Author: Adam_Admin

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

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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.

Business Automation: How Could You Benefit?

Posted on by Adam_Admin

With client needs and team capabilities constantly changing within the business world, we recommend you pause and reflect on your own critical business processes to see if you can spot opportunities for improving efficiency and reducing waste.

There’s no better time to do this than at the beginning of a new financial year.

Get your team together in a room or a Zoom meeting to brainstorm the processes or work that:

  • frustrates them,
  • has highly repetitive tasks, or
  • is time-consuming.

Then, you should examine how you might be able to automate these processes to improve your business’s productivity and output better.

Business automation can occur in order to improve external performance and experience of the business for your clients, OR it can be used to improve upon the internal processes of your business.

For example, communicating with your employees is one constant in your business. This is obviously important, but you know it could be improved. You don’t need to have as many meetings as you are now. You should be able to share feedback faster. So how can this be improved?

Automated business processes can be split into four basic types outlined below.

Basic Automation

Basic automation refers to the most straightforward jobs that need to be performed, like creating a centralized place to store a mix of related information. This can be automated through a project management tool that prioritises collaboration and communication to seamlessly pull together a patchwork of data into a single platform.

This tool should automatically organise all of this information to make it understandable and usable.

Process Automation

Process automation involves a dedicated network of software and apps used to document and manage your business processes, such as budgeting or project management.

Integration Automation

Integration automation allows machines and software to monitor and analyze how employees perform tasks and imitate them. You simply define the rules of operation.

An example would be your project management software integrated with your customer support software. A customer complaint comes through, but instead of waiting in an inbox for someone to process it, the integration automatically sends it as a task to the person assigned to handle them.

Artificial Intelligence (AI) Automation

Artificial Intelligence (AI) automation is when you combine AI with your integrated software tools for faster, smarter decision-making. The system can now make choices on your behalf with the data it’s presented (such as sample data).

Some general examples in which your business could benefit from automating key processes could include:

  • Email Automation – Automating your inbox can assist in automatically processing information from your email quickly and efficiently
  • Automated Business Application Integration – With businesses using more and more different applications, a lot of business processes can involve multiple business applications at the same time
  • Automated Order Entry – You can use business process automation to automate your database interaction processes without writing a line of code
  • Browser Automation – Even if a part of your process involves going to a website and clicking on fields or grabbing information, business process automation can make it faster and more efficient.

What Do You Need To Do To Make Your Business Compliant With Superannuation Requirements For Employees?

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It is your responsibility as an employer to set up your business to pay super into your eligible employees’ chosen super funds or their stapled super fund where no choice has been made.

If your employee hasn’t made a choice and doesn’t have a stapled super fund, you can contribute their super to your default super fund.

What you need to do:

  • Select your default super fund.
  • Offer employees a choice of super fund and keep records that show you’ve done this.
  • Request your employee’s stapled super fund details if they do not make a choice
  • Provide employees’ TFNs to their funds.
  • Set up your systems to pay super contributions electronically to the right fund.

If you pay extra super for an employee:

  • under a salary sacrifice agreement, you must set up the arrangement for the employees’ future earnings, document the arrangement and use a complying fund.
  • you must report the amounts being made to the employee’s fund.

Salary Sacrifice Agreements

To create an effective salary sacrifice arrangement, you must:

  • set up the arrangement for employees’ future earnings
  • document the arrangement
  • use a complying fund.
Set Up The Arrangement For Employees’ Future Earnings

The arrangement must be set up for your employee’s future earnings. It can’t include previously earned or accrued:

  • salary, wages or entitlements
  • annual or long service leave.
Document The Arrangement

You and your employee must prepare and sign a document that states the terms of the salary sacrifice arrangement. If you don’t have this documentation, it may be difficult to establish the facts of your arrangement.

Employees can renegotiate the arrangement at any time, within the terms of their employment contract or industrial agreement. If your employee has a renewable contract, you can renegotiate the salary sacrifice amount before the start of each renewal.

