Posts Categorized: SMSF

Christmas & tax (& FBT & GST)

Entertaining and providing gifts at Christmas time to staff, customers and suppliers is a cost of doing business. However, there are some important FBT, GST and income tax considerations and outcomes to keep in mind.

As an employer, you need to be careful at what you provide at Christmas. The rules are complex and the costs of getting it wrong can prove very expensive.

We will outline some of the more common scenarios and what to be careful of.

Under-pinning the implications are the following key points:-

Christmas parties, entertainment and gifts are all treated under entertainment tax rules.
FBT applies to benefits given to employees.
There are no FBT implications on entertainment and gifts given to customers, clients and suppliers.
A business can adopt one of three methods to quantify the taxable components of any entertainment expenditure – in fact there are 38 permutations depending on who is entertained where, how and with whom. We will largely address the actual method which is the one used by most small businesses (as it usually results in the best outcome). It is beyond the scope of this briefing to address the 12 week log method and we will only touch upon the 50/50 method where relevant.
Christmas comes but once a year and to the best of my knowledge and experience does so on 25^th Nevertheless, the ATO treats Christmas parties and gifts as being what are called minor, infrequent and irregular benefits.
Such minor benefits are FBT exempt where they cost less than $300 (including GST) provided the actual method is used to quantify entertainment.

The Christmas party

Where entertainment is calculated under the actual expenditure method (which is the most common method for small businesses):-

A Christmas party is held on-site on a work day, the whole cost for each employee will be an exempt fringe benefit. So too will the spouse’s cost provided the cost per spouse is less than $300. No income tax deduction can be claimed for the cost of the party including that in respect of any family members that may attend. Taxi travel to or from the workplace (not both ways) will be exempt from FBT and not tax deductible.
When a Christmas party is held off the work premises, then the whole cost will be exempt from FBT provided the party costs less than $300 per person (employees and their spouses). No income tax deduction can be claimed for the cost of the party including that in respect of any family members that may attend.
If an external Christmas party costs more than $300 or more per person then the total cost is subject to FBT.
The cost of any entertainment provided during the party (whether that be at the work premises or outside) will be exempt if it costs less than $300 per head – for example a DJ, musician, clown and comedian.
The cost of entertaining clients, customers and suppliers is not subject to FBT and is not tax deductible.
Where any exemption is exceeded then FBT is payable. Consequently, an FBT Tax Return must be lodged and FBT paid (the FBT tax rate being the same as the top marginal tax rate). Please keep this in mind when completing the 2018/19 FBT Questionnaire in early April 2019.
All other entertainment during the year will be subject to FBT on a case by case basis.

Where entertainment is calculated under the 50/50 method:-

50% of the cost will be subject to FBT and this portion will be tax deductible. The other 50% will not be subject to FBT and will not be tax deductible. An FBT Tax Return must be lodged and FBT paid.
Only taxi travel from home to the venue will be FBT exempt and not deductible for tax.
50% of all other entertainment during the year will be subject to FBT.

Gifts

The following gifts are exempt from FBT and are tax deductible:-

Hampers, bottles of wine, gift vouchers, a pen set costing less than $300 (inclusive of GST).

The following gifts are subject to FBT and are not tax deductible:-

Tickets to a sporting event or theatre, holiday, accommodation, etc.

The GST treatment of gifts is:-

That the GST component of any tax deductible portion can be claimed back.
But the GST component that relates to the non tax deductible portion can’t be claimed.

Please do not hesitate to call us should you have any queries.

How can I find lost super?

More people should ask that same question as ATO number reported as recently as the end of February that there is $16 billion of lost and unclaimed super.

So how can you find or check for lost super?

Log into your MyGov account and the click on the Manage My Super lik.
Call the ATO on 13 28 65
Complete a paper form – click here

You will need to have the following information ready to supply:-

Your Tax File Number
Your contact details
Details of any super fund you have been a member of – fund name, account number, beneficiaries and period of contributions

As this process requires the provision of personal information we are unable to attend to this on your behalf. But please don’t hesitate to ask us if you have any questions.

