Author: Adam_Admin

What Do You Need To Know To Get Out Of An SMSF?

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If you’re a trustee of a self-managed super fund, some reasons or circumstances could have emerged that may result in you wanting to get out of that fund.

These may be personal circumstances (such as a divorce or another trustee dying), financial reasons (investments not performing as they should or you aren’t taking a pension after retiring) or you simply may not have the time to manage it efficiently anymore.

Whatever the reason, getting out of a self-managed super fund is no easy task. An SMSF cannot simply be placed ‘on hold’ as it were, as an SMSF must be completely closed down (unless members are remaining). You cannot simply take your funds out of the SMSF, especially if it is in the name of multiple trustees.

Getting out of your SMSF can be a complex process, with a lot of paperwork and responsibilities you must ensure are met. Failing to meet those responsibilities as a trustee, even when winding up your SMSF, could lead to financial and legal ramifications (such as penalties and fines).

Though some of the steps for winding up an SMSF might be self-explanatory, ensure you cover your bases by ensuring that the following steps are followed.

Consent Of Trustees Must Be Obtained

As with most decisions that are to do with an SMSF, consent from the fund’s trustees must be obtained in writing at a trustee meeting. A resolution that the SMSF is to be wound up is to be made and all trustees need to agree to it. This must be minuted and signed by all trustees.

After this consent is obtained, the Australian Taxation Office (ATO) must be notified of the fund being wound up within 28 days of the decision being made.

Check Your Trust Deed

This may contain instructions or information pertaining to how your SMSF needs to be wound up and the specific steps that need to be taken. Work Out What Will Happen To Member

Benefits

An SMSF can only be closed when there are no funds available, so any existing monies within the account need to be paid out to members who are able to access their super (if they have met a condition of release) or rolled over to another super fund.

You also need to take into consideration events that may affect other members’ transfer balance accounts (which may need to be reported by the SMSF).

Paying Out The Fund to members

If members are still in the accumulation phase, they need to rollover their funds into another super fund. This can be any kind of super fund – such as industry and retail funds – and doesn’t need to be another SMSF. You also need to take into account if any of the assets within the SMSF will incur Capital Gains Tax if they are sold to fund member benefits payouts.

Appoint An Auditor

Appoint an auditor to complete a final audit of the SMSF before you lodge your final tax return. They must be ASIC approved. The audit will help you to finalise the tax obligations of the fund, including CGT and taxable income received by the fund through investment returns or member contributions.

The ATO will then examine the audited accounts and determine whether there are any final tax obligations or refunds due. Any final tax owed can be paid from funds remaining in the SMSF’s accounts.

Approval By The ATO For The Fund To Close

Finally, the ATO will send you a letter stating that your SMSF’s ABN has been cancelled and your SMSF’s record has been closed on the ATO’s system. This letter confirms that you have met all reporting and tax responsibilities, and you can now close the fund’s bank accounts.

Closing an SMSF is a complex task; you should not attempt to do it alone. Please reach out to a licensed adviser if this is something you are contemplating.

If I’ve Lost My TFN, What Can I Do?

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Your tax file number (TFN) is a critical piece of information in your possession and should be a constant companion throughout your life. However, there are times when a TFN is misplaced or forgotten. What are you supposed to do?

If you forget your TFN or lose it, this can be a significant issue.

A TFN can be used for opening bank accounts, tracking super savings, applying for government benefits, and giving to higher education providers. If a TFN is stolen, it can be used to create these accounts in your name, increasing the chances of identity theft.

It’s also required if you begin new employment, as you have 28 days to provide your new employer with your TFN before they start withholding tax from your pay at the maximum rate.

What Can You Do?

Your first avenue of inquiry, if you use the services of a tax agent or accountant, will be to ask them for your tax file number, as you will have previously provided it to them. If not, however, you can call the Australian Taxation Office (ATO) to find out what you can do to get your TFN.

The ATO will need to make certain you are who you say you are and that you’re the correct person to discuss your tax affairs with (identity theft can and does occur) – so be ready to answer a few identifying questions.

