Month: September 2019

Spring clean your finances

Posted on by Adam_Admin

When it comes to your money, whether it be loans, insurance, savings or superannuation, having a ‘set and forget’ attitude can be detrimental to your long term finances. Checking in on the different aspects that make up your finances every now and then to see if they need freshening up is a good way to ensure you are getting the most out of your money.

Your budget:
Since a person’s income and expenses will change over time, making sure your budget is up to date can help keep track of your spending and calculate how long it will take to reach your savings goal. This is also impacted more by day to day and surprise expenses you may incur so regular assessment will better your planning.

Your mortgage:
With interest rates constantly changing, checking to see if you are still receiving a competitive rate can end up saving you money; the lower the interest rate, the quicker you can pay off your loan. By finding out your current interest rate and comparing it to other loans on the market, you may find there is a better deal out there for you.

Your savings:
Spring is the perfect time to reconsider the type of savings product you currently have and whether the return you receive on your savings is at the best rate out there. For those with a term deposit that is about to mature, consider whether there is another savings account that pays higher interest or if another term deposit is a better option.

Your superannuation:
To get to know your superannuation better this Spring, find your latest super statement and check the following:

  • If you have multiple super accounts: consolidating all of your super accounts to just one will save you fees and make it easier to keep track of.
  • Investment options: consider the best investment option for each stage of life when choosing super investments. Those who are more than ten years away from retirement may be more suited to an aggressive investment strategy which is likely to deliver higher returns. Those who are closer to retirement may want to use more conservative options to protect their wealth.
  • Contributions: consider how much you are currently contributing to your super; the sooner you start contributing extra, the less you have to give up each week to make a difference in the long-term. Lower income earners may also be entitled to a government co-contribution and mid-high income earners may be able to save tax.

Are they an employee or a contractor?

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Employers that incorrectly treat employees as contractors can face hefty penalties and charges as well as claims for entitlements and superannuation contributions. Even if employers are only hiring someone for a few hours or a couple of days at a time, it must be established whether they are employees or contractors to get tax and super requirements right.

When hiring an individual, it is the details within the working agreement or contract that determines whether they are a contractor or employee for tax and super purposes. The agreement or contract the business has with the worker can be written or verbal.

Workers such as apprentices, trainees, labourers and trades assistants are always treated as employees. In most cases, apprentices and trainees are paid under an award and receive specific pay and conditions. Employers must meet the same tax and super obligations as they would for any other employees of the business.

Companies, trusts and partnerships are always contractors as an employee must be a person. If a company, trust or partnership has been hired to work, then it is a contracting relationship for tax and super purposes. The people who actually do the work may be directors, partners or employees of the contractor.

Sham contracting arrangements, where an employer attempts to disguise an employment relationship as an independent contracting arrangement, are illegal and breach the Fair Work Act 2009. Under the sham contracting provisions of the Fair Work Act 2009, an employer cannot:

  • Misrepresent an employment relationship or a proposed employment arrangement as an independent contracting arrangement.
  • Dismiss or threaten to dismiss an employee for the purpose of engaging them as an independent contractor.
  • Make a knowingly false statement to persuade or influence an employee to become an independent contractor

Employers who engage in sham contracting arrangements can face serious penalties for contraventions of these provisions. The courts may impose a maximum penalty of $54,000 per contravention.

Diversification requirements for SMSFs

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The ATO has identified approximately 17,700 SMSFs where investment strategies may not meet the requirements under regulation 4.09 of the Superannuation Industry Supervision Act (SISA). Records show these SMSFs may hold 90% or more of funds in one asset, or a single asset class.

Diversification aims to maximise an individual’s return by investing in different asset classes that react differently to the same event. Although it does not guarantee avoiding a loss, diversification is an important component of reaching long-term financial goals while minimising risk. This can help to control a super fund’s risk, as the better performing asset classes will help offset the others that aren’t performing very well. Diversification also provides the super fund with the opportunity for long-term growth, as the portfolio is exposed to asset classes with strong growth potential.

SMSF trustees that don’t have the appropriate blend of different asset classes in their fund risk their portfolio experiencing increased and unnecessary volatility. Well-diversified SMSFs include all the major asset classes including cash, fixed interest, shares and property.

To help ensure an SMSF is properly diversified, consider the exposures the fund currently has to the major asset classes and assess how diversified the fund is. Trustees must then engage in the process of working out which asset classes the fund requires to be properly diversified.

SMSF investment strategies must provide evidence on the following requirements to comply with SISA:

  • Adequate diversification of fund assets.
  • Identification of risks of inadequate diversification within the context of the SMSF investment portfolio.
  • The making, holding, realising, and the likely return from the fund investments relating to retirement objectives and expected cash flow requirements.
  • Liquidity of investments, allowing the fund to meet costs and pay benefits as members retire.
  • Whether insurance cover should be held for one or more members.

Reestablishing lost or damaged records

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Taxpayers are responsible for safely storing a written backup copy of their tax record in case the original electronic form becomes inaccessible or unreadable. In the event that your records have been damaged or destroyed, there are a number of ways you can reconstruct them.

Where the tax records are accidentally lost or destroyed from a burglary or fire, the ATO will allow a taxpayer to claim a deduction for certain expenses, provided that:

  • The taxpayer has a complete copy of a lost or destroyed document.
  • The ATO is satisfied that the taxpayer took reasonable precautions to avoid the loss or destruction of the form. If the tax record was a written document, it is not reasonably possible to attain a substitute document.
  • Taxpayers keep a record of these circumstances and inform the ATO in writing to back up the claim.

The ATO holds and can re-issue or supply copies of tax documents, such as:

  • Income tax returns.
  • Activity statements.
  • Notices of assessment.

If you have lost your TFN, you can still access your tax information by phoning the ATO. They will allow for other information to verify identity, such as an individual’s date of birth, address or bank account details.

Employers should have copies of individuals PAYG payment summaries and banks should be able to provide bank records that have been destroyed. Registered agents may also have copies of individual records. In the event your bank charges a fee for replacing bank records and other services to help reconstruct records or provide information due to a disaster, individuals can claim a deduction in the income year that those fees are charged.

If you are unable to substantiate claims made in your tax returns or activity statements because records have been lost or destroyed, the ATO can accept the claim without substantiation, where it is not reasonably possible to obtain the original documents.