Author: Adam_Admin

SMSF property investment regulations to keep in mind

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Property is a common investment option for SMSFs, however, the ATO has a number of regulations SMSF owners need to be wary of. The ATO is particularly concerned with those using SMSF assets to invest in property in a way that is detrimental to retirement purposes.

To ensure you do not breach provisions of the Superannuation Industry (Supervision) Act 1993 (SISA), here is a breakdown of the ATO’s common regulatory concerns:

  • Whether arrangement amounts to your SMSF are being made to purposes outside of the sole purpose test (referred to as a collateral purpose).
  • Whether your SMSF meets operating standards such as record-keeping, ensuring assets are appropriately valued and recorded at market price, and keeping SMSF assets separate from members’ assets.
  • Whether the arrangement includes the SMSF acquiring assets from a related party.
  • If the arrangement features the SMSF borrowing money and meets borrowing provisions.
  • Whether the SMSF has contravened the in-house assets by exceeding the level of in-house assets allowed.
  • Cases of illegal early release of superannuation when SMSF arrangements do not meet relevant payment standards.

Also, keep in mind that you cannot improve a property or change the nature of a property while there is a loan in place. While you can look to make additional contributions to your SMSF to speed up the loan repayment process, you will be precluded from making further contributions to your SMSF if any outstanding loans in your super balance exceed $1.6 million.

In the case that any of the ATO’s regulatory concerns apply to you and your SMSF’s involvement with property investment, confirm your situation and report your circumstances to the ATO. Additional regulatory matters regarding income tax such as non-arm’s length income (NALI) provisions as well as GST need to be reported as well.

Spouse contributions – when are you eligible for a tax offset?

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Contributions made on behalf of your spouse to a complying superannuation fund or a retirement savings account (RSA) may be eligible for a tax offset.

The 2019/2020 tax rules allow you to claim an 18% tax offset on super contributions up to $3,000 on behalf of your spouse. While you are able to contribute more than $3,000, there will be no spouse contribution tax offset over this amount. The amount you can claim depends on your spouse’s annual income:

  • $540 for spouse income of $37,000.
  • $360 for spouse income of $38,000.
  • $180 for spouse income of $39,000.

The tax offset may be available for individuals who meet the following eligibility requirements:

  • Your spouse’s assessable income, fringe benefits amounts and employer superannuation contributions equate to under $40,000.
  • Contributions made on behalf of your spouse were not deductible to you.
  • You and your spouse were Australian residents at the time of contributions.
  • Your spouse did not have non-concessional contributions that equated to a higher amount than their non-concessional contributions cap, or they did not have a total superannuation balance of $1.6 million or more at 30 June 2018.
  • Your spouse is younger than their preservation age, or are not retired while being between 65 and their preservation age.

Under Australian superannuation law, your spouse can be either:

  • Your partner who you are married to and live with, or;
  • Your de facto partner, who you live with on a genuine domestic basis.

The spouse contributions tax offset can be claimed on your tax return.

Building your interpersonal skills at work

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Demonstrating strong interpersonal skills in the workplace can boost your performance and improve your experience at work by promoting positive workplace relationships. Interpersonal skills that will help employees thrive amongst each other can include communication skills, negotiation, problem solving, teamwork, decision making, empathy and assertiveness. Here are some ways you can develop your interpersonal skills for the workplace.

Refine your workplace etiquette

Demonstrating appropriate workplace behaviour can show your colleagues that you are a team player and that you care about them and the job. This can include being punctual to work and meetings, being courteous, showing respect, being cooperative, taking initiative, and dressing appropriately.

Strive for conflict resolution

Always talk to your fellow employees with respect, even when a disagreement is at hand. If your words or tone of voice are condescending, rude, or inconsiderate, it can damage workplace relationships and reflect badly upon you. When conflict arises, opt to talk things through by identifying the problem and working with others to come to an agreeable solution instead of acting irrationally or avoiding communication.

Be an active listener

Actively listening to someone doesn’t just mean sitting there and not interrupting them. To be an active listener, avoid only engaging with someone on a passive level. Instead, enter the conversation like you also have something to gain from it and you may find yourself not only learning more, but making others feel understood and heard. Be open minded and empathetic when listening to someone’s perspectives, and demonstrate your engagement with responsive body language.

