SMSF

SMSFs Are On The Rise – But Why?

by Advice

Compulsory superannuation for employers was introduced in 1991.  Since then, the pool of funds in Super has been growing steadily bigger and of June 2022 there was $3.3 trillion invested in Super.

Of this pool, the Self Managed Super Fund sector makes up a significant portion.  As at June 2022, there were 601,432 SMSFs in Australia with a total of 1.1 million members. This represents less than 5% of the population, but they have $869 billion in assets, or about 26% of the total invested in Super.

We had seen inquiries about Self Managed Super drop over the past decade due to increased regulation and potential legal and investing complexities. However, there has been renewed interest in the last couple of years from an increasingly younger demographic.

This is highlighted by recent ATO data which shows about 44 per cent of savers starting an SMSF are aged under 45 years, with about one-third of new members aged between 35 and 45 years.  With the growth in their super balances, this younger cohort are starting to realise there is real money involved and they want to have greater control.

Compulsory super contributions of at least 11 per cent are contributing to sizeable balances after about a decade of work and increasing awareness of retirement wealth and investing compared to earlier generations.

This group is growing much richer than earlier generations as they become middle-aged, particularly for couples who pool their investment savings.  They are looking to use a self-managed superannuation fund for their retirement savings while adding to a separate portfolio of assets outside of super when investment opportunities arise.

We think SMSFs are great investment vehicles with their significant tax advantages.  There are strict rules in place for running them and they are not for everyone.

Here are some pros and cons:

PROS

  • Better flexibility and control with an SMSF
  • Reduced costs for larger SMSF funds
  • Greater access to investment options
  • The tax benefits of SMSFs
  • You can share a SMSF fund with family members
  • Flexible estate planning

CONS

  • Duties & responsibilities of being a trustee
  • Can be time consuming
  • Financial & legal risk in SMSF decision making
  • SMSFs aren’t eligible for government compensation schemes
  • Additional expenses in low value funds
  • Living overseas can affect your SMSF

If you like to know more about SMSFs and what they can offer, give us a call.  We cannot advise on whether they are right or wrong for your personal situation, but we can give you the low down so you can make an informed decision.

Super-death-tax

Super Problems After Death

by Advice

It’s vital to think about what happens to your super when you die.  Few Australians realise the government will come for their superannuation savings when they die. The recently bereaved find themselves holding a massive surprise bill to the government because their parents or partners didn’t know they needed to plan for death to avoid tax.

The first thing to realise is that Superannuation is treated differently in law from the rest of a person’s assets, and you need to think about it separately.

Contrary to popular belief, your Will does not determine who is to receive your superannuation in the event you were to pass away.

Unless you provide your superfund with a binding death benefit nomination, the trustee of your super fund will decide who receives your super in the event of your death, which will be based on your relationships and eligible superannuation dependents at the time of your death.

A binding death benefit nomination for your Superannuation dictates to the Trustee who you would like your super to be paid to if you pass away.   The binding nature of this type of nomination leaves your super fund with no discretion. That is, they must pay your remaining super balance exactly as stated in your nomination.

A couple of things to watch out for:

  1. Make sure you sign a binding, as opposed to non-binding nomination, because that way the fund trustees will have to comply with it.
  2. Think about signing a non-lapsing binding nomination as it will last until you change it. The lapsing variety expires after three years. 

Who Can My Super Be Paid to?

If you die, your superannuation can only be paid to a limited number of people. These types of people are defined as dependants under superannuation legislation.

Specifically, a superannuation dependant includes:

  • Your spouse or de facto spouse
  • Your child of any age
  • A person who was in an interdependency relationship with you at the time of your death

An interdependency relationship is defined as a close personal relationship between two people who live together, where one or both of you provide financial, domestic or personal support to the other.

If you do not have any superannuation dependants, or would like your superannuation to be paid to someone who is not a superannuation dependant, you will need to nominate for your super to be paid to your Legal Personal Representative / Estate. This way, your superannuation is then combined with all of your personal assets and distributed in accordance with your Will. 

Super death payments and tax

Super money left directly to dependents via a nomination or a decision by trustees is not taxed.

Dependents, according to the Australian Taxation Office, include children under 18, current and ex spouses and de factos, and others you have been financially supporting.