You may also (if you haven’t done so already) be invited to record a short “voiceprint”, which is another security layer that can identify you the next time you call. Another option is to fill in a form provided by the ATO to apply for or inquire about a TFN. But as the ATO will only process the paperwork it provides taxpayers, you will need to order an actual paper form.

Check The Document Trail

Before you grab the phone to track down your lost TFN, you should check other places it may have been entered into. You might want to rifle through your paperwork and check the following, as your TFN should be on them:

  • your income tax “notice of assessment” for a previous year
  • any correspondence sent to you from the ATO
  • a payment summary from your employer
  • an account statement from your superannuation fund.

If you have a physical folder or file that you keep your important information in, make sure to check it as well.

What If Your Tax File Number Was Stolen?

If your TFN has been stolen or accessed by an unauthorised third party, inform the ATO as soon as possible. Your TFN can be used for identification purposes and may be used to steal your identity. The ATO’s Client Identity Support Centres can give you further information, advice and assistance to re-establish your identity. They may also apply security measures to monitor any suspicious activity on your account.

You can speak with your registered tax agent (like us) as we may have it on file and be able to assist you with locating it.

How Do Partnerships Operate?

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Starting a partnership may be a high-yielding decision whether you are in the business game or setting your sights on a new business venture.

A partnership business structure is an incorporated business with 2-20 owners. The individual owners work together to achieve the business’s goals, sharing responsibility and profits.

In a partnership, control or management of the business is generally shared. A partnership is not a separate legal entity, so you and your partners are liable for all debts and obligations of the business. A formal partnership agreement is common but not essential (it is a recommended course of action though).

The specifics of partnership laws will vary depending on your state or territory.

There are two types of partnerships – general and limited. A general partnership is where all partners are equally responsible for the day-to-day management of the business.

Whereas a limited partnership has at least one general partner who is responsible for controlling the day-to-day operations and is liable for the debts and obligations of the business.

The passive partners in this type of partnership are called limited partners. Limited partners generally contribute a defined amount of capital, and their liability is limited to the amount of capital that is contributed.

Consider the following advantages and disadvantages before starting or joining a partnership:

Advantages

A partnership structure is easy and inexpensive to set up. Unlike operating as a sole trader, there is increased opportunity for income splitting, more capital available and higher borrowing capacity.

Working as a team can also provide more perspective than working as an individual. High-performing employees can also be made partners.

From a tax perspective, partnerships do not need to pay taxes on their income. Each partner pays tax on the share of the net partnership income they receive. Paying superannuation is the responsibility of each individual partner, as partners are not considered employees.

Additionally, there are limited external regulation and reporting requirements.

Removing partners is generally straightforward. The only condition is that at least two partners are left in the business. If a partner wishes to resign from the partnership, it is relatively simple to dissolve the partnership and recover their share.

Disadvantages

This type of business structure carries unlimited liability, meaning the business owners are liable for the business’s debts. They are subject to reasonably cover what is owed or risk seizure of their personal assets.

Each partner is responsible for the debts and liabilities of the business (with the extent depending on the type of partnership), including the actions of other partners.

This can cause disputes and friction among partners, resulting in unfavourable circumstances. For example, one partner may have a different vision or opinion on administrative control or profit sharing for the business compared with the other partners.

Although adding and removing partners is simple, partners will most likely need to value partnership assets which can be expensive.

If choosing to structure a business as a partnership, it is important to consult with an advisor to ensure that it is done correctly and compliantly to maximise the benefits (such as concessions, liability etc.) that could be infringed upon otherwise.

If you’re not certain of where or how to start your partnership, come speak with us as your business advisers. We’re ready and willing to help.

New Work From Home Rules For Claiming Tax Deductions

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With a new norm surrounding how Australians work (hybrid, remote or office-based), there has been a change in how work-related expenses will be claimed this year during tax season.

Where once the expenses and claims that needed to be made during tax return season could be more clearly defined in terms of business or pleasure, work-related expenses or personal expenditure, remote working and work-from-home employees need to keep careful records of what they can and cannot claim as “home office expenses”.

Previously, this could be claimed through the COVID-simplified 80 cents per hour, work-from-home method (known as the shortcut method and no longer available for the 2022-23 financial year), the ‘fixed method’ (previously 52 cents per hour, now 67 cents per hour) and the ‘actual method’.