Use A Complying Fund

The salary sacrifice amount must be contributed to a complying fund for the period of the arrangement.

Contributions can’t be accessed until the employee satisfies a condition of release, such as reaching retirement age.

Report The Amounts

Reportable employer super contributions (RESC) are not included in your employee’s assessable income. They do not affect the way you calculate super contributions for your employees.

The following employer super contributions are reportable:

  • additional contributions as part of an employee’s individual salary package
  • additional contributions under a salary sacrifice arrangement
  • pre-tax amounts paid to an employee’s super fund at the employee’s direction, such as directing an annual bonus into super.

You must report extra contributions if:

  • your employee can influence the rate or amount of super you contribute for them; and
  • the contributions are in addition to the compulsory contributions you must make under
    • super guarantee
    • a collectively negotiated industrial agreement
    • the rules of a super fund
    • federal, state or territory law.

The extra contributions are reportable super contributions for employees unless you show that:

  • the extra contributions are made for administrative simplicity
  • a documented policy is in place that does not allow an employee to influence the contributions you make on their behalf.

The Tricks & Traps Of The Work-Related Expense

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Are you up to date and aware of what you can and can’t claim on your tax return this year? Brushing up on the three rules of work-related deductions can make tax time a lot easier.

In order to be able to claim a deduction for a work-related expense on your tax return, you must meet the following golden rules of the Australian Taxation Office (ATO).

  1. The money must have been spent by you and you were not reimbursed by your employer for it.
  2. The expenses must directly relate to earning your income.
  3. There must be a record to prove the expense (such as a receipt)

These need to be claimed in the Work-related expense section of your tax return.

If the expense was for both work and private purposes, you only claim a deduction for what was the work-related use. You cannot claim a deduction if your employer pays for or reimburses you for any of these costs.

These work-related expenses may include:

  • Motor vehicle expenses
  • Travel expenses
  • Clothing, laundry and dry-cleaning expenses
  • Self-education expenses

If the ATO believes that your employer may reimburse you for your expenses they may ask your employer directly.

You may be able to claim other work-related deductions for expenses you incur in the course of earning your income. These are claimable in your tax return as an ‘Other work-related expense’.

Common claims in this section of the tax return include:

  • Working from home expenses
  • COVID-19 test expenses
  • Phone, data and internet expenses
  • Tools, equipment and other assets
  • Union fees, subscriptions to associations and bargaining agents’ fees

When it comes to working from home expenses, you need to be careful of what you claim. To claim your working from home expenses you must:

  • be working from home to fulfil your employment duties, not just carrying out minimal tasks, such as occasionally checking emails or taking calls
  • incur additional expenses as a result of working from home.

You can claim a deduction for the additional running expenses you incur as a result of working from home.

Running expenses are expenses that relate to the use of facilities within your home and include:

  • electricity expenses for heating or cooling and lighting
  • the decline in value of office furniture and furnishings as well other items used for work – for example, a laptop
  • internet expenses
  • phone expenses.

You can’t claim a deduction for the following expenses if you’re an employee working at home. These include

  • coffee, tea, milk and other general household items, even if your employer may provide these at work
  • costs that relate to your children’s education such as equipment you buy – for example, iPads and desks, subscriptions for online learning
  • items your employer provides – for example, a laptop or a phone
  • any items where your employer pays for or reimburses you for the expense.

If your employer pays you an allowance to cover expenses, you can claim a deduction for the expense. However, you must include the allowance as income in your tax return.

You may also be able to claim a deduction for other expenses you incur that don’t relate to your work or income-producing activities. These are claimable in your tax return at the specific expense category (where available) or as an ‘Other deduction’.

Common claims in this section include expenses, such as

  • Cost of managing tax affairs
  • Gifts and donations
  • Interest, dividend and other investment income deductions
  • Income protection insurance

If you require assistance with ensuring that your individual income tax return is correctly lodged, a registered tax agent should be consulted (such as us). We’re equipped with the knowledge and tools to help you through this process.