Be receptive to feedback

Feedback can come in the form of someone telling you that you hurt their feelings, they didn’t like the way you behaved, or asking you to do something differently next time. Don’t brush these comments off, but take the time to think about where they might be coming from or ask them to elaborate. If their feedback makes sense, it gives you a great opportunity to work on a particular area after seeing where you went wrong. You can also ask for feedback on your interpersonal skills from coworkers and managers.

What you need to know about fringe benefits tax

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A fringe benefits tax (FBT) is a tax paid on benefits provided to employees (usually non-cash). FBT is calculated based on the gross taxable value of benefits employers provide to their employees. Employees must lodge their return and pay the total FBT amount they owe for the previous FBT year. Due to COVID-19, the FBT lodgement deadline has been extended from 31 March 2020 to 25 June 2020.

The following are the types of fringe benefits you must lodge before the extended due date:

  • Car fringe benefits: when a car your business owns or leases is available for employee private usage.
  • Debt waiver fringe benefits: when you waive or forgive an employee’s debt (including those you write-off as a genuine bad debt).
  • Loan fringe benefits: when you provide a loan to an employee and charge a low rate of interest or no interest during the GBT year.
  • Expense payment fringe benefits: when you reimburse an employee for expenses they incur or pay a third party for expenses incurred by an employee.
  • Housing fringe benefits: when you provide an employee with accommodation as a usual place of residence for the employee.
  • Living-away-from-home allowance fringe benefits: any payments you make to compensate an employee for any disadvantages suffered because they have to live away from home to be employed at your business.
  • Airline transport fringe benefits: any payments made in relation to airline transport.
  • Board fringe benefits: meals provided to employees.
  • Entertainment fringe benefits: payments for entertainment by the way of food, drink or recreation.
  • Tax-exempt body entertainment fringe benefits: when you incur entertainment expenses and you are wholly or partially exempt from income tax or don’t derive assessable income from the activities related to the entertainment.
  • Car parking fringe benefits: when you provide car parking for your employee.
  • Property fringe benefits: when you provide free or discounted property (including goods such as electricity and gas, real property and rights to property) to an employee.
  • Residual fringe benefits: broadly speaking, any rights, privileges, services or facilities provided in respect of employment.

Businesses who have paid less than $3000 in FBT in the previous year only need to make one payment when lodging their FBT this financial year. For businesses with more than $3000 in FBT, they must lodge their FBT quarterly. Clarify with your tax agent or accountant for your FBT details before lodging.

Reviewing your business’ progress

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With the current economic slowdown, now is the perfect time to review your business strategy and conduct a business “health check” to come out the other side improved and ready to go. Analyse whether or not your business is in the state that you want it to be in and any improvements you can make to prepare for when the economy starts to recover.

Clients and customers

Client and customer loyalty is a trait all businesses should appreciate, but if your clients’ values are misaligned with yours, conflict is inevitable. Hence, now is the time to re-evaluate which clients you want to keep loyal and which ones you can see a cooperative future with. Re-assessing your target audience and deepening your understanding of the wants and needs of your clients would also be beneficial, as you can perfect your marketing strategies now while you have the time. If you have clients who frequently struggle to pay you on time, rude to your service and employees and generally disrespectful to your business, take the time to assess whether your attention is worthwhile and if you would like to continue to work with them when the economic situation improves.

Employees

Your employees are another stakeholder to check up on during this downtime opportunity. Your employees will always be your business’ representatives so make sure they are up to standard and help them improve on their skills now when they have the time to. Take the time to teach your employees more about your business goals and strategies and improve the team atmosphere by introducing team recreational activities. Your relationship with your employees now during a global crisis will dictate how they feel about you as a leader and if they can rely on you in the future. Foster respectful, strong and healthy bonds between you and your employees and only good things will be coming your way.

Suppliers

The key question to ask when reviewing your suppliers is whether or not you are getting what you need from them at a reasonable cost. Of course, not all sales deals are made equally and while you may get the bad end of the stick now, that is sometimes for the benefit of the long term. However, if this is not the case and you feel that your suppliers are asking too much from you, letting you down with their product quality or causing other complications, take the time now to look for other options. As most businesses struggle through current economic conditions, more and more suppliers are becoming competitive and hence, there are more options to consider. Do your research and decide on the suppliers you want to work with for the long-term future.

