Posts Categorized: SMSF

Employment – ATO & unpaid super

The ATO is getting serious about unpaid employee SG super.

Legislation passed last week means employers can be forced to attend educational courses and even be jailed. The ATO will also have the power to issue what are called Director Penalty Notices (DPNS).  DPNs make unpaid SG super a personal liability of a director.

The government is greatly concerned about the amount of unpaid SG super.  It has now given  the ATO the weaponry to address non and under compliance. And from July with the expansion of Single Touch Payroll to all employers, the ATO will know which employers to track down.

Speak to us if you need help with your payroll.

Who will get your super?

Who will get your super?  Unfortunately, that is a question that many fail to address.

Having a will does not resolve this issue. A will dictates what happens to your personal assets.  As super is held in trust, your will cannot dictate where your super will go.

In order to set out to whom you would like your super to go, you need to make what is called a death benefit nomination. There are three kinds of death benefit nominations.  Each type has its merits and disadvantages.  The best one for you depends on your position and what you would like to happen.

What is best for you is often complex, particularly when there are self managed super funds and trusts (where the issue of on-going control is important).  Furthermore the tax considerations can be a major factor in determining the best way to leave what assets to what people.  This is all best discussed with a financial planner and skilled estate planning lawyer.  Please ask us for a referral.

Super Guarantee

Friday 26th October is the end date for satisfying Super Guarantee (SG) super obligations for the September 2018 quarter.

Super guarantee is payable on most forms of remuneration including:-

  • Commissions.
  • Bonuses (but see below).
  • Directors’ fees and all other forms of remuneration to directors.
  • Allowances (except where fully expended).
  • Contractors paid mainly for their labour.

But super guarantee is not payable on the following items of remuneration:-

  • Overtime.
  • Reimbursements.
  • Unused annual leave on termination.
  • Remuneration of less than $450 in a month.
  • Bonuses that are only in respect of overtime.
  • Bonuses that are ex-gratia but have nothing to do with hours worked (harder to satisfy than what you might think).
  • In respect of employees younger than 18.
  • Employees carrying our duties of a private or domestic nature for less than 30 hours in a week (such as nannies).
  • On quarterly remuneration greater than $51,620.
  • Non-residents performing work for an Australian business outside Australia.

SGC super should never be paid late as late payments attract substantial interest and penalties.  Furthermore, and SG (and BAS) liabilities that remain unreported and unpaid after 3 months automatically become personal debts of directors.

The SGC rate remains at 9.50%.

Please ensure that you make your payment with sufficient time through your Super Stream gateway.  A SG commitment is only satisfied when the money is received by the fund; not when paid to the gateway.  Whilst some gateways pay into the respective super funds the next working days (such as the ATO’s free gateway), other gateways take up to 5 working days.

We welcome any question you might have.

SMSF – minimum balances

ASIC is considering mandating a minimum balance for a self managed super fund (SMSF) to be opened.

Certainly there is good reason for this given reports as to how many SMSFs have unviable balances.

What is most important though is that one receives financial planning advice as to the appropriateness of opening a SMSF.

17 things you must have addressed – Part 2

Last month we began exploring the 17 things you must know the answer to. We now address the remaining 9 critical matters.

As we stated at the beginning of the last post, if you haven’t addressed the following points, then your estate planning is likely to lead to less than optimal outcomes, possible disputes and be more financially and emotionally costly to administer.

So have you understood and considered:-

9/.   I understand that a Will dictates what happens to assets that are owned by an individual. I therefore understand that assets owned jointly as joint tenants, the owner of life insurance policies and my superannuation cannot be dealt with by my Will.

10/.  I also understand that I control but do not own my trust(s). It will, subject to an 80 year perpetuity period, live beyond me. I cannot bequeath any asset owned by a trust through my Will; all I can bequeath is any unpaid loan account balance.

11/.  I understand that any unequal unpaid trust distributions to family members will not be automatically addressed by my Will and I have made provisions regarding current and future imbalances.

12/.  I understand that I can make one of three kinds of death benefit nominations in respect of my superannuation and that each nomination has its own advantages and disadvantages depending on one’s individual circumstances. I understand that there is no cookie cutter solution.

13/.  I understand that if there is some dispute about my superannuation within my self managed super fund, then it cannot be referred to the Super Complaints Tribunal; it must go before the courts (in other words, put five or six numbers between the $ sign and decimal point). I also understand that there is a recent procession of landmark cases in this area.

14/.  I understand that if not otherwise considered, a typical self managed super fund deed will give equal rights to each member – which means that two kids with balances of less than $100,000 each will have equal voting rights with my surviving spouse (even if their balance is over $2 million).

15/.  I understand the prudential advantages of setting out my overall wishes in a deed of family agreement.

16/.  I have made provisions for the disclosure of electronic passwords in the absence of which will make it difficult if not impossible for my executor/executrix to know of and transact on my assets.