Children under 25 who are students or dependents are also not taxed on super death payments.

Grandchildren are not considered dependents unless there is some special circumstance like disability.

As a generalisation, for anyone who is not a dependent (this includes adult children), the ATO will take 15 per cent of the payout plus the Medicare levy, effectively making it 17 per cent.

There are extra complications here.

There are taxable and tax-free components to superannuation. Taxable components relate to concessional super contributions entering the fund.  That means any money put in the fund through super guarantee payments made by your boss, salary sacrifice or personal concessional taxable contributions that were only taxed at 15 per cent on the way in.

Those taxable contributions and the earnings on those contributions will be taxed at 17 per cent when paid to a non-dependent.

If the deceased was a public sector employee, then potentially the contributions could be taxed at 32%.

What avoids the tax?

Non-taxable contributions include any payments you made to your fund that did not have a tax deduction attached. These include non-concessional one-off payments including downsizer contributions made on the sale of the family home.

These are not taxed on the way out of super because the ATO considers you must have paid tax on the money before you put it in.

If your super is made up of concessional and non-concessional payments your fund will have a record of how much of your balance is in both categories so look at your annual statement for details.

Earnings in the fund are allocated to concessional and non-concessional payments, according to the ratio of both balance types.

Re-contribution strategy

If you are approaching retirement, you can look at a withdrawal and re-contribution strategy.  The fund member withdraws the maximum yearly amount and immediately deposits it again as a contribution. By consistently withdrawing funds from both components and re-depositing them, retirees can slowly alter the ratio of their super fund and leave less of a tax obligation for any nominated beneficiary.

I know all this can be very confusing, so don’t hesitate to reach out to us if you wish to know more.

A8-Group-2

Changes for Business From 1 July, 2023

by Advice

From 1st July 2023, there are a number of key changes to come into effect which will impact your business and employees.

SUPER GUARANTEE RATE RISE 

Don’t forget that the super guarantee rate increases to 11% from 1 July 2023. 

This means you need to calculate super contributions at 11% for your eligible workers for payments of salary and wages you make from this date. 

Your super contributions for the current quarter (ending 30 June, due by 28 July 2023) are still calculated at the 10.5% rate for payments of salary and wages made prior to 1 July.  

WAGES GO UP 

Wage increases kick in on 1 July, following a ruling from the Fair Work Commission. 

For employees who aren’t covered by an award, the minimum wage will go up from 1 July to $882.80 per week, or $23.23 per hour, and will apply from the first full pay period starting on or after 1 July 2023. 

For employees covered by an award, minimum award wages will increase by 5.75%, also applying to the first full pay period starting on or after 1 July 2023.  

PAID PARENTAL LEAVE CHANGES 

From 1 July, amendments to the Paid Parental Leave Scheme will come into effect.  

Notably, the Dad and Partner Pay (DAPP) scheme, which currently provides up to two weeks of paid leave, will now be combined with the 18-week paid parental leave scheme. This means eligible parent couples or single parents can share their 20 weeks of leave – aimed at greater gender equity in parental caring responsibilities. 

There are other changes, too, such as the whole 20 weeks of leave of instalments can be received flexibly in multiple blocks within 24 months of the child’s birth or adoption date, removing the previous requirement of 12 weeks in one continuous period. 

Also, note that employees now have greater rights to request an additional 12 months of leave (24 in total) – and employers need to show reasonable business grounds on which to refuse.

DOMESTIC VIOLENCE LEAVE INTRODUCED 

This entitlement has been in place since 1 February 2023 for employers with 15 or more employees.  For smaller employers who employ less than 15 employees, this entitlement will operate from 1 August 2023. 

Employees will be entitled to 10 days of paid family and domestic violence leave (FDVL) per year.  

Paid family and domestic violence leave is quite a sensitive topic, and there need to be procedures in place – for everything from how the HR or manager handles requests to the privacy issues around how it gets recorded on a pay slip.  

PENSION AGE AND ELIGIBILITY INCREASES 

For those businesses employing older Australians, it’s worth noting that from 1 July, the pension age will be raised to 67 for those born on or after 1 January 1957. 

Not only that but asset and income eligibility tests will also be revamped, which means singles can earn $204 a fortnight and couples $360 a fortnight, before losing their full pension.  