Financing

Managing your finances is always a difficult task but it is now more important than ever. Your budget and profit predictions for this year are likely going rogue so reevaluate your finances and research other funding options such as commercial rent, interest rates and banking services. Consider how you can minimise cost while maximising efficiency and productivity, save as much money as you can during these downtimes, and review your investments in detail to determine whether or not they are worthwhile.

What to look out for when entering a supply contract

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When entering a supply contract, it is extremely important to work out all the nuisances before signing to prevent complications down the road and make sure conditions are favourable for you. Here are a few key pointers to look out for in your supply contract.

Warranties

Warranties are promises within contracts to both parties that certain matters are correct and that certain criteria must be met for the supply of goods and services. Warranties can be expressly stated in a contract, whereby the virtues of particular products from a supplier are restated as warranties in a contract, and warranties are ensured by suppliers to be limited to those specifically stated in the contract.

Guarantee

A guarantee involves a third party, where they must honour the obligations of one of the involved parties in the event that they breach the contract. This offers protection for both contracted parties, almost like insurance in the case that something goes wrong. In some instances, personal guarantees involving personal assets may also be involved.

Risk and title

“Risk” refers to the responsibility for security and safety of goods that is passed onto the customer on delivery, while “title” refers to the legal ownership of goods which is not passed onto customers until a full payment is confirmed. You need to be aware of the differences between these two types of clauses so that the type and frequency of transactions between customers and suppliers can be determined.

Indemnity

Indemnity is a promise made from one party to protect the other from specified loss or damage. For customers, this means protection from damage arising from a breach of contract or the negligence of a supplier and vice versa for suppliers. Suppliers should also an insurance broker review their contract to ensure that there is adequate coverage for suppliers against claims under the indemnity clause from customers.

Defects liability period

The defects liability period is the period of time in which a customer can oblige suppliers to rectify any defects from goods or services performed. Customers need to ensure this period is long enough for any defects to be discovered or consider including a retention amount or some form of guarantee until the end of the period to act as a safeguard. On the other hand, suppliers need to agree on the period, reinstate the definition of “defect” and iron out any exceptions that may come as a result of customer misusage or negligence.

Limitation of liability

It is standard practice for both parties involved in a supply contract to limit their exposure liability and risk wherever possible. Suppliers in particular need to ensure that their contract excludes all implied warranties (where legally possible), reduces liabilities if a customer contributes to a failure to meet warranty and if a warranty is breached, removes liability for indirect loss of profits and limits aggregate liability to a numerical figure (e.g. a percentage).

Boiler plate clauses

These are standard administrative clauses at the end of a contract which outline legal terms such as:

  • Forced Majeure ability to delay without penalty,
  • Jurisdiction and laws that govern the contract,
  • Transferrence of rights.

How to support your employees through COVID-19

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Supporting your employees during chaotic times as an empathetic leader will improve your relationships within your business and boost personal confidence. Here are some ways you can support your employees mentally and financially during these uncertain times.

Be open with your employees
As businesses implode due to current economic circumstances, employees want transparency and closure over the state of the business and their employment. Thus, being open about your business’ finances and both your short-term and long-term growth initiatives when communicating with your employees will earn their trust and appreciation.

Being transparent over your employees’ job security is also a good idea, as unemployment is becoming a major concern for all Australians. Reassuring your employees and guaranteeing their safety will also boost productivity levels and business morale as a major source of anxiety is lifted off of their shoulders.

Take mental health seriously
You can support your employees’ mental health by encouraging a healthy work-life balance (especially if they are working from home) as well as offering tutorials, professional mentoring sessions and online webinars on mindfulness and effective stress management strategies. Be more lenient with your employees who are struggling with productivity due to mental fatigue and enforce healthy lifestyle habits.

Another way to protect your staff’s mental health is to give all your employees financial advice and education, even if they are not struggling financially at the moment. Let them know that you care for their livelihood and can support them with constructive guidance.

Take care of your staff’s physical health
Taking care of your employee’s physical health as well as their mental health will also relieve your employees’ stress levels and give them peace of mind when working with you. Allow your employees to work from home whenever possible and provide disinfectants like hand sanitiser and alcoholic wipes in your workspace to reinforce health precautions. Enforce social distancing procedures such as the 1.5m distance rule and strive to eliminate physical health risks related to your employees. It is vital that no employee comes to work if they are feeling sick.

