Month: August 2022

New Kids On The SMSF Block: Millennials & Gen Y Shaping Their Futures

Posted on by Adam_Admin

Individuals may be looking to opt for an SMSF because these provide entire control over where the money is invested. While this may have traditionally been the domain of middle-aged, experienced investors with higher fund balances, a new breed of investors is arising.

Millennials and Gen Y represent the fastest-growing segment of newly created SMSF account holders, with this group accounting for 10 per cent of all those opened in the past two years – double the rates seen in 2016-2019.

Thanks to technology and a wealth of complex financial information available online, this new breed of investors is making decisions about sharemarkets traditionally reserved for institutional investors.

While this sounds enticing, the downside is that an SMSF involves a lot more time and effort as all investment is managed by the members/trustees.

Firstly, SMSFs require a lot of ongoing investment of time:

  • Aside from the initial setup, members need to continually research potential investments.
  • It is important to create and follow an investment strategy that will help manage the SMSF – but this will need to be updated regularly depending on the performance of the SMSF.
  • The accounting, record keeping and arranging of audits throughout the year and every year also need to be conducted up to par.

Data shows that SMSF trustees spend an average of 8 hours per month managing their SMSFs. This adds up to more than 100 hours per year and demonstrates that running an SMSF is a lot more time-occupying compared to other superannuation methods.

Secondly, there are set-up and maintenance costs of SMSFs such as tax advice, financial advice, legal advice and hiring an accredited auditor. These costs are difficult to avoid if you want the best out of your SMSF. A statistical review has shown that, on average, the operating cost of an SMSF is $6,152. This data is inclusive of deductible and non-deductible expenses such as auditor fees, management and administration expenses etc., but not inclusive of costs such as investment and insurance expenses.

Thirdly, investing in an SMSF requires financial and legal knowledge and skill. Trustees should understand the investment market to build and manage a diversified portfolio. Further, when creating an investment strategy, it is important to assess the risk and plan ahead for retirement, which can be difficult if one is not equipped with the necessary knowledge. In terms of legal knowledge, complying with tax, super, and other relevant regulations requires a basic level of understanding at the very least. Finally, insurance for fund members also needs to be organised, which can be difficult without additional knowledge.

Although SMSFs have the advantage of autonomy when investing, this comes at a price. Members/trustees need to invest time and money into managing the fund and, on top of this, have some financial and legal knowledge to successfully manage the fund.

Before investing your time and money into establishing an SMSF, consider your long-term financial goals and determine if an SMSF is right for you. Consult with a professional regarding your options for further information.

Trust Tax Returns – How To Make Sure You Get Them Right

Posted on by Adam_Admin

Just like how individuals and businesses have to complete tax returns when it’s tax season, so too do trusts.

Trusts have their own tax file number (TFN) that should be used to complete tax returns. Trusts can also apply for an Australian business number (ABN) on the condition that the trust carries on an enterprise. If a trustee applies for a TFN or ABN, this is in the capacity of a trustee and is separate from any other registration that the trustee may require for other capacities.

Trustees

The trustee is responsible for managing the tax affairs associated with the trust. This includes registration of the trust in the tax system, lodgement of trust tax returns, and paying certain tax liabilities

Beneficiaries

For beneficiaries, their share of the trust’s net income is included in their tax returns. Further, payments on the expected tax liability may need to be made, for which the pay as you go (PAYG) instalment system can be used.

Looking at trusts from a tax perspective, one of the primary advantages of using them is that any income generated from business activities and investments (including capital gains) can be distributed to the beneficiaries in lower tax brackets. These may often be the spouses or children of the holder of the trust.

This means that, as the trustees of the trust have the discretion to distribute income and capital as they see fit and no beneficiary has a fixed entitlement to receive anything, the trustees can stream income in a tax-effective way on a year-to-year basis. However, as they don’t distribute the trust’s income, the trustees themselves may be liable to tax on the undistributed income (and at a rate of tax that is usually higher than what the beneficiaries would then have to pay).

Tax Consequences

When it comes to trusts though, you need to be aware of the potential tax consequences that can arise if they are misused. Family trusts generally don’t have to pay tax in their own right – instead, tax is paid by whoever receives money from the trust at the normal rate of tax for their income.

This makes it possible to use “income streaming” to minimise the total amount of tax paid by paying more in distributions to members of the family who have lower tax rates because they have lower incomes.

Trusts are perceived as a means of hiding income, concealing ownership of assets and facilitating the transfer of funds (tax-free) between family and business groups.

In one example given by the ATO, a family trust gives a university student with no other sources of income the entitlement to $180,000 – a figure that takes them to the brink of the top tax rate of 45%.

The student then agrees to pay the $180,000, less tax, to their parents to reimburse them for the cost of bringing them up while a minor. This is a red flag for the ATO!

