Firm Journal

15 February 2021

The amounts you don’t need to include as income

Amounts which are not classified as income are split into 3 categories.

Exempt income

This is income that you do not pay tax on, although, some exempt income may be taken into account when determining:

• Tax losses of earlier income years that you can deduct
•  Adjusted taxable income of dependants

Some examples include certain Government pensions, certain Government allowances, certain overseas pay, some scholarships, etc. 

Non-assessable, non-exempt income

This is also income that you don’t pay tax on – it does not affect your tax losses. 

Some examples include the tax-free component of an employment termination payment (ETP), genuine redundancy payments, super co-contributions, etc. 

Other amounts

There are also other amounts that are not taxable. 

Some examples include: Rewards or gifts received on special occasions, prizes won in ordinary lotteries, child support and spouse maintenance payments, etc.

4 February 2021

Types of partnerships

There are three types of partnerships. The partnership type you choose will depend on what best suits the partners involved. 

General Partnership (GP)

All partners involved will be equally responsible for the management of the business. Each member has unlimited liability (personally liable) for the debts and obligations that the business incurs. 

Limited Partnership (LP)

Liability of partners is limited to the amount of money they contributed to the partnership. Limited partners tend to be ‘passive’ investors who don’t play a role in the day to day management of the business. 

Incorporated Limited Partnership (ILP) 

ILP partners have limited liability for the debts of the business. However, there must be at least one partner with unlimited liability. If the business is failing to meet its obligations, then the general partner (or partners) will become personally liable. 

Choose a business by discussing what and how each partner can contribute. Based on this, choose a structure which accommodates these differences. 

SMSF Pensions

SMSF funds can provide pension or lump sum benefits during retirement. Retirement is a condition of super release if you have reached your preservation age. Depending on your date of birth, your preservation age will be between 55 and 60. The benefits from your super are tax-free once you are over the age of 60. 

If you plan to start a super pension income stream, then the funds from your accumulation account need to be transferred to your retirement account to fund your pension. Your retirement account has a cap of $1.6 million, so you can transfer that amount as a lump sum but no more. The earnings on these funds are tax-free. 

Each year, you need to withdraw a minimum percentage of your account balance from the retirement fund. This minimum percentage will depend on your age.

Alternatively, you can start your Transition-to-retirement pension if you have reached your preservation age but you are still working. However, unlike the funds that support your super pension once you begin retirement, these are taxed at 15%. 

Tax treatment of insurance payments for damaged or destroyed property after a disaster

The Australian weather can be unpredictable, resulting in intense weather conditions. Bushfires, severe storms or floods can cause personal properties and assets a lot of damage. In the case that this does occur, individuals need to determine the tax treatment of any insurance payouts or relief payments that they may receive. 

Usually, individuals are unlikely to experience tax consequences for payments for personal property or assets. Personal property or assets include your home and household assets.

On the other hand, if an individual’s income-producing assets incur damage, then they will need to determine the proper tax treatment of the payouts or relief payments that they receive and the costs involved in repairing or replacing the assets.

If you have been working from home and using personal assets to produce income (such as a personal laptop you are repurposing) then determining which tax treatment applies could get complicated. You may have to talk to the ATO or an advisor to clarify the specificities of your situation. 

28 January 2021

Stay on top of your credit cards

The following are some tips which will make it easier for you to stay on top of your credit card payments so that you can worry less and save more. 

Pay on time

Check when your credit card due date is and plan your spending so that you can always pay before the date. By paying before the due date, you will avoid paying interest or late payment fees but also keep your credit card score healthy. 

When you have so much going on in life, it can be difficult to remember a date. To ensure that you’re always paying on the due date set a monthly reminder on your phone. 

Pay as much as you can each month

Pay the most amount of money you can for each repayment so that you pay the debt faster and save money on interest and late fees – this means paying more than the minimum amount. If you are struggling to pay the minimum amount, contact your bank or credit provider to see if you can renegotiate. You should also consider talking to a financial counsellor. 

Taking action earlier rather than later will save you money and prevent your debt from growing. 

Cut back on your credit cards

Multiple credit cards can get overwhelming and result in you paying a lot more than you actually need to. Aim to reduce the number of cards you have one at a time. You might choose to prioritise by:

• Smallest debt: Pay off the card with the least debt first and then move onto the next smallest debt.
• Highest interest rate: Pay off the card that charges the highest interest and then the one after. 

Regardless of which option you choose, continue to pay minimum amounts for all cards and only continue using one card. Once you pay off each card, remember to cancel it!

Reduce your credit card limit

The easiest way to avoid the temptation of overspending is by placing a limit on your credit card. You can do this by contacting the branch remotely or visiting in person and it takes at most, 2 business days. 

Remember that you don’t have to settle on a bad credit card deal. If you realise that your bank is being unfair, or charging too much compared to other banks, make sure you get in touch with them to try and get the best deal for you.