17/.  I understand that once I’m dead there is nothing I can do to ensure that my wishes are carried out. No one can ask me; they can only guess. This will waste both time and money. Worse still, they may act out of self interest.

Simply put, estate planning is the process of ensuring that the right assets get to the right people in the most efficient manner. It requires thought and consultation.

If you don’t have a Will, your circumstances have changed since your last Will was made, or you fear that your Will doesn’t address one or more of the above issues, then your best course of action is to attend our upcoming seminar in which the above and many other issues will be examined.

Since our first post, we have held one day on the office where clients were booked back to back with an estate planning lawyer. This was best for everyone as whilst it is CRITICAL that we attend the meeting, we only need to chair the first 5 to 10 minutes and attend the de-brief.  Perhaps even some other questions need to be answered during the meeting.  Whilst our involvement is critical, we do not need to sit through the whole meeting.  It is dangerous for us not to be in the meeting.  The risk of not having one’s accountant at (part of) an estate planning meeting is that the structure is all too often not understood and not conveyed to the lawyer.  And having a Will that doesn’t account for trusts and super funds are as good as or worse than not having a Will.

So, does your will estate planning ensure the best outcomes?

At MRS, we will spend today planning for your success tomorrow.

Downsizing the family home

In our 2017 Federal Budget briefing party, we outlined the proposed downsizing the family home super concession. The proposal is designed to increase housing stock by encouraging retirees to move out of their family home earlier than they may otherwise do.

The intention is that from 1st July 2018, those aged over 65 can take up to $300,000 and contribute it into super (where the tax rate is lower than the first personal marginal tax rate).  There is no maximum age limit and no work test need be satisfied.  Any such contribution is non-concessional (meaning it is not a taxable contribution).  It also doesn’t count against one’s non-concessional contribution limit.

Couples can both utilise this even where a property is only one person’s name.  This means that a couple can contribute up to $600,000 between themselves.

However, it seems as though the Greens and Labour are against this initiative. We will keep you posted of whether this proposal is legislated and in what form with all of the conditions.  We also remind you that the proposed start date is still seven months away.

At MRS, we will spend today planning for your success tomorrow.

Estate planning lessons

Last Wednesday, we ran a seminar which explored estate planning, at home aged care solutions, ways to deal with family members suffering from dementia and the various types super death benefit nominations. We had an almost full house despite the stormy weather and despite the fact that we last ran an estate planning seminar just two years ago.  We are so pleased that so many saw the wisdom to learn, and for some, re-visit key estate planning lessons.

Simply put, estate planning is the process of ensuring that the right assets get to the right people in the most efficient manner.

This process requires the consideration of both state and federal laws (such as Capital Gains Tax).

The process also considers that the following assets which must be addressed separately as they do not come into an estate and therefore cannot be dealt with by a will:-
  • Jointly owned assets.
  • Assets held within a discretionary trust.
  • Superannuation (unless addressed via a death benefit nomination).
  • The beneficial owner of a life insurance policy.

Although a will is usually the main estate planning tool, it is just one of many estate planning tools.

Sadly, less than half of the population have a will; these people are said to die intestate. I say sad as intestate provisions, even with upcoming changes to the way default provisions will distributes assets, rarely deliver anything close to an optimum outcome.

It is my personal belief that one has a moral obligation to ensure one has an effective will as:-

  • Those left behind at a time of grieving prefer to have a set of instructions to follow. They also prefer not to second guess what you would have preferred.
  • It prevents disputes. I know of cases where improper estate planning has ended in court costs of over $300,000. One should also read this as years of delay and family members that no longer speak to each other.
  • It ensures family complexities are best handled such as second marriages, kids getting divorced or having addictions such as drugs, spending or gambling as well as protecting inheritances being claimed by business creditors.
  • It greatly diminishes the likelihood that someone will be able to contest an estate.

Estate planning is your opportunity to ensure your life’s work, sacrifice and your intended legacy is carried out.   The more complicated your structure, the more professional assistance you will require from lawyers, accountants and financial planners.  It may cost money to properly implement but it can save a great deal more in the long run.  And it is the right thing to do.

At MRS, we will spend today planning for your success tomorrow.

17 things you must have addressed

So what are the 17 things you must have addressed?

As Benjamin Franklin once rightly noted, the only things certain in life are death and taxes. We most certainly help all of your client with the second matter. We also do our best to guide clients to undertake proper estate planning as it is something that will eventually affect everyone..

Simply put, estate planning is the process of ensuring that the right assets get to the right people in the most efficient manner.  It requires thought and consultation.

So, will your estate planning ensure the best outcomes?

If you haven’t addressed the following points, then your estate planning is likely to lead to less than optimal outcomes, possible disputes and be more financially and emotionally costly to administer.