With new changes to the methods in place from 1 July 2022, it’s essential that work tax deductions are correctly calculated and claimed and the process is duly followed.

Shortcut Method Is No Longer Available

The shortcut method introduced to simplify the process of claiming work-from-home expenses during the pandemic is no longer available.

Through this method, individuals could claim a fixed rate of $0.80 per hour worked from home, with the aforementioned shortcut method covering expenses such as phone, internet, and depreciation on furniture & equipment. If this shortcut method was employed, no other costs could be claimed for working from home.

Remember that for the 2022-23 financial year, you must claim any work expenses through the fixed rate or actual methods, not the shortcut method.

Revised Fixed Rate Method

The fixed method will increase from 52 cents per hour to 67 cents per hour. The ‘actual method’ can also still be used. You no longer need a dedicated workspace at home, but you must have a representative four-week diary of the hours worked from home between 1 July 2022 to 28 February 2023.

Many taxpayers will already have kept records, but if you haven’t, one way to do this would be to look back over your diaries for the past four weeks.

You may also be able to use other similar records you already have as evidence as long as they represent the hours they worked from home during those eight months.

From 1 March 2023, the record-keeping requirement has changed again, and you will be required to record all your hours worked from home in a diary or some other format as they occur. This can be in the form of timesheets, diaries, time recording apps, or any other similar document, provided it is kept as they occur.

How Does The Fixed Rate Method Work? 

To use the revised fixed rate method, you must:

  • incur additional running expenses as a result of working from home
  • have a record of the total number of hours you work from home and the expenses you incur while working at home
  • have records for expenses the fixed rate per work hour doesn’t cover and show the work-related portion of those expenses.

You can claim 67 cents per hour you work from home during the relevant income year. The rate includes the additional running expenses you incur for:

  • home and mobile internet or data expenses
  • mobile and home phone usage expenses
  • electricity and gas (energy expenses) for heating, cooling and lighting
  • stationery and computer consumables, such as printer ink and paper.

The rate per work hour (67 cents) includes the total deductible expenses for the above additional running expenses. You can’t claim an additional separate deduction for these expenses using this method.

Australians must know their entitlements and tax deductions when working from home/remotely.

Speak with us to ensure you comply with your tax return obligations when claiming or for assistance with your tax return this financial year.

Announcement Made About $3 Million & Over Superannuation Balances

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Last week, the government announced a change to superannuation, introducing a new tax that will apply to member balances above $3 million.

From July 1, 2025, super earnings over $3 million will be taxed at 30 per cent, double the current rate of 15 per cent. According to the government, this change aims to ensure that sustainability and fairness remain central to the system.

To put it into perspective, the average Australian super fund contains an average balance of $150,000, and about two-thirds of Australians have less than $100,000.

This new tax concession increase will affect about 80,000 people, who will continue to have more generous tax breaks on earnings from the $3 million below the threshold (which will not rise over time). This will not be retrospectively applied and will only apply to future earnings.

A person with $3 million in super will likely receive a tax benefit at 30% still. However, serious thought could be given to leaving money in superannuation, where the tax rate is the same as putting it into a company.

Other considerations that may need to be thought through include

  • If you die and leave that super to non-death benefits dependent, they will pay 15% on the entire taxable component, leading to an effective tax rate of 45% on the earnings.
  • Taking money out of the company will come with franking credits but may put you in a position of paying top-up tax. Conversely, leaving it in the company and leaving the shares to a testamentary trust may allow you to pay dividends without further tax.
  • A company does not need to comply with any SIS rules so that you can have in-house assets, loans to members etc.

Any actions taken should be done with consultation with a professional adviser to comply with legislation and regulations.

As these changes to super balances of over $3 million will not take effect until after the next election, there is plenty of time to plan and model out the best path for your situation (if you are one of the few who this will affect). You will need an actuarial certificate to determine what percentage of the fund’s income will be taxed at 0%, 15% and 30%.

