ATO focusing in on investment strategies

The ATO is focusing in on investment strategies. 

Last September they wrote to, and scared the life out of, 17,700 self managed super fund (SMSF) trustees. 

Last week they released their guidelines.  We will explain their approach and demands as we study these guidelines.

We will also be in discussion with our SMSF auditor.

We do not believe any major shift will be applied retrospectively. 

Exemption to some non-residents selling their former Australian home after June 2020

We have addressed in previous blogs and our newsletter that former Australian residents selling their former family home will pay tax on the whole gain if the property is sold after 30th June 2020 whilst they are still living overseas.  There is no reduction for the period it was their family home.  There is however an exemption to some non-residents selling their former Australian home after June 2020; but hopefully those circumstance don’t eventuate.

Former Australian tax residents who have lived overseas for less than 6 years can claim an exemption for what are referred to as life events.

Life events include such things as:-
  • Being diagnosed with a terminal medical condition by the individual or a family member.

  • The death of certain family members.

  • A marriage or de facto relationship breakdown.

We should add that it doesn’t matter whether one still holds an Australian passport.  Residency for tax purposes is a separate concept.  Whilst there are numerous considerations, the basic position is that one ceases to be a resident of Australia for tax purposes once one has lived overseas for two years or more.

If a former home is sold by an Australian now living overseas and there is no life event exemption, then:-

  • The whole gain will be taxable – there is no reduction for the period in which it was the family home.

  • The capital gains tax general discount of 50% is not available to non-residents. In other words the whole gain is taxable.

  • Tax is payable from the first dollar at 32.5% as non-residents do not receive the tax free threshold nor the 19% marginal tax rate.

  • Under the new non-resident property withholding tax, 12.5% of the proceeds must be remitted to the ATO – meaning only $1,750,000 from the sale of a $2,000,000 property will be received at settlement; the balance will offset against the capital gain within the Tax Return.

Please refer to previous blogs for strategies to not paying this rather hefty and unfair tax.  Or better yet, calls us to discuss your situation.

New awards to comply with

Awards set out employment conditions and minimum rates of pay.  Whilst not every occupation is covered by an award, there are over 100 awards that cover most employees.
 
As an employer you must adhere to them.
 
On a rolling four-year basis, the Fair Work Commission reviews awards.  During the week, the Fair Work Commission updated the first of three sets of awards.
 
Whilst the amendments are largely in respect of set out and clarification, there have been some changes to entitlements that an employer must comply with.
 
How do you know if any of your employees are covered by an award?  You can check this at:-

https://www.fairwork.gov.au/awards-and-agreements/awards/find-my-award/
 

SG deadline warning

SG super deadline warning

Employers have until Tuesday 28th January to meet with SG super obligations.

There is no extension as there is with the Dec qtr BAS.

But beware as some of the clearing houses have a submission and payment deadline well before then.  May be even today!

If you haven’t paid your Dec 19 qtr super, do so right now to avoid both the imposition of penalties and the whole amount becoming non-deductible.

If you want to read more about SG super obligations, please go to:-

https://www.ato.gov.au/Business/Reports-and-returns/Due-dates-for-lodging-and-paying/Due-dates-by-topic/Super-guarantee/

 

Reducing tax on the former home

An often over looked way to reduce the tax paid on the sale of a former home is to use the six year absence rule.

The net rent you receive is assessable (or deductible if negatively geared) but the gain itself can be disregarded.

However, you must take care when choosing to use this method when you live in another home.  One is only entitled to one principal residence (family home) exemption so choose carefully

We would welcome the opportunity to discuss what is best for you.  We welcome your call.

Non-residents have a house sized problem!

Non-residents have a house sized problem ahead!

The bill to deny non-residents the principal residence (family home) Capital Gains Tax (CGT) exemption that elapsed before the May Federal election has now been reintroduced and passed by Parliament.

What this means that if an Australian working overseas sells their former home, they will pay tax on the entire gain.  There will be no reduction for either:-

  • The time they lived in the home nor

  • The 50% CGT general discount (which is not available to non-residents since 2012).

And was non-residents tax on the first dollar at a tax rate of 32.5%, this could equate to a huge tax bill.