ENERGY BILL RELIEF ON ITS WAY 

With soaring power bills contributing significantly to business operating costs, $650 in bill relief is on its way from July for small businesses. 

To be eligible, your business must be on a separately metered business tariff with your electricity retailer and your annual consumption must be less than 100MWh.  If you run a business from home, you probably won’t qualify. 

You don’t need to do anything. If you are eligible, you will receive bill relief on your electricity bills from 1 July 2023.  

Note these are Queensland numbers.  There are different thresholds and bill relief for each state. 

If you require further information on any of these measures, please do not hesitate to contact our office on (07) 3367 3366.

Tax tips

8 Business Tax Tips

by Advice

The best way to save tax in business is to consider and apply strategies prior to 30 June each year. After year end, the options available to improve your tax position are severely restricted. Activ8 are business tax specialists. In this article we share some of our best tax tips.

Tip 1. Maximise Your Super Contributions

Superannuation is a fantastic vehicle for tax effective investments. We recommend that every year you maximise the amounts you put into super. The maximum you can claim each year changes and you need to take into account contributions made by your employer, including your own business, and personal contributions. Remember to speak to your financial planner about how super fits into your personal financial plan. Our advice is purely focused on the tax benefits alone.

Tip 2. Take Advantage of the Instant Asset Write Off

The temporary full expensing of assets purchased for business use has been extended to 30 June 2023. This means that businesses can get an immediate tax deduction for the full amount of the asset’s cost in the year it is purchased.

Therefore if you are planning some equipment purchases, get them completed before 30 June to maximise the deduction in this financial year.

Note – cars are capped to a maximum claim of $60,733 for the 2022 year.

Tip 3. Do a Stocktake at 30 June

Does your business have trading stock? Do a stocktake at 30 June. This not only helps to get accurate profit figures, but you are eligible for a tax deduction for obsolete or worthless items still on the shelf.

Tip 4. Write Off Your Bad Debts

Subject to how you report income on your BAS, you have likely paid tax and GST on income you have invoiced but not yet collected. If you have deemed the debt to be uncollectible, you are entitled to a tax deduction as well as recouping the GST paid to the ATO.

Tip 5. Pay Your Employees’ Super on Time

If you pay super late, you will miss out on the tax deduction. In addition the ATO will impose interest and penalties for late super. We recommend that super is paid each pay cycle so you’ll never be late and you don’t get a big lump sum at the end of the quarter.

Another tip for super at year-end is to pay any June quarter before 30 June to get the tax deduction in the current year. Note – allow 7-10 days processing time to ensure the superfund processes the payment before 30 June.

Tip 6. Keep a Log Book For Your Business Cars

A compliant log book is essential to maximise your motor vehicle claim. Whilst they can be cumbersome to keep a log book, they are only required for 12 weeks and it remains valid for 5 years.

Tip 7. Defer Income to Next Year

If it makes sense to do so, deferring income until after 30 June means you pay tax on it next year, not this year. You can do this by holding off invoicing until 1 July, where appropriate.

Tip 8. Prepay Expenses

Cashflow permitting, you can prepay expenses like interest and rent up to 12 months in advance to boost the tax benefit in this financial year. This does not apply to stock purchases, but basically any other business expense can be paid before 30 June to allow the tax deduction in this year. This is particularly good where you have had a good year and have a bigger than usual impending tax bill.

We hope you find these tips insightful. There are plenty of other tax strategies you can put in place to minimise the tax you pay. It’s never too late to start taking advantage of tax benefits.

If you need any guidance or advice in relation to these tips, contact Activ8 Accountants & Advisors and we can guide you through them. Call us on 07 3367 3366.

 

superannuation changes

Superannuation Changes from July 2022

by Advice

Several key superannuation contribution changes are set to take effect from 1 July 2022. These changes create opportunities for all SMSF members, young and old, to grow their retirement savings.

WHAT ARE THE CHANGES?

Originally announced in the 2021 Federal Budget, the following changes apply from 1 July 2022:

  • Individuals of age 67- 74, will no longer need to meet a work test to make voluntary, non-deductible, contributions
  • Individuals up to the age of 75, with a total super balance under $1.7 million, will have the opportunity to make large non-concessional contributions (possibly up to three years’ worth) in a single year
  • The minimum age to make downsizer contributions will reduce to 60, allowing more individuals to use the proceeds from the sale of their home, to fund their retirement
  • The Superannuation Guarantee (SG) rate will increase to 10.5% p.a. for all and the $450 minimum income threshold for SG contributions, will be removed.