80,000 – I don’t think so

How many are we being told will be affected by the excess upper tax? We are constantly told 80,000. 80,000 – I don’t think so.

Today Money Management published worrying findings from the Financial Services Council (SFC).

FSC’s modelling has shown that each of the following will breach the $3,000,000 threshold by the time they are 65:-

A 55 year old earning $220,000 with a current super balance of $1,400,000 (not even half of the threshold).
A 45 year old earning $150,000 with a current super balance of $650,000.
A 25 year old earning $1000,000 with a current super balance of $35,000.

That 25 year old could be a IT professional as per FSC’s example – but it will also catch all those tradies working their socks off at the moment.

Seems to me that saying this proposed extra super tax will only hit very few is grossly misleading. In fact I question how many more than the often repeated 80,000 will exceed this threshold come 2025/26 – estimates I have read so far start at 500,000 – but it could be many more than that.

Think you may not be caught by the excess super tax – then read on

Think you may not be caught by the excess super tax – then read on.

The announcement as to levying extra tax on those people with total super balances over $3,000,000 has certainly caused a stir.

Treasury has already worked out how the system will work (contrary to what the Deputy Prime Minister said on the Friday morning TV news).

So let’s explore how quickly people will start to pay this tax given the threshold will not be indexed. And to put it into perspective let’s first look at the time value of money.

$3,000,000 may sound a lot today – but you could buy family home in many parts of Melbourne 30 years ago for less than $100,000.

And look at it this way:-

In 2013 Labour was floating exempting the first $100,000 of a super pension being paid from an accumulation (not to be confused with the extremely generous defined benefits that politicians and senior public servants received – which have escaped the current round of fire).
In 2016, the then reigning Liberal government introduced a Transfer Balance Cap (TBC) of $1,600,000 – being an indexed maximum amount you could have in pension mode). $1,600,000 earning a modest return of 6% would equate to almost $100,000.

So it can be said that even though 3 years apart, both parties had a similar idea as to what a reasonable super balance in retirement capped out at.

So what are those amounts worth today?

The $1,600,000 was indexed to $1,700,000 from 1^st July 2021. Whilst that took 4 years, it has only taken another 2 years for inflation to jack it up to $1,900,000 which it will be from 1^st July 2023. So what will it be by 1^st July 2025? Very possibly at least $2,000,000 but more likely $2,100,000 the way inflation is running.

$3,000,000 may sound like a lot but the time value of money means it is worth a lot less than what most people think.

No wonder predictions are 500,000 mum and dad Australians will breach this cap come 2025/26. And how many by 2030? Roll forward to 2055 and it could be an alarming number (noting how house prices have inflated from 30 years ago).

So what does this mean to Fred who retires at the start of 2025/26 with $2,000,000 in super?

Fred (with a life expectancy of +/- 20 years) makes a downsizing contribution from the sale of his home of $300,000 (downsizing being a policy supported and widened successively by both parties).

Good investing could see his super earn 4% franked dividends and with growth of 5.25% – the return would be 11%. In this case, Fred will start paying this extra tax from the 2029/30 year – it has only taken 5 years to fall into the system! He started at only 2/3rds of the threshold but has breached it within 5 years.

And what if Fred is solely in accumulation for personal reasons? Well he will fall into the system from the fourth year.

And what does this mean for the 2029/30 year? In the first year the tax will only be $860.

But by 2038 the tax has grown to $27,221. Seems a lot of tax to me particularly if the supporting assets haven’t been sold – and may even fall in value. Roll forward another 5 and 10 years and the numbers start becoming eye watering (noting that one is taxed on the growth even if the assets aren’t sold or subsequently fall in value – think PayPal’s fall from its highest price to when it delisted).

And what about Jack who has $2,000,000 in super today?

Jack retires at age 65 in 2025/26 at which time he makes a downsizing contribution in addition to three years of making maximum super contributions (net of 15% tax). Well Jack has the honour of being levied the excess tax from 2026/27. Fred has started with $2,000,000, followed the rules, but is subject to this new excess tax from just its second year!