Yes, it doesn’t matter how long you lived in the property, a former resident will pay tax on the whole gain.  And they will do so at comparatively high tax rates. 

So, let’s take an example of Fred, a born and bred Australian who decides to sell their former Melbourne home of say 12 years and decides to buy a home in London where they have been for living for the last three years:-

  • Home bought for $750,000.

  • Home sold for $1,500,000.

  • Gain made of 750,000.

  • No reduction for the 12 years that it was their home.

  • No CGT 50% general discount as they had become a tax non-resident of Australia.

  • No six-year absence rule.

Will result in tax payable of $319,000!

Ouch!!

There are two important carve-outs:-

  1. Houses sold before July 2020 which were owned since May 9, 2017. Please note that CGT is based off contract dates, not settlement dates.

  2. In the above scenario, there would be no tax payable by Fred if he returned to Melbourne and occupied the property as his home before selling it. This would still appear to be the case after a 20 year stay in London.

Full analysis of this new law is currently light on the ground .  We do however invite any query you may have.

 

Maximise your health insurance entitlements

The end of the year is fast approaching.  So amongst your festivity planning, make sure you maximise your health insurance entitlements.

Health funds re-set their limits for extras come January.  If you have an unused cap for things such as dental, physios and the like, you may wish to use up your health insurance entitlements before they are lost. 

Seeing the physio might be a good move if, like me, you seem to be carrying and lifting a lot of heavy things over the next 30 days!

Don’t forget to register for GST!

Don’t forget to register for GST!  If you don’t it could be costly.

The GST registration threshold for businesses that are not non-profits and taxis is $75,000.  If your annual turnover exceeds $75,000 and you are not registered, then the ATO will demand you pay them 1/11th of your turnover.

It can prove rather costly!

Where turnover is not seasonal, we recommend that clients register once their turnover exceeds $6,000 per month.  And sometimes earlier if they will soon be at the limit and have good accounting processes (which we can help set up).

Not sure what is best for you – call us for a free discussion.

Am I required to register for GST

Am I required to register for GST is a question we often get.  The answer is that it depends.

If you operate a business, you are required to have an Australian Business Number (ABN).  But this doesn’t mean you have to also register for GST.

Whether you have register depends on your turnover (sales/fees, etc).  You must register your for GST if your annual turnover exceeds $75,000 ($150,000 for non-profit organisations; taxi drivers are required to register for GST irrespective of their turnover). 

Sounds clear cut – not really!

Annual turnover is defined as being for the current month and the next 11.  That’s right, you are expected to be a clairvoyant!  That said, one should register once their monthly turnover starts exceeding $6,000 per month – with separate consideration for seasonal business.

Should I register if my turnover is under $75,000?

Well that depends on a number of considerations such as:-

  • Do I want to look bigger to my customers?

  • Are my customers the public or businesses? If they are the public, then your price goes up by 10% (but you get to claim back any GST paid).  If they are the business, then they can claim back any GST claimed.

  • If you supply a GST free service such as food and medical supplies, then you won’t charge GST but you will get o claim back GST.

  • Am I going to be able to efficiently run a proper accounting file in order to track and report GST?

So what is best for you?  We would be happy to discuss your situation – please call us.

A short case study in improving cash flow #1

Every business owner is rightly concerned about cash flow. 

It is not uncommon to see profitable business fail due to poor cash flow. 

Yet it never cease to amaze me how little tweaks in a business can deliver dramatic results.

Take the case with one client last week.  In our annual general meeting, our analysis software uncovered, amongst many other things, that the business’s cash flow would improve by $8,753 for every day they got they reduced their debtors’ turnover.  In their case, this meant having all debtors pay on average with 33 days from the date of being invoiced, not 34.  Not much of a change for a big result.

Imagine if they found ways to have their debtors pay on average 10 days earlier.  That would mean that they would have an extra $87,530 in the bank at any one time!

For some this could have flow on effects by paying less or now overdraft interest.

We have dozens upon dozens of ideas and ways in which to improve debtor receipts gained from our many years of experience of dealing with many clients in a variety of industries.

We would welcome the opportunity to explore the way in which we can help you.  And as our first meeting is free, you nothing to lose – and potentially a lot to gain.