While the average Australian super fund may be far below this threshold, that doesn’t mean a fund cannot be increased. Through voluntary contributions, including concessional and non-concessional contributions, you can help to boost your nest egg to a comfortable level.

Do you want to know more about tax breaks, concessions, or ways you could contribute to your superannuation? Speaking with a licensed professional is the best way to start.

Strategies For Creating A Business (And Growing From There)

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Creating a business is not an easy avenue to explore. It requires commitment, frequent planning, substantial financing and good business sense. However, not only do you have to think about the beginning of your new venture, but you also have to think about the company’s continued growth.

To be a successful business, growth is the standard measurement of progress. Several criteria can be used to gauge this in a commercial enterprise, including:

  • Sales revenue – Value of business generated by the company in a given period
  • Market capitalisation – Value of equity to investors or owners
  • Profitability – Net profit after taxes and operational expenses
  • Customer retention – Size of the existing market
  • Customer acquisition – Number of potential customers from the total market share
  • Company assets – Assets legally owned by the company after subtracting liabilities

Generally, several strategies can be followed to develop and sustain business growth (depending on your preferred approach towards increasing your business activities).

Market Penetration

Even the smallest start-up company needs to have a way to break into the market and stand out from its competitors. Several techniques can be combined with other ideas to distinguish your company. These include:

  • Offering lower prices
  • Being more willing to bend to market demands through availability/logistics.
  • Adding value-added services while maintaining an acceptable quality standard
  • Exceeding customer expectations.

Market Development

Using careful planning and precise execution to generate business in a new market is another strategy for your business to further its reach. Understanding the business conditions of a market allows companies, big or small, to sell existing products in new markets that can develop new sales opportunities.

It could also mean reaching out to other areas of opportunity such as classifying the market according to age, income class, spending personas or other distinctive conventions. Depending on the industry, you can also redevelop a new product/service line based on the overall demand.

Product Development

Know what your customers require/ are looking for and become their solution. Answer the market demand (if possible) with a new product or service that addresses this need.

Companies can use different ways to develop products in an existing market; they could be based on the following:

  • pricing
  • development of new features
  • product positioning
  • other deciding factors could push customers towards choosing what your business can offer.

Business Diversification

While this is a high-risk strategy, it may lead to high rewards. To mitigate the risks, you can lead your business by approaching new ventures with calculated risks and weighing the potential rewards if it succeeds. Additionally, some diversification strategies allow some flexibility for pivoting from the initial business plan to allow a safer way that can lead to growth.

If you are considering the next step for your business, why not consult with us? As business advisers, we can assist you with strategies to help develop your business to its fullest potential.

Super Fund Fees – Are Yours High, Medium Or Low?

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No matter the kind of super fund you opt for, or how it has been performing, you will be subject to super fees. Understanding how these fees work and the difference they can make to your nest egg is vital.

When it comes to super fund fees, there are two factors you need to get your head around; the kinds of fees you are being charged and the rate of fees you pay. Opting for a super fund based on these two factors can see you retire with hundreds of thousands of more money.

You should be aware of the various types of fees you are being charged. If you would like to find out the fees you are being charged, you should do two things.

Firstly, Google your fund’s product disclosure statement and scroll through to the fees section. You should see a list of different types of fees, explaining what they are, how they are applied, and how often they will be incurred. Secondly, you should log in to your super fund account and note all the fees being charged to you. Investigate how closely these correspond and correlate with the product disclosure statement.

If you feel there are discrepancies, do not hesitate to contact your super fund or financial advisor and ask for clarification. It is worthwhile researching and comparing the fees you are being charged against other super funds and what they charge. Being complacent and not paying attention to your super is extremely irresponsible; the dividends you will receive later in life for being diligent now outweigh the burden of taking time to be informed today.

Some standard fees across the board include:

–        Administration fees: fees covering the costs of operating and managing your super fund account.

–        Exit fees: fees incurred for leaving or switching super funds. While this is a common fee, not all funds charge it.

–        Investment fees: fees incurred due to the cost of managing where your money is invested. These fees can fluctuate, depending on where your money is invested.

–        Activity-based fees: fees incurred for any activity you require your super fund to perform outside of the ordinary management of your account, such as a family law split fee.

