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Firm Journal

25 November 2020

Tax contributions on your super

How much tax you pay on your super contributions and withdrawals depends on a variety of factors. The process takes into account your total super amount, your age, and the type of contribution or withdrawal you make. 

How are super contributions taxed?

The money that you contribute to your super account through your employer is taxed at 15%, and this is the same with salary sacrificed contributions. But there are exceptions to this:

Any after-tax super contributions (non-concessional contributions) are not taxed further.

How are super withdrawals taxed?

How much tax you pay on withdrawals depends on whether you withdraw as a super income stream or a lump sum. Since this can be a convoluted process, it may be beneficial to approach an advisor and clarify any questions you may have before you withdraw money. 

What about beneficiaries?

If someone dies, then their super money will go to their beneficiary. This is known as a super death benefit. As a beneficiary, the tax you pay on the death benefit is dependent upon:

19 November 2020

Small business CGT concessions

Businesses receive four different types of concessions on top of CGT exemptions and rollovers which are available to everyone. These allow businesses to disregard or defer some or all of the capital gains from an active asset which is used in the business.

The four additional concessions include:

Note that these concessions are only available upon disposal of an active asset and either of the following:

There are also other criteria and conditions that the business will need to meet but you can apply to as many concessions that are applicable to you. Importantly, you can only apply to these in a certain order so be wary of this. 

5 November 2020

How are investments taxed?

Investment income needs to be included when conducting tax returns. This includes any income acquired through interest, dividends, rent, managed funds distributions and capital gains. The income yielded from investments is taxed at a marginal tax rate. 

Individuals are able to claim deductions for the cost of buying, managing and selling an investment. However, the Australian Tax Office (ATO) provides rules about what an or cannot be claimed as a tax deduction. 

The MoneySmart website has a simple and easy-to-use tax calculator that may give an indication as to what the annual tax will be. However, it is recommended that if an individual has a diverse portfolio that yields income from multiple sources, then should consult an accountant or advisor that can lead them through the process as it can become quite complex. 

In order to minimise taxation on investment income, individuals should consider tax-effective investments which provide concessional taxation. These include superannuation and insurance bonds. 

29 October 2020

PAYG instalments for business and investment income

Pay as you go (PAYG) instalments are payments you can make throughout the year to avoid accumulating a large tax bill to pay at the end of the year. Making these payments is a great way to budget for income tax and keep a healthy cash flow.

To qualify for PAYG instalments, you must earn over a threshold amount from your business or investment income (also known as instalment income).

The amount that you pay in PAYG instalments throughout the year will be offset against any owed tax for the entire year. But it is important to lodge your activity statements and pay all PAYG instalments before lodgment of tax returns if you want these to be included in your tax assessment.

There are two options for calculating and paying PAYG instalments:

22 October 2020

Tax relief for individuals

The Federal Budget for 2020 announced personal and business tax relief through various tax cuts. The legislation was approved by parliament meaning that individuals and businesses will be paying less tax, and have more money to invest and spend into the economy.

For individuals, the government has brought forward tax cuts which were initially planned for 2022, now they will be backdated to July 2020. These cuts are set to amount to $17.8 billion and will assist low to middle income earners.

What are the specifications?

Therefore, depending on which bracket an individual falls under, they will receive tax cuts as well as a one-off payment. These payments can vary from $510 to $2745 depending on which bracket the individual falls into. However, if their income is higher than $126,000, then they will not receive the one-off benefit.

15 October 2020

Basics of fringe benefits tax

What are fringe benefits?

Employees may opt to make an agreement with their employers that provides them with fringe benefit ‘payments’ in a form other than salary or wages.

There are various types of fringe benefits:

What is fringe benefits tax?

Employers pay FBT on certain benefits they provide to their employees or employees’ families. FBT will apply even if the benefits are provided by a third party through an arrangement with the employer.

Employers are required to self-assess their FBT liability for the FBT year – which spans from 1 April to 31 March. It is calculated separately to income tax based on the taxable value of the benefit provided.

Usually, employers are able to claim tax deduction for the cost of providing fringe benefits and for the FBT paid. Employers will generally also be able to claim GST credits for the items they provided as fringe benefits.

Employers are able to reduce their FBT liability by providing benefits that are income tax deductible. They may also consider an agreement in which the employee contributes to the cost of the fringe benefit. Finally, providing a cash bonus can also help reduce FBT liability.

7 October 2020

Changes to the super system

The Budget seeks to address various shortcomings in the superannuation system

Unintended multiple accounts

One of the consequences of changing employers is the creation of multiple accounts. These result in unnecessary fees, and reduce retirement savings. Under the Budget, the proposal is that individual’s super is ‘stapled’ to them. Stapling means that the individual keeps their super fund when they change jobs. The employer will pay super to the attached fund, and only change if the individual selects to.

Paying too much

Super fees are being paid on unused accounts, causing an erosion of retirement savings. ‘YourSuper’ allows comparison between fees and payments across different super funds so that individuals are able to make informed decisions about their super.

Underperforming products

Not all super funds perform equally. This can lead to an inequitable retirement result for individuals.MySuper products will now undergo an annual performance test to level the playing field. Funds will be required to notify their members if they are deemed to be underperforming and if they fail the test twice consecutively, they will not be able to accept new members until their performance improves. This will give members more information and the opportunity to choose what they can do if their fund is underperforming.