It is misleading to say this only affects 80,000 Australians. As every year goes by, an increasing number of Australians will have their retirement savings eroded by this tax.

It will be interesting to see modelling of how many current 25 year olds will fall into the system by the time they reach age 65.

How you can make sure that your super doesn’t go to the wrong people

How you can make sure that your super doesn’t go to the wrong people? It’s a question anyone with super should ask themselves. Even if your balance is low, a life insurance payment can create a whole new scenario.

Peoples biggest 2 assets are almost always their family home and their super.

Your Will dictates who is to get our home if it is owned entirely in your own name.

If it is owned jointly with your partner, then they will get your half should you pre-decease them; in other words it doesn’t form part of your estate.

Your super though is held in trust for you.

If your super is with a public fund (industry, retail, employer and so on) then it is up to their board trustees to decide who is to receive your super in the absence of a complying death benefit nomination. The trick is to have the right form of nomination in place.

When it comes to self managed super funds, it can become of whole lot trickier. Not only do you need the right form of death benefit nomination in place, but you must be wary of the trust deed. As they are generic in nature, they don’t reflect your wants or desires. Moreover, they can confer general powers which are open to be used in inappropriate ways depending on how the cards fall.

In an upcoming 30 minute webinar we will explore:-

The various advantages and disadvantages of the 3 types of death benefit nominations.
Where your super can best be directed to be paid and associated tax benefits.
Recent court cases where a typical super fund trust deed left the door open for the wrong person to claim the super (with legal fees often into the hundreds of thousands).
Our new solution.

The webinar will be held from 5:30pm on Wednesday 30^th November. You can register by clicking on the following link – https://us02web.zoom.us/webinar/register/WN_Ov2inp73QdG955M_Bhk9Jg

And as we are passionate about helping people to become more successful and secure, we welcome your extending this invitation to family, friends and business colleagues.

What are the new super limits?

So what are the new super limits that apply to this financial year and then from July 2022?

Please click here to access super limits about:-

How much money can be put into super.
How it is taxed whilst in the fund.
Tax and limits on money being paid out of super.

Under the Corporations Law, the following are all personal advice:-

Advising on whether you should make any form of contribution.
Start or stop a pension.
Whether to withdraw money as a pension or lump sum.
Accountants are unable to provide such personal advice – that is unless they are otherwise licensed as a financial planner.

And it is with good reason this is so. Too often people decide upon a course of action for which they are unaware is not in their best interests, whether that be in the short or long term.

Furthermore, those with own self managed super fund can embark on a course of action which leads to either a fineable breach or restrict the amount of money that could otherwise be concessionally taxed.

How does the super co-contribution work?

Under the super co-contribution scheme, the government will contribute $1 for every $2 of personal contributions made by an employed or self employed person. The maximum government co-contribution is $500. So if you wish to target the full $500, you will need to contribute $1,000.

To be qualify, one must:-

Be employed with their employer paying the compulsory SGC or be a self employed person running a business.
Have 10% or more of one’s income coming from employment and/or a sole trader business.
Be less than 71 at the end of the financial year.
Have combined assessable income (that being income before deductions), Reportable Fringe Benefits (RFBA) and employer super contributions in excess of basic SGC amount (RESC) of less than $56,112.
Have paid a non-deductible contribution into superannuation from after tax money by 30^thJune 2022. This means the contribution must be made from a personal or joint bank account.
Not be a temporary visa holder.
Lodge a Tax Return for the year ending 30^thJune 2022.
The maximum co-contribution for a personal contribution of $1,000 is $500 if your combined assessable income is under $41,112. Thereafter it progressively reduces by 3.333 cents for every dollar in excess of $41,112. There is no entitlement if your combined assessable income exceeds $56,112.
Not have contributed more than your non-concessional cap.
Have a total super balance under the Transfer Balance Cap (between $1,600,000 and $1,700,000).