Inflation, Your Business And How To Deal With The Upcoming Pressure.

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Understanding how and preparing your business for the impact of inflation is a critical element of business planning that now more than ever needs to be addressed.

Interest rates rising are putting a strain on businesses across the country, as the costs for running these businesses rise in turn. Further spikes in inflation could provide additional challenges for businesses and their owners who are struggling to prepare for them.

With interest rates forecast to increase exponentially over the next year, here are some methods you can employ to address the risk inflation may pose to you.

Improve Productivity And Efficiency

Now is the time to review processes and output and look at ways to improve or streamline your operations, such as automation of processes including business software.

This could include

  • Emails
  • Invoices
  • Shipping
  • Sales and marketing or
  • Purchase orders

Strategically Cutting Costs

Review your current service providers and contracts such as telecommunications and internet providers, commercial property leases and service contracts, and compare the current market. You may find that there are better deals or options that allow you to minimise costs without impacting your business’s performance and options overly much.

However, be mindful not to cut marketing spending or communications capabilities which could cost you business in the long term.

Revisit Your Banking And Financial Products Needs

Look beyond your short-term needs and make sure that the interest rate on your business loans is competitive and weigh the benefits of variable and fixed rates.

Develop A Pricing Strategy

Rather than a price increase, look at ways you can leverage or bundle your existing goods and services.

If you are selling products, understand that there is a link between your client relationship and your pricing. Pricing too high all of a sudden could impact how your business is viewed by customers, but pricing too low will be detrimental to your business.

It could be cheaper for your business to offer a discount on upfront or prompt payments, rather than maintain an overdraft that accrues higher interest rates.

Consider Your Supply Chain

Overseas markets are volatile at the moment, so consider reducing risks by finding a domestic supplier which could also slash the costs of freight and storage. Create backup supply chains to mitigate the risk of having a ‘singular’ supply chain that could be impacted by market disruptions.

Review Your Workforce

The labour market is competitive, and you want to keep talented staff. Consider offering flexible work arrangements, offering nine-day fortnights rather than pay increases, and looking for training and development opportunities, particularly those that are subsidised by the government.

If an employee is not providing value to the business (such as working in a redundant position or failing to meet work expectations that are reasonable to expect from them), it may be better for the business to let them go.

Are you concerned about how inflation could impact your business? Speaking with a trusted business adviser (such as your accountant) may assuage some of those concerns, as they can provide you with a formulated plan that targets your business’s year ahead.

Can You Use Superannuation To Pay Off An Existing Mortgage?

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A relationship has been established around superannuation and mortgage debt that could impact the stability of your retirement.

As prospective Australian retirees approach their preservation ages and retirement, those who are yet to own their own homes may struggle to maintain a comfortable retirement. Retirement plans often work out a prospective financial situation, and assume that an owned home is an already existing asset.

Housing is quickly becoming a critical aspect of retirement, alongside the pension, super and voluntary savings as the main means of ensuring a comfortable retirement for future retirees.

Mortgage debt and the threat of continued payments to pay it off is something that workers must now take into consideration when looking into their retirement, as Australians struggle to pay off their homes. Can it be paid off without the extra income earned from their work?

As more and more Australians retire with healthy superannuation balances, the allure of using that money to pay down a mortgage is strong.

Factors that may be affecting retiree’s mortgage debts could include:

  • Higher property prices (now ten times the average wage as compared with three or four times two decades ago).
  • A delayed entry into the property market as they save for a deposit, leaving fewer working years to pay off the loan.
  • Relatively low-interest rates – currently, every dollar used to pay down a mortgage is saving less than 3% on interest, while in superannuation that same dollar has the potential to return 7 or 8 per cent.

Paying down a mortgage is a growing problem for retirees who are increasingly leaving the workforce with mortgage debt, which is far from the norm among middle-income Australians as recent as a decade ago. Among retirees, homeowners in the years prior to retirement (ages 55-64) had dropped from 72% in 1995 to 42% in 2015-16.

