sold the house you inherited from your parents 12 years ago for $1.3 million. You’ve been renting it out for most of that time, but the property market has been hotting up, and you were told by several real estate agents that they could get you a good price.

But what about the tax consequences?

Can anything be done?

Depending on your superannuation history, there may be a legitimate way of taking a big chunk out of that tax bill while topping up your super at the same time.

...However, there is an important concession that allows you to treat both the new home and the existing home as exempt from CGT for up to a period of six months – provided the new home actually becomes your main residence.

Let’s say you’ve just sold the house you inherited from your parents 12 years ago for $1.3 million. You’ve been renting it out for most of that time, but the property market has been hotting up, and you were told by several real estate agents that they could get you a good price.