If you want to find out what you might be entitled to, click on the following link to the ATO’s calculator here

Other matters to note are:-

One’s own contribution and that made by the government will be preserved. That is, one will not be able to access it until one retires or satisfies another condition of release.
The ATO will deposit the co-contribution into one’s super account once they have reconciled one’s lodged 2022 Tax Return with the information provided by one’s super fund(s). Consequently, most co-contributions will not be credited until at least January 2023.
If your super is with a public or employer superannuation fund, you will need to ensure they accept such contributions. You also need to obtain the appropriate form.
You will need to make your contribution well before 30^th June. For those with your own SMSF, your fund can only accept such a contribution if permitted by its trust deed. We will take no responsibility where a client does not consult with us beforehand.

What is best for you depends on your circumstances and take into account a large number of considerations.

You should therefore seek financial planning advice to ensure such a contribution will work as intended and is in your best overall interests.

How does the 2022 Federal Budget affect you?

So how does the 2022 Federal Budget affect you?

What do you stand to gain?

What do you stand to lose?

We have written our tips and traps newsletter as to how the 2022 Federal Budget affects the typical small & medium sized business as well as individuals.

You can access it by clicking on Budget 2022 Tips & Traps

In coming weeks we will be amending our pre year end planning checklist accordingly. We so look forward to the valuable process of ensuring clients take up all benefits and avoid any pitfalls.

Whilst we will be on the front foot proactively guiding our clients, we welcome any questions you may have.

2022 Federal Budget

Please find attached a briefing paper outlining the various announcements within the 2022 Federal Budget. This will shortly be followed by a more detailed tips and traps analysis.

It is important to remember that a Federal Budget is only a series of announcements. The announcements still await being passed into law even if the starting date was stated to be Tuesday night. That said, the fuel excise reduction legislation was passed yesterday.

Moreover, we have an election just weeks away and very possibly a change of government. Labor has already stated that they intend to hand down their own Budget later in the year should they win the election.

I take this opportunity to highlight what I believe are the 6 most important announcements that affect most clients. Not all of these may affect you personally and other announcements may, but these are the 6 with the widest impact:-

Cost of living support through the $250 cost of living payment and the $420 increase in the Low and Middle Income Tax Offset.
I must admit that even with low interest rates, I didn’t see this one coming given prevailing share and property prices – an extension of the 50% minimum pension reduction for the 2022/23 year.
20% extra deduction for small business expenditure on digital adoption expenditure.
20% extra deduction for skills and training expenditure.
50% reduction in the fuel excise tax for 6 months.
Covid test expenses paid by employees and employers will be tax deductible and employers will not be subject to Fringe Benefits Tax.

And as far as I can read so far, there was no announcement as to another extension of the instant asset write-off. So this means that after 30^th June 2023, small businesses will not be able to deduct in one year the full cost of any asset they buy; noting that cars are subject to a limit. It will be some time before supply chains revert to pre-covid norms, so best to start planning any asset purchase sooner rather than later. And remember, this means that any asset purchased must be installed ready for use before July 2023.

As I said, we will come back to you with a more detailed tips and traps analysis. In the meantime, I leave you to read the attached briefing paper and moreover welcome any questions you may have.

You can access our briefing paper by clicking here.

Payroll reporting deadlines

With the progressive roll-out of Single Touch Payroll, year end finalisation deadlines are tightening. It’s not like the “good old” Payment Summary days were one had to the 14^th August to return the stationery. Employers are now required to complete the Single Touch Payroll finalisation step by 14^th July.

Thankfully though two extensions are available this year:-

In response to demands caused to business owners, 31^st July
For closely held employees (family members) 30^th September

Those larger employers that are subject to Pay-roll Tax are due to certify the 2020/21 remuneration by 21^st July. This is not just a matter as in addition to wages, salaries, commissions, directors fees, bonuses and so on, Pay-roll tax is also payable on:-

Superannuation
Some fringe benefits
Payments to certain contractors (including some corporates).

Whilst 28^th July is the end date for paying the June quarter SG super, payments through clearing houses can take up to 10 days. We therefore recommend that the June quarter super be processed no later than Friday 16^th.

We welcome any question you may have about these matters.