However, those who began their working careers prior to the 1990s face another challenge as they move closer to their preservation age; the superannuation guarantee was only introduced in 1992, which means that many may have accumulated less superannuation than other generations after.

It is understandable that for those approaching retirement, preferencing super over mortgage could seem like a logical move, as the extra funds generated can be diverted back into property on retirement. Using superannuation to pay a mortgage can make some tax sense – in an assets test for the Age Pension, a primary residence is exempt while superannuation is not.

This may become a more common approach for retirees and those looking to retire within the next few years. However, you should consider what the best approach is for your situation, and whether paying off the mortgage with your super is worth it in the long run. Consulting with a professional before taking any action should be your first step in this process.

Cash In Hand Compliance Concerns For Businesses & Individuals Alike

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If your business earns a part of its income in cold, hard cash, be prepared to have the Australian Taxation Office’s eyes on you this tax time.

To protect honest, compliant Australian businesses, the Australian Taxation Office (ATO) has placed a strong emphasis on targeting the cash and hidden economy (known to be a part of the shadow economy).

For example, they may be keeping a close eye on a sole trader electrician, whose reported earnings over the financial year versus their actual spending isn’t adding up. Or perhaps you have a side hustle (such as freelancing or selling plants at the market), and earn some cash-in-hand alongside your full-time job’s income.

The ATO will be watching these businesses and individual traders that deal predominantly in cash, with a focus on those that:

  • Fail to meet super or employer obligations, and fail to register for GST or lodge activity statements.
  • Operate outside regular small business benchmarks specific to their industry.
  • Show discrepancies between what they have reported and ATO collected data relating to electronic payments.
  • Operate and advertise as cash-only.
  • Income does not correlate with the lifestyle of the business owner, i.e., assets and spending habits exceed what is expected of someone with their reported income.
  • Pay their employees cash-in-hand.
  • Estimate their sales and income.
  • Use the ‘no sale’ and ‘void’ buttons on cash registers when taking cash payments.
  • Do not reconcile at the end of the day and do not keep cash register tapes.
  • Are reported to the ATO by members of the community or any third party regarding potential tax evasion.
  • Are part of an industry that is known for dealing primarily in cash-only.

When out visiting cash-only businesses, the ATO will be working in unison with local authorities and industry associations to ask questions and discuss:

  • Why the business operates primarily or only in cash.
  • The need to lodge tax returns and activity statements.
  • How to be compliant in relation to tax and super obligations.
  • Different claims and tax deductions businesses can make.
  • The general community’s preference for having EFTPOS or electronic payment options available to them.
  • Benefits of electronic payment and record-keeping facilities.
  • Relaying tools and services businesses can use if they are struggling to ensure they are compliant with Australian tax laws.

If the ATO comes across a business that is doing the wrong thing or failing to meet its obligations, they have a duty to take action. This may result in the business facing an audit and possible prosecution.

Its imperative that you are fulfilling your obligations and know where you stand, particularly with;

  • Bookkeeping and record-keeping requirements
  • Reconciliations between till takings (z-totals) and banking
  • Consequences of failure to report all income (penalties, fines, interest, additional tax, additional GST)
  • Consistency of business income between prior and current years, and with reference to lifestyle

If you do make a mistake upon completing your tax return but make a voluntary disclosure detailing your errors, the ATO will work with you to rectify this and create a solution.

Why Having A Motivation For Your Business Is Important In Business Planning

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What is the origin story of your business? Why did it begin?

Many people might say publicly that they went into business to make a better future. Others might say that they began the business to pursue a passion. You may have simply wanted to earn money on your own terms, and create a better world for yourself.

More money, more free time, and more control or flexibility around your own work are often the reasons that people go into business. In a perfect world, you would have that control over your own work, be working fewer hours and have more money while pursuing your dream job and career goal. This may sound perfect, but it is rarely the outcome that people get from their own business.