Another major factor contributing to how much you accumulate in your super account throughout your working life is the rate of fees you pay. Plain and simple, some funds offer much lower fees than others, creating a difference of hundreds of thousands of dollars when it comes time to retire.

Generally, funds are categorised into three groups; low super fees, medium super fees and high super fees. You will need to weigh up your options and decide whether you want a fund that charges low, medium or high super fees. While it seems like the best option to choose a fund with low super fees, these funds do not necessarily perform as well as medium or high-fee super funds, meaning you will not get as good of a return on your investment.

5 Tax Resolutions This Year You’ll Be Keeping

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Get a gym membership, start a diet, drink less, and travel more. Every year we make plenty of new year’s resolutions that we try valiantly to uphold.

Why not make one about keeping on top of your tax obligations in 2023?

Are You In Business? 

Know if you’re in business or not! Are you earning an increasing income from a hobby? You might already be in business for tax purposes. To work out if you’re in a business, identify all relevant, related activities you may be conducting already.

Examples of these can include:

  • keeping records
  • obtaining and maintaining licences and permits
  • if you rent out premises or goods, everything you do to rent out those premises or goods
  • if your activity is providing goods or services, everything you do in providing them.

Then, determine whether or not the activities are considered a business by answering the following questions.

The more of the following questions you answer yes to, the more likely it is your activities are a business:

  • Do you intend to be in business?
  • Do you intend and have a prospect of making a profit from your activities?
  • Is the size or scale of your activity enough to make a profit?
  • Are the activities repeated and continuous?
  • Are your activities planned, organised and carried out in a business-like manner? For example, do you:
    • keep business records and have a separate business bank account?
    • advertise and sell your goods and services to the public, rather than just to family or friends?
    • operate from business premises?
    • maintain required licences or qualifications?
    • have a formal business plan or budget?
    • have a business name or an ABN?

Keep Business Details & Registrations Up To Date

If you’re the director of an Aussie company, you need to apply for a director ID. Keep your ABN details up to date as emergency services and government agencies use this information to support businesses during disasters. Also, if you’re going to earn over $75,000 this financial year, you’ll need to register for GST.

Keep Accurate And Complete Records

Good record-keeping helps you manage your business and its cash flow.

Do Personal Services Income (PSI) Rules Apply To You? 

PSI is income produced mainly (more than half) from your skills or efforts as an individual. If you’re earning PSI, you’ll need to work out if you’re a personal services business to determine whether the PSI rules apply to your income. The rules affect how you report your income and the deductions you can claim.

Take Care Of You AND Your Business

The last few years have thrown some curve balls at small businesses, so it’s good to be prepared. Consult with your advisers, take heed of the advice given and if necessary, look into grants and programs that can assist your endeavours.

We wish you all the best and hope you’re on track to thrive in 2023. When the fireworks have faded, know that we’re always available to support businesses just like yours.

Have You Made Your Business’s New Year Resolution?

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Coming out of the holiday period is usually a slow time for businesses but there’s never been a better time to get on top of things.

A new year brings business owners great motivation and opportunities to bring their businesses to greater heights. Whether you want to get on top of your business’ finances, relationships, and policies or to finalise your business plan for the year, setting your 2023 business resolutions allows for greater organisation, clarity, and a sense of direction. Many studies show that identifying goals increases the likelihood of achieving them.

Why not consider adopting the following business resolutions?

Review Your Supplier Relationships

While you review your budget for the year, consider if your suppliers are the most competitively priced for their quality of service. Take the time to research alternatives against your performance indicators. If you don’t have any already, establish a system to track and evaluate the performance of your supplier as it is crucial to the efficiency and profitability of your business.

While it is important to cut underperforming suppliers, it is just as essential to maintain good relationships with your suppliers. This includes actively involving your supplier in strategic meetings which involve them in helping with any negotiations further down the track.

Improve Your Branding

Developing and protecting your brand is essential to differentiate yourself in a competitive market. Start by reviewing your marketing strategy and get to know your market by gathering consumer data and conducting customer surveys. Make an effort to consistently improve and update your website regularly and strategically utilise social media channels for a strong digital presence. Consider hiring a marketing consultant that can help guide your brand.