So have you understood and considered:-

  1. My Will still reflects my wishes and considers my current assets, extended family and any entities that I have established or control.
  2. I have taken steps to prevent inheritances falling into other people’s hands due to divorce, bankruptcy, drug and gambling debts.
  3. Everyone knows where my Will is.
  4. There is proof that my last Will was written at a time when I had the mental capacity to make such decisions.
  5. I have clearly set out which personal items and family heirlooms are to be left to whom.
  6. Dying intestate (without a Will) really does matter as it rarely provides an optimal outcome.
  7. I still wish that my named executor/executrix is to administer my estate.  Are they still alive?  Are they capable of administering the complexities of my estate?  Are they still living in my home town?  Do they know they are the named executor/executrix?  What if they reject the appointment?
  8. I understood and have considered all Capital Gains Tax implications including utilising existing capital losses which may otherwise be lost.
  9. I understand that a Will dictates what happens to assets that are owned by an individual.  I therefore understand that assets owned jointly as joint tenants, the owner of life insurance policies and my superannuation cannot be dealt with by my Will.
So want to know what the other 8 matters are? You can check back for Part 2 to this blog topic or attend our upcoming seminar.

At MRS, we will spend today planning for your success tomorrow.

 

A welcome change to super

There has been a welcome change to super. Without going through all the rules and a carve out, there was a basic prohibition against employees obtaining a tax deduction for personal contributions into super.  However, from July an employee can claim a deduction for personal super contributions (and the 10% rule has been removed).

How will this work? Say Fred is employed by Turnbull Wind Farms Pty Ltd.  If Fred’s salary was $100,000 the SG super thereon would be $9,500.  Fred could make a personal contribution of up to $15,500 so that he uses all of his $25,000 concessional contribution cap.

A word of warning though – the $25,000 is measured on contributions received by your super fund.  As such, one needs to be aware of contributions for the June 2017 quarter which can legally be paid as late as 28th July 2017 and/or whether an employer has changed from making contributions at the end of each quarter to doing so on a monthly basis.  You need to check with your super fund before making any final contribution(s) as you might be closer to your contribution cap thank you think.

In Fred’s case, he may not need the last $15,500 of income. Paid as a salary, it is subject to tax and Medicare Levy of 39% whereas the tax on the super contribution would only be 15%.  Fred will save tax of $3,720 by making a personal contribution.

So those who will benefit from this welcome change include:-

  • Those whose employer who won’t allow an employee to salary sacrifice into super. You would be surprised how common this is.
  • Those whose employer legally follows the book and bases SG super off the after super salary sacrifice pay. This too is surprisingly common.
  • Those employers who charge through a packaging provider for a super salary sacrifice arrangement.
  • Where a client could better use the cash during the year and only make a contribution at year end.
  • An employee of one’s business who doesn’t wish to incur WorkCover and Pay-roll Tax on employer contributions in excess of SG super.There have been some other welcome changes to super which will outline in future weekly blogs.The removal of the basic prohibition against employees obtaining a tax deduction for personal contributions into super is a welcome change .

There have been some other welcome changes to super which will outline in future weekly blogs.

What should you do? You should discuss your situation, needs and goals with a financial planner to ensure making a personal super contribution is in your best all round interests.

How much do you need to retire with?

How much do you need to retire with? It is a question that many think about without ever really doing anything about it.

So how much do you need?

The Association of Superannuation Funds of Australia (AFSA) releases quarterly moderate and comfortable living expenses for both singles and couples. In its latest release, it has measured that a single person requires $43,655 and a couple $59,971 to fund a comfortable retirement.

So much do you need to have invested to generate at least that level of income? For a couple earning an average of 6% (including franking credits & capital gains net of tax), they will need approximately $1,000,000.  However, if a couple invests only in term deposits earning 2.5%, then assuming an average tax rate of 15%, they will need more than $2,800,000.

It is becoming a more important question as the population ages and consecutive governments struggle with funding the age pension. I was born in the early 60’s when there was 7 people working for every age pensioner.  Today there are only 4.5 workers funding every age pensioner.  Even more alarming are the predictions that there will be only 2 & 1/3rd workers supporting every age pensioner.  Do you think the amount of the age pension and the levels at which one becomes entitled are going to rise or fall? 

And then there is longevity risk. We are living longer than our parents and grand parents – meaning our investment capital has to last longer.

So what are you going to do?  Speak to a financial planner.  A financial planer will take into account your needs, wants & resources and then advise you what is best for you in terms of the best tax structures, strategies and investments (notice that investments is listed last as it is my experience that strategy, structure and the way and timing as to how they are implemented usually delivers greater results and savings than the investment themselves). 

As accountants, we are prohibited from providing this service to you – but our separate financial planning firm can.  Why not call them today.

At MRS, we will spend today planning for your success tomorrow.