In most instances, people may find that their hours increase, their income drops and though they now possess control, may also find that their business now also has control over them. The amount of work that may need to be done as a business owner can be overwhelming, but it must be completed. Instead of having one boss to answer to, all your customers are now your boss.

Owning a business can grant you more control, but it also comes with these heavier responsibilities and obligations. Being prepared is why consulting with a trusted business adviser can allow you to take the fear out of ‘impossible situations’ for the business, and give you choices.

There are many tasks that now require your focus to keep your business in operation – but to everyone else, it probably seems like you are living the high life as a business owner, answering to no one (if only they knew).

Your business probably started with a dream – a dream that probably did not include becoming a slave to your business or earning less than what you did in your previous job. What was that dream? What was your motivation?

Take stock of the situation you have found yourself in with the business. Relax, reflect, and consider what direction you want it to move in. Where do you want to go? Once you have a general idea, you need to put a little bit of time into planning how you are going to get there. Determine where you want your business to be in five years, or even ten years’ time.

Benjamin Franklin is believed to have once said, “if you fail to plan, you are planning to fail.”

It does not matter what stage of the business you are at, revisiting the business planning stage, even midway through the business, can be a useful strategic tool. Every business needs regular planning. This cannot be stressed enough. The chances of achieving your business goals are improved dramatically if there is a formally noted business plan.

A good business plan outlines your strategy for the next couple of years. It may be used to help support an application for business finance or business grants. Or it could be just for your own use as a roadmap for the growth of your business.

The components of a business plan explain your objectives and the actions required to get your small business from where it is now, to where you want it to be.

The process of creating your business plan will help you focus, crystallise your ideas and identify priorities, saving both time and effort. Your business plan will give you a clear sense of direction and a benchmark enabling you to measure progress.

In the approach to the end of the financial year, the best time to prepare a plan to use for your business over the next twelve months is now. Developing your five- and ten-year plans is also highly recommended. For assistance in preparing or developing your business plans, you can come and speak with us as trusted business advisers.

Who Has The Power To Make Your Financial Decisions?

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As you grow older, your aim may be to live a long, happy and healthy life. This is hopefully with the mental capacity to make your own financial and lifestyle decisions, and the appropriate superannuation to fund it.

But not everyone is always able to do this as they grow older. In the worst-case scenario, you may find yourself unable to make those choices yourself due to a diminished mental capacity (such as from mental deterioration, illness etc). If you can’t make your financial decisions, this could be bad.

There is often a misconception that people who lose their capacity to make, for example, financial decisions will simply be able to have their partner or spouse step in to make those decisions on their behalf. This is not the case.

Even if you are in a relationship with someone or own property jointly with them, they do not automatically have the power to make those financial decisions for you. This is where estate planning comes into play.

An estate plan records what you want to be done with your assets after your death. It can include documents such as:

  • your will
  • a testamentary trust (as part of your will)
  • superannuation binding nominations

It also covers how you want to be cared for — medically and financially — if you can no longer make your own decisions. This part of your estate plan may be in documents such as:

  • any powers of attorney
  • a power of guardianship (giving someone the right to choose where you live and to make decisions about your medical care)
  • an advance healthcare directive (your needs, values and preferences for your future care)

You may also choose to create an Enduring Power Of Attorney, which is a substitute decision-maker on your behalf. An EPOA is essential for clients who have their own Self-Managed Super Fund (SMSF).

The SMSF regulations require that members of the SMSF are either a trustee of the fund or directors of a company acting as the trustee. If a fund member is incapacitated, the member cannot be a trustee or a Director of a company. If that occurs, the SMSF becomes ‘non-complying’ which means it loses the tax concessions given by the super regulations.

Depending on your state of residence, powers of attorney may have different rights and obligations, particularly with respect to financial matters. Doing research and consulting with us about what your course of action could be if you were to lose your mental capacity for financial decisions could be a great start.