Lack of accountability and transparency

Currently, members are not informed about how their money is being invested, and whether it is being invested appropriately. Through this initiative, super trustees will be required to provide members with key information regarding how they manage and spend their money ahead of Annual Members’ Meetings. They are also required to comply with a new duty to act and must demonstrate that there was a reasonable basis to support their actions being consistent with members’ best financial interests. This increase in transparency and accountability will allow members to make decisions regarding their super before it’s too late.

Insolvency reforms to support small business

The government recognises that despite support to get through the COVID-19 outbreak, not all businesses are going to remain viable.

Many small businesses will have significantly increased levels of debt in order to remain in business during the COVID-19 pandemic. The government is introducing a number of permanent and temporary measures to expand the availability of insolvency practitioners to deal with this expected increase in the number of businesses seeking to restructure or liquidate.

The package of reforms features three key elements:

Debt Restructuring

Currently, requirements around voluntary administration in Australia are more suited to large, complex company insolvencies. The new debt restructuring process will adopt a ‘debtor possession model’ where the business can continue to trade under the control of its owners, while a debt restructuring plan is developed and voted on by creditors.

Liquidation Pathway

The costs of liquidation can consume all or almost all of the remaining value of a small business, leaving little for creditors. Under the government’s new process, regulatory obligations will be simplified, so that they are commensurate to the asset base, complexity and risk profile of an eligible small business.

Temporary Relief Measures Extended

The government announced a further extension of relief measures to 31 December 2020. The

temporary increase in the threshold at which creditors can issue a statutory demand on a company from $2,000 to $20,000; and a temporary increase in the time companies have to respond to statutory demands they receive from 21 days to 6 months. In addition there is a temporary relief for directors from any personal liability for trading while insolvent, with respect to any debts incurred in the ordinary course of the companies business.

The temporary gives businesses needed breathing space to and highlights the importance of working with financial professionals as soon as required, ensuring that your small business has the best chance of success.

Upskilling Australia

The Budget highlights the government’s commitment to getting people back in jobs and upskilling Australians.

The JobTrainer Fund which falls under the JobMaker Plan will support up to 340,700 free or low-fee training places in areas needed to help upskill and retrain job seekers and young people.

The government will provide exemptions for employer-provided retraining activities from business’ fringe benefits tax and is also consulting on updating the current rules to allow individuals to deduct training costs from their income which relates to their future employment.

The Boosting Apprenticeship Commencements Wage Subsidy will boost the number of new apprenticeships and traineeships. This will support up to 100,000 new apprentices and trainees by paying a 50 per cent wage subsidy. Businesses will receive the subsidy up to a cap of $7,000 per quarter, for commencing apprentices and trainees until 30 September 2021.

Economic security for women is also being prioritised under the Budget. Several initiatives will work to support the increase of women’s workforce participation and improvement of earning potential. They include initiatives to support women’s leadership and development and increasing opportunities for women in science, technology, engineering and mathematics (STEM), business and male-dominated industries.

Lower taxes for businesses and individuals

The Budget seeks to promote tax reform and simplification in an effort to support business investment and help reduce the personal income tax burden.

Business

Businesses are encouraged to invest with the introduction of temporary full expensing. Businesses with turnover up to $5 billion will be able to deduct the full cost of eligible depreciable assets of any value in the first year they are used or installed ready for use, from now till end of June 2022. Costs of improvements to these eligible depreciable assets can also be deducted. Through the reduction of after-tax costs of eligible expenses, full expensing supports businesses that are investing and helping stimulate the economy. Eligible new or second-hand assets acquired under the enhanced $150,000 instant asset write-off by the end of this year will receive an additional 6 months (30th June 2021) to use or install those assets.

Temporary loss carry-back will provide businesses the opportunity to offset tax losses. Companies with a turnover of up to $5 billion will be able to offset tax losses against previous profits on which tax has been paid to generate a refund. Any losses incurred from 2019-20, 2020-21, 2021-22 may be carried back against profits made during, or after 2018-19. To receive this support, applications to receive a tax refund may be lodged during the 2020-21 or 2021-22 tax returns.

Measures have been taken to expand and modernise the tax treaty network. This involves eliminating double taxation in an effort to attract foreign workers, simplify taxing rights between Australia and other countries and boost foreign investment in Australia. The initiative reduces tax barriers to prioritise reinstating Australia’s treaties with important partners to relieve economic burden. The Research and Development Tax Incentive (R&DTI) will ensure businesses of every size are receiving the support they require in these areas.

Changes have been made to recordkeeping provision as the government maintains its efforts to cut down red tape. Businesses will no longer need complete prescribed records, instead they will be able to use existing corporate records to reduce the time and manpower spent on recordkeeping.

Individuals

Both low and middle income earners will also be receiving tax relief in the coming years. The government has brought forward their plans for tax cuts to make sure that families are keeping more of what they earn. Taxpayers will be receiving relief of up to $2.745 for singles and $5,490 for dual income families. The provision of a simpler tax system and lower taxes, which will be implemented in 3 stages, has increased the threshold of the 32.5% tax bracket from $90,000 to $120,000. Tax relief to individuals is expected to encourage spending and stimulate the economy.

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