Preserving your customer’s confidentiality

Customers trust businesses with a lot of personal information and it is the business’ responsibility to maintain confidentiality. Businesses should take relevant precautions to ensure that the privacy and personal information of their customers is not compromised. 

• Encrypting the information you receive from customers: There are programs available which encrypt information that customers send to you over the internet. These scramble the data so that it is indecipherable to anyone trying to read the information.
• Create employee log-ins: Create log-ins for each employee for company computers. Screening each employee before they are given access to a log-in for any of the databases is necessary. Creating passwords for protected files that only the relevant employees have access to will add another layer of security.
• Keep your sensitive files in a different location: Avoid keeping particularly sensitive files on the same network as all other files. These files should instead be kept on a separate computer and limited employees should have access to it, if not any.
• Separate groups of customers: Separating databases will prevent loss of all customer data if there is a breach of security. 
• Confidentiality agreements for employees: If the information you store is particularly sensitive or high profile, ask employees to sign confidentiality agreements. This increases their accountability as they run the risk of a lawsuit if they give out confidential information.

Calculating how much super you will need when you retire

Calculating how much super you will need will help you decide whether you should be contributing more to your super. You can utilise salary sacrifice schemes to increase contributions, especially if you are not using your entire salary. 

There are two main factors that impact the amount of super you will need when you retire:

Costs in retirement

Consider the major costs that you will need to continue paying during retirement. Examples include:

• Paying off your mortgage
• Rent
• Renovating your income
• Travel
• Medical costs

Estimate how much money you will be needing for each of the aspects that apply to you. Make sure that your estimations are as realistic as possible. Some things, such as medical costs, may be difficult to accurately estimate, so try to keep a higher margin. 

The lifestyle you want

Think about what sort of lifestyle you want once you retire and consider how much money that will require. The Association of Superannuation Funds of Australia provides an estimation of how much money you will need depending on what sort of lifestyle you want:

• Single and modest lifestyle: $27,987 a year
• Single and comfortable lifestyle: $43,901 a year
• Couple and modest lifestyle: $40,440 a year
• Couple and comfortable lifestyle: $ 62,083 a year 

These are estimations and the numbers may be different depending on your circumstances and lifestyle.

Trustees and beneficiaries registering for tax in trusts

Trusts have their own tax file number (TFN) that should be used to complete tax returns. Trusts are also able to apply for an Australian business number (ABN) on the condition that the trust is carrying on an enterprise. If a trustee applies for a TFN or ABN, then this is in the capacity of a trustee and is separate from any other registration the trustee may require for other capacities.  

Trustees

The trustee is responsible for managing the tax affairs associated with the trust. This includes registration of the trust in the tax system, lodgement of trust tax returns, as well as paying certain tax liabilities.

Beneficiaries

For beneficiaries, their share of the trust’s net income is included in their tax returns. Further, payments on the expected tax liability may need to be made, for which the pay as you go (PAYG) instalment system can be used. 

21 January 2021

Things you should do every time you get paid

It can be tempting to treat yourself on payday, but in the long run, planning your spending will be more rewarding. Creating a payday routine will help you pay your bills on time and save more money to put aside. 

The very first step needs to be completed the night before payday. Transfer any funds you have leftover from the previous payday to your savings account. This will allow you to spend less money you consider ‘extra’ and save it for your long-term goals.

The second thing you need to do is pay as many bills as possible, rather than wait till the ‘due date’. As it is, once money comes into the account, a lot of it is earmarked for bills and payments that need to be made, so rather than holding off on them, you should pay them immediately. This will also give you a clear indication of how much money you have.

Finally, creating a to-do list on the day of your payday is an effective method of viewing or planning your expenses. This will give a clear indication of small and large expenses that need to be paid before your next payday. They will also help identify unnecessary expenses or when extra money is being spent when it shouldn’t be. 

These are simple techniques that anyone can apply to get ahead of over-spending on payday. 

How you can improve your company’s shipping department

Effective shipping is essential in a world where online shopping is so popular. Businesses can suffer if their orders are not being shipped on time or if they are not regularly updating their customers. The following are some ways you can improve shipping.

• Improve your communication with your shipping facility: Communicating with your warehouse and shipping team or company regularly will mean that they are updated with orders and avoid delays. 
• Offer order tracking and estimated delivery times: Letting customers track the progress of their orders and track shipping reassures customers that their package is on the way. Estimate delivery times are particularly useful so that customers can plan ahead for delivery if possible.
• Shipping costs should be built into the budget: Shipping rates will change regularly, but this should not change what your customers have to pay. When creating your budget, allocate more money to shipping than you have calculated to account for potential rate changes.
• Streamline your packaging process and do standard quality checks: Invest time into creating a process which works efficiently for your business. For example, you could find software which communicates with the warehouse and creates documents which make collecting and shipping the packages easier for staff. Quality checks should also be conducted regularly to guarantee that the product the customer will receive is what they were looking at online. 
• Declare items for customs ahead of time: This is especially important if you offer and regularly conduct international shipping. Declaring your package online when the order is placed will help it get through customs faster, and to your customers earlier.