Another practice falling into the ATO’s red zone is a more complex arrangement where money is distributed to a company that the trust owns. The next year, the company pays the same money back to the trust as a dividend. By repeating this cycle, paying any tax can be put off for many years.

You will want to ensure that your trust deeds (or other constitutional documents) achieve a tax planning benefit and that any changes to them reflect this credibly (and are not credibly explainable for any other reason).

You will also need to ensure that the trusts and the beneficiaries are filling out their returns and lodging all income (including the distributions of the income from the trust).

The ATO keeps a close eye on non-compliance when it comes to trusts. If you want to be certain that you are doing the right thing as a holder of a trust, a trustee or a beneficiary when it comes to tax, it’s important to speak with a professional tax expert, like us.

Looking To Upscale Your Business? Here’s What You Need To Know…

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It’s a wonderful feeling when you have reached a point where your business is so successful that you need to upscale. Whether hiring more people or moving location, upscaling has its unique challenges. What can you do to ensure that you are hitting the ground running while upscaling?

Set Realistic And Actionable Goals

Businesses should set realistic and actionable small goals which they can work towards, rather than broad goals which provide no direction. Setting broad and unrealistic goals is demotivating and makes any progress made seem insignificant. Every person in the business should be given a target to meet over a reasonable timeline, contributing to achieving a larger goal.

Establish Standardised And Automated Processes

Small businesses can make the mistake of ‘doing things as they come’, but this means that as the business grows, adjusting to high-scale tasks is difficult. To avoid this, businesses should standardise all processes of work. Any individual placed into a role should be able to follow standardised procedures and yield a product that is of similar quality to the previous one. Investing money into automation tools is worthwhile for this procedure. This can include automating social media management, email, and customer relationships. Both of these will contribute to creating structures that support growth.

Identify Competitive Strengths And Weaknesses

Recognising the strengths and weaknesses of one’s business is essential. Strengths will allow businesses to hone in on their unique qualities, giving them a competitive advantage. Weaknesses will reveal which areas require growth so that changes can be made before upscaling takes place.

Network

Businesses should continue to develop relationships with service providers, sales channel partners, suppliers and customers. Keeping an open mind about partnerships or potential collaborations could open up different avenues of business growth.

Anticipate The Adjustment Pace.

No matter how prepared you feel, any change in an organisation will require a period of adjustment for the rest of your team. Give them time to recognise the need for change and accept this opportunity’s challenges. More importantly, they need time to understand their roles in the bigger picture of your organisation’s plans to scale and determine how they can make the most of their skill sets and add value to the company. Make sure to consider adjustment protocols and allocate a reasonable period for such adjustments in your scaling plans and process.

Outsourcing The Non-Essentials

As the business increases in stature, there will be a lot more little and frustrating tasks, meaning that you can’t focus on what’s important. Outsourcing components like payroll or marketing to companies with the professionals to do it effectively means that you can focus on upscaling the business.

Upscaling can be very stressful, but whether it’s making changes to your business’s technology or outsourcing things in the short term, to upscale a business means focusing on what is best for your business.

To get to this point, you’ve made a success of it, so it’s important not to lose your identity in the process. Upscaling your business is taking what’s great about your current operation and building it outwards.

If you are looking towards how your business can take itself to the next level, business planning for any eventualities can be of benefit. Consulting with a trusted adviser can be of great help when moving forward in your business’s upscaling endeavour.

Deciding Between Corporate Versus Individual Trustees For An SMSF

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If you have a Self Managed Superannuation Fund (SMSF), the Fund is considered to be a trust and must have a trustee. There are two options as to who this trustee can be.

Barring a few exceptions, it can be individual members, or it alternatively can be a company with the members as the directors and shareholders of the company. The choice, either way, is that the trustee of an SMSF can be either an individual trustee or a company as a trustee.

When choosing the appropriate trustee structure for your SMSF, a closer examination of the advantages and disadvantages will assist you in determining what is right for your needs.

The Cost

When looking specifically at the cost, a company as a trustee could initially cost around $1,000 or more to establish. An annual fee of roughly $50 will also need to be paid to ASIC, and when you are finished with the company, there will be costs associated with deregistering it. Using individual trustees, there is no initial cost associated.

Asset Separation

Most importantly, you have asset separation. The assets are held in the name of a separate entity; if the individuals are ever attacked financially, there is nothing to point toward the super fund.  Even though the fund’s assets should be protected even with individual trustees, if assets are in the individual names, you will need to spend legal fees to prove they are fund assets.

If the fund members are changed, you will need to change the trustees, and if you change the trustees, you need to change the ownership of all the assets. This will be a major administrative burden, as a lawyer will need to be engaged to do the necessary documentation to change the trustees and is required to be engaged if real estate is involved. In most instances, simply changing trustees and ownership of the assets will cost far more in the long run than the initial investment costs of setting up a corporate trustee.