Superannuation rules can be very complex.  Should you require further assistance, please feel free to contact our office for further information on (07) 3367 3366.

 

stapled super

Stapled Super Changes

by Advice

Employers get ready – there’ll soon be an extra step involved when it comes to hiring new employees – if they don’t choose a super fund.

You may now need to request their ‘stapled super fund’ details from the ATO.  A stapled super fund is an existing super account of an employee that follows them as they change jobs. This change aims to stop your new employees paying extra account fees for unintended super accounts set up when they start a new job.

You may need to request stapled super fund details when:
•           your new employee starts on or after 1 November 2021
•           you need to make super guarantee payments for that employee, and
•           your employee is eligible to choose a super fund but doesn’t.

What you need to do from 1 November 2021

Step 1: Offer your eligible employees a choice of super fund

You need to give your eligible new employees a Super standard choice form and pay their super into the account they tell you on the form. Most employees are eligible to choose what fund their super goes into.

There is no change to this step of your super obligations.

Step 2: Request stapled super fund details

If your employee doesn’t choose a super fund, you may need to log into the ATO Online services and go to ‘Employee Super Accounts’ to request their stapled super fund details. If you don’t have online access then Activ8 can do this for you.

The ATO will provide your employee’s stapled super fund details after they have confirmed that you are their employer.

If the ATO provides a stapled super fund result for your employee, you must pay your employee’s super using the stapled super fund details they provide you.

In most cases, a request can be made after you’ve submitted a TFN declaration, or a Single Touch Payroll (STP) pay event linking the new employee to your business.  Responses will usually be received through the online portal in minutes.

Step 3: Pay super into a default fund

You can pay into a default fund, or another fund that meets the choice of fund obligations if:

  • your employee doesn’t choose a super fund, and
  • we have advised you that they don’t have a stapled super fund.

Remember, an employer cannot provide recommendations or advice about super to its employees, unless the business is licensed by the Australian Securities and Investments Commission (ASIC) to provide financial advice. Penalties may apply if your business fails to meet the “choice of super fund” obligations.

Full details can be found here on the ATO website.

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Taxation and Superannuation Updates for New Financial Year

by Advice

As the new financial year commences, we’d like to provide some timely reminders, key dates and information ahead of finalising your tax affairs for 2020/21, and some things you need to be aware of over the next 12 months.

Key Dates for July

14 July – Single Touch Payroll finalised

21 July – Monthly BAS return for June due.

28 July – Make quarter 4 super guarantee contributions to funds by this date (if not paid earlier)

 

Three End Of Financial Year Payroll Tasks

1. Single Touch Payroll Finalisation

Due date is 14th July 2021

2. All Employers (including those with closely held employees) need to be using Single Touch Payroll (STP) Compliant software from 1 July 2021

​​For example if you operate your business through a company or trust structure which employs you, you will need to adopt STP compliant software into your business.  Most accounting software providers have a solution available, speak to your bookkeeper or accountant if you aren’t sure.

3. Reminder that the Superannuation Guarantee (SG) Rate increases from 9.5% to 10% from 1 July.  Look out for any communications from your payroll software provider

Super changes for 2021/22

 

  • SGC Rate: As mentioned above, the SGC rate increases to 10% for all wages paid from 1 July.
  • The concessional contributions cap has now increased to $27,500, up from $25,000.
  • The non-concessional contributions cap is now $110,000, up from $100,000.

 

Claiming Work-Related Deductions

When you do your tax do you just claim “what you claimed last year”?

Technically that is not allowed. You need to be able to substantiate your deductions and circumstances may change so you need to be considering that.

For example, if you are working from home more, then your travel and laundry expenses will be substantially different.

The ATO is data matching everything this year and checking if people are claiming the same as last year.

As the pandemic forced swathes of the workforce to work from home, work-related expenses are expected to spike for the 2021 income year. However, the ATO also expects some expenses, like travel, will decrease compared to prior years.  In general, the ATO expects to see a downward trend in expense claims related to clothing & laundry, self-education, car and travel.