Take A Look At The Books

No matter how well your business has performed in the past year, there is always room for growth and improvement. Alternatively, if your business didn’t perform as expected, look at where things might be stagnating. Revisit where the business spends money and create strategies to lower these costs. For example, if the internet bill for the business is X amount, consider shopping around and looking for a cheaper deal. Small changes in multiple areas could see you make an extra 10 per cent annually without feeling like you are making large sacrifices.

Revamp Social Media Marketing Strategies

Technology is ever-evolving, meaning the way it can be used as a business and marketing tool is too. The start of the year is the ideal time to do your research; investigate emerging trends for social media marketing and try to analyse the direction in which these trends are travelling. Research may tell you, hypothetically, that successful businesses in your industry are steering away from Facebook and are predominantly using Instagram and Tiktok. In this instance, you should be analysing how you can adapt and transform your current marketing strategy to stay current.

Professional and Personal Development

There is always something new to learn; whether that be related directly to your business and the industry it is in or whether it relates to personal skills that will make you a better business person and a better leader. Take some time to look at the courses available to you that will fit into your schedule or that you can adjust your schedule to fit them in.

There are many organisations online that provide courses in a large array of areas, such as developing your technology-based skills, learning how to use specific software and programs, business refresher courses, etc. You may have wanted to learn a new personal skill, such as yoga, rock climbing or a new language; make that a priority in 2022.

Developing your personal skills will help you to become a better leader and all-around entrepreneur. Some businesses may implement personal/professional development days for their employees to boost the business as a whole.

Update Your Business Goals Regularly

Setting your goals is one matter, but following them through requires commitment. For example, make your goals and plans by the quarter instead of the year. By reviewing your business plan, budget, and goals regularly with your team, your goals will be more specific and relevant to the business and will give you greater motivation to achieve them. Another tip for staying motivated with your goals is to build an emotional attachment with them. Motivation to ‘make more money’ could be increased when you consider how that will affect your family and loved ones.

Contractors & Superannuation

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Contractors who run their own business and sell their services to others have different obligations to their super than what employees in a business may usually have.

A contractor (also known as an independent contractor, a subcontractor, or a subbie) who is paid wholly or principally for their labour is considered to be an employee for super purposes, and may be entitled to super guarantee contributions under the same rules as other employees.

A contract may be considered ‘wholly or principally for labour’ if:

  • You’re paid wholly or principally for your personal labour and skills
  • You perform the contract work personally
  • You’re paid for hours worked, rather than to achieve a result

If hiring a contractor to perform solely their labour for a fee, the employer may also have to pay super contributions on their behalf.

In this sense, if you are a contractor who is being contracted to an outside business than your own to perform your usual work or labour, your employer must contribute to your super the same way they would any other employee.

This could be seen in an example of an electrician who runs their own small business, or is employed by a small business who has been hired by another business to supplement their workforce and perform a specific role that they can fit to.

Take, for example, an electrician who runs their own business and has been subcontracted by a larger business.

They are performing labour but also providing materials (ie, themselves plus a toolbox plus a van full of powerpoints and wiring etc), they would be seen as a contractor and not an employee for super purposes. They must pay themselves super, in this case.

However if they are sub-contracted to perform labour only then the company that has sub contracted them may be liable to pay super on the amount that they pay to their contractor.  This would be the case where the electrician just turns up with their tool box and everything else is provided by the “employer”.

If they are in an employment-like relationship with the person that they entered their contract into, they may need to have their super paid to them by their contract employer. In order for super to be applied from what you earn, the contract must be directly between you and your employer. It cannot be through another person or through a company, trust or partnership.

It is important that both parties in the process are aware of their super obligations during the contracted period. There can be significant penalties for employers who use contractors if they fail to correctly pay super. Each case regarding contractors and super needs to be assessed independently to ensure that you are doing the right thing. There is no definitive black and white line between a contractor and a contractor in an employment-like relationship that can be obviously seen after all.

If you’re unsure about whether or not you’re meeting your obligations as an employer, or are a contractor looking to make sure their super is being correctly paid into, speak with us.