Compliance Concerns

People always make mistakes, but with SMSFs, mistakes can create breaches of the law. If you have all of the assets in a special purpose company name, there is less chance that you will make the mistake of thinking that a particular fund asset (such as a bank account) will be your own asset. If you take money from the super fund account by mistake, thinking it is your own money, the auditor may report a breach. If you deposit money into your SMSF account, which is yours and not the fund’s, you may not be able to take that money back if the mistake isn’t realised in time. While price-wise, individual trustees may seem advantageous at first glance, companies as trustees possess more benefits over individual trustees.

Do you already own a company, and after reading this article, are you asking yourself if you can use that to set up a corporate trustee? It is only recommended that you do so if the company is not operating in any other capacity, but yes, doing so can save on the initial set-up costs.

There is no one size fits all advice we can give you, but we can try to determine what would best suit your needs. We may sit down with you and agree that individual trustees may be appropriate, but if our recommendation is for a corporate trustee, it is for sound financial reasoning.

9 Key Items To Discuss Before Lodging Your Tax Return

Posted on by Adam_Admin

Lodging your tax return for the 2021-22 financial year?

As registered tax agents, we are able to assist you with the process of lodgement to ensure your compliance with the requirements of the ATO.

To ensure that your return is correct, here are our top nine key items to be aware of.

COVID-19 Support Payments/Natural Disaster Payments

Did you receive either a COVID-19 support payment or a natural disaster payment from the government to assist you in trying times? You need to check whether or not what you received needs to be included in this year’s return, as there may be different tax treatments depending on the payment (e.g COVID-19 Disaster Payment is not taxable).

COVID-19 Tests

If you are claiming a deduction on Rapid Antigen Tests for work-related purposes, you need to be certain that they are eligible. That is, from 1 July 2021, to claim a deduction for the cost of a COVID-19 test, you must:

  • use the test for a work-related purpose to determine if you can attend or remain at work
  • pay for a qualifying COVID-19 test, being a:
  • polymerase chain reaction (PCR) test through a private clinic, or
  • test listed in the Australian Register of Therapeutic Goods, including rapid antigen test (RAT) kits
  • pay for the test yourself (that is, your employer doesn’t give you a test or reimburse you for the cost)
  • keep a record to prove that you incurred the cost (usually a receipt).

You can only claim a deduction for the COVID-19 tests you paid for that were used by you to determine whether you may attend or remain at work.

Working From Home Expenses

If claiming work from home expenses in this year’s return, you can calculate it through the temporary shortcut method (all-inclusive), fixed-rate or actual cost methods (as long you meet eligibility & record-keeping requirements of the method that you chose. You also need to make sure that you don’t add additional expenses that are already included when using the temporary shortcut or fixed rate methods.

Record-Keeping

Make sure you have the correct records to back up your deduction claims as no receipts, logbooks or diary entries means no deduction.

Bank Interest

Your bank interest statement is one of the records that the Australian Tax Office uses to pre-fill your return with high-certainty data – however, sometimes this isn’t ready as soon as your return is. This is because it is up to your bank to provide the ATO with this information for their pre-fill service, and some smaller banks may not be able to complete this until after July. As this is high-certainty data, it is data that can cause the ATO to red flag your return for audit purposes if it does not match what their records say if you elect to fill it. If you make changes to any bank interest pre-fill information where there is a certainty indicator, you’ll need to provide a reason for the adjustment.

Crypto & NFT Assets

Don’t get caught out by the ATO by trying to be clever with crypto & NFTs as it is not worth it in the long run.

Any capital gains or losses on disposal of crypto assets (coins, tokens and non-fungible tokens) during the 2021–22 financial year will need to be declared. If you received staking rewards or airdrops, make sure to include these as ordinary income. If you are in the business of trading crypto, income tax will also apply.

Rental Property Income

Did you receive any income from your rental property throughout the financial year? This needs to be reported in their return. This includes income from short-term rental arrangements, insurance payouts and bond money that was retained.

Late Lodgement 

If you have an outstanding tax return due as of 30 June, your tax return due date is 31 October 2022 (if lodging through a tax agent/accountant). If all overdue prior year tax returns are lodged by 31 October, the tax return for the financial year will be due according to the normal lodgement program.

Delayed Lodgement 

If you are lodging your tax return through an accountant and an exceptional or unforeseen situation occurs that impacts the process, don’t panic. Depending on the issues they may face, your accountant may be entitled to a lodgement program deferral or a supported lodgement program. We are able to discuss our options with the ATO to ensure the impact on you is minimised.

When it comes to your tax return, consulting with us is always a recommended course of action. As your trusted advisor, we are the mediators between you and the ATO when it comes to your tax return and any issues that may arise.