Incorporating eCommerce into your business

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eCommerce is becoming an effective alternative to traditional face-to-face business operations and may be the change you need to make for your business’ long term growth.

eCommerce refers to the buying and selling of products and services online, either with business to business transactions or business to consumer transactions, and is a tool for small businesses to stay competitive amidst online shopping trends. If you have the ability to catalogue your products and services online and ship them to businesses and consumers, making the switch to eCommerce may be a good investment for the business’ direction in the long term.

To successfully incorporate eCommerce into your business, you must first research the different types of eCommerce to determine which one suits your business best. There are three major classifications to consider:

  • Business to Business (B2B): providing products from one business to another (e.g. software, furniture and supply).
  • Business to Consumer (B2c): exclusively online retailers.
  • Consumer to Consumer (C2C): consumers trade, buy and sell from each other in exchange for a small commission paid to your business.

After choosing which eCommerce model you’d like your business to adopt, you need to validate your products by performing market research. Establishing your niche and identifying who you are targeting will assist you in building your online marketing presence.

The next important step to incorporating eCommerce into your business is to finalise your eCommerce financial plan. As with any business venture, figure out your break-even point in unit sales and duration in both short term and long term. Decide how you want to invest your money into your transition into eCommerce (e.g. website design, software development, marketing) and project these expenses as well as your revenue. Having a budget to stick to will also help you maintain perspective and keep you grounded if things go wrong.

The last step is to execute your plans with a website. Build a website which is not only functional in selling your products, but also visually representative of your business. In the world of eCommerce, digital presentation is everything as you can no longer approach clients to face to face. Thus, make sure your brand is effectively reflected in your website design and interacts with your clients to reinforce online engagement.

Tax implications for workers with COVID-19 mobility restrictions

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Employees who are not living or working in their regular location due to COVID-19 mobility restrictions need to be aware of the tax implications that apply to their situation.

Individuals who ordinarily work and live in Australia but are temporarily overseas due to COVID-19 restrictions will not experience any changes to their Australian tax obligations. If the employee is paying foreign income tax overseas, they will receive a foreign income tax offset to reduce their Australian tax payable.

Foreign residents working from Australia who are not able to leave as a result of COVID-19 restrictions will not experience Australian tax impacts if their stay in the country is under three months. However, non-residents working in Australia for longer than three months may need to lodge an Australian tax return if they earn any assessable income from an Australian source. Other than this, their Australian tax obligations will remain unchanged.

Employment income will not be taxable in Australia if the employee:

  • Is not an Australian resident;
  • Are intending to leave as soon as they are able to;
  • Has no employment connections to Australia other than the fact that they are performing remote work in the country.

Employees who typically reside in a country that Australia has a double tax agreement with may already qualify for an exemption in Australia.

Your current employer superannuation obligations

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Paying your employees superannuation is an integral part of being an employer. Superannuation provides income for your workers in retirement and it is your legal obligation to make sure you are paying your eligible employees the right amount, on time, to the right place and also in the right way. The ATO has also introduced a few schemes to help employers meet their super obligations due to financial strain caused by COVID-19.

Your super obligations are summarised in the following:

  • Check the eligibility of all your employees (some contractors or freelancers may be entitled to superannuation payments).
  • Pay your eligible employees 9.5% of their ordinary time earnings.
  • Super payments must be made at a quarterly minimum (employers who do not pay their superannuation on time may need to pay a superannuation guarantee charge).
  • Pay super into your worker’s fund of choice.
  • Keep evidence to show that you have met your super obligations as an employer.

The ATO also recommends paying the SuperStream way (both payments and data are sent electronically in a standard format) and streamlining your payment process with Single Touch Payroll, although these measures are not mandatory.

While the usual obligations apply, the ATO has also introduced assistance schemes in response to COVID-19 for employers. The superannuation guarantee amnesty, in particular, will provide you with arrangements which can adjust your payment terms and amounts relative to your financial circumstances as well as extend your payment plan to beyond 7 September 2020, provided you apply to participate in the amnesty by that date.

Applying for superannuation guarantee amnesty also means having any refunds returned to you as quickly as possible and being notified of any eligible income tax deductions you can claim on your contributions to employee super funds. However, if you are unable to maintain super payments despite being granted SG amnesty, you will be disqualified from the program. This disqualification will only apply to any unpaid quarters and you will need to pay a $20 per employee component for re-application of any unpaid quarters.

For updates in the event of more changes to super obligations and requirements, visit the ATO Super website or APRA-regulated funds page for more information.