When a trustee goes bankrupt…

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SMSF members need to be aware of the rules that govern their fund, including what to do when one member becomes bankrupt.

A requirement of an SMSF is that each individual trustee of the SMSF must be a member of the SMSF. In the case of corporate trustees, every member must be a director. This means all members are connected and held accountable for one another. If one member enters bankruptcy, they will be categorised by the ATO as a “disqualified person”, meaning they can no longer act as a trustee of the SMSF.

Where a disqualified person continues to act as an SMSF trustee or director, they will be committing an offence that is subject to criminal and civil penalties. The ATO provides a six-month grace period to allow a restructure of the SMSF so that it either meets the basic conditions required or can be rolled over into an industry fund. During the six-month grace period, the ATO requires:

  • The bankrupt to remove themselves as trustee.
  • The bankrupt to inform the ATO in writing.
  • To be notified within 28 days if there is a change in trustee.
  • The bankrupt to notify ASIC of the resignation as a director (if the SMSF is run by a corporate trustee).

Other members will need to remove the bankrupt’s balance from the SMSF before the grace period is over, this may involve:

  • Selling any real estate or shares.
  • Transfering the bankrupt’s balance to a managed fund.
  • Deciding whether they want to remain as a single member SMSF, or rollover their entitlements to a managed fund.

For members who enter bankruptcy, they must sell all assets for the market value available at the time and then transfer all of the liquid assets to a managed fund.

What’s tax-deductible for home businesses?

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Running your business from home can have great benefits, such as being able to spend more time with your family, not having to travel, and deciding your work hours. To make the most out of your home business experience, it is important to be aware of what tax deductions you can claim.

If your home is also your principal place of business and you have a designated room space for business activities, then you are considered to be running your business from home. However, if you only do some business activities from home, then you may be considered to be working from home and the following tax implications don’t apply to you.

You can claim deductions for your home business on expenses that you need to undertake work that produces income. Tax-deductible costs include:

  • Utility expenses of the rooms you use for business. This can include electricity, water and gas bills that have been apportioned between business and private use.
  • Work equipment such as computers and printers. For items costing up to $300, you can claim the full cost of the item. For equipment costing $300 or more, you can claim the decline in value.
  • Cleaning and repairs for work equipment.
  • Work-related phone calls. If you have a phone that you use for both business and private matters, you can claim a deduction just for the business calls.
  • The depreciation of work equipment, where you must apportion the costs of business and private use.
  • Occupancy expenses such as rent, insurance and mortgage interest, where you have apportioned the business and private spaces in the house. You can work out how much to claim by measuring the floor area of your business room as a proportion of the rest of your home.

What’s All The Fuss About SMSFs?

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A Self-Managed Super Fund (SMSF) is a unique and increasingly popular retirement savings vehicle.

SMSFs offer individuals and families greater control, flexibility, and investment choices than traditional superannuation funds.

In this article, we’ll explore what SMSFs are, how they work, their benefits, and some considerations for those interested in establishing and managing one.

What is an SMSF?

An SMSF is a type of superannuation fund that allows individuals to manage their own retirement savings.

Unlike industry or retail super funds, where investment decisions are made by professional fund managers, an SMSF puts the control firmly in the hands of its members, who are also the trustees of the fund. This level of control is what sets SMSFs apart.

How Does an SMSF Work?

An SMSF can have a maximum of four members, all of whom must also be trustees or directors of the corporate trustee. As trustees, members are responsible for making investment decisions, complying with legal obligations, and managing the fund’s assets. SMSFs can invest in a wide range of assets, including shares, property, cash, and fixed income.

Benefits of an SMSF:

  • Control and Flexibility: SMSF members have complete control over their investment choices and strategies. This allows for a highly tailored approach to meet specific financial goals and risk appetites.
  • Tax Efficiency: SMSFs offer potential tax advantages, particularly for those in retirement. Capital gains, for instance, are often taxed at a concessional rate if the assets are held for more than 12 months.
  • Estate Planning: SMSFs provide estate planning benefits, allowing members to dictate how their assets are distributed upon their passing. This can be especially important for complex family situations.
  • Asset Diversification: With greater control, SMSF members can diversify their investments across various asset classes, reducing risk and increasing the potential for returns.
  • Borrowing for Investments: Under certain conditions, SMSFs can borrow to invest in assets like property, which can magnify returns and portfolio diversification.

Considerations for Establishing and Managing an SMSF:

  • Compliance: SMSFs must adhere to strict regulatory guidelines set by the Australian Taxation Office (ATO). Non-compliance can result in penalties or the loss of tax concessions.
  • Investment Knowledge: Managing an SMSF requires a strong understanding of financial markets, taxation rules, and investment strategies. It’s essential to keep abreast of changing regulations.
  • Costs: While SMSFs can be cost-effective for those with substantial assets, they may not be suitable for smaller balances due to administrative and compliance costs.
  • Time Commitment: Trustees need to invest time in managing their SMSF, including record-keeping, administrative tasks, and annual auditing requirements.
  • Professional Advice: It’s advisable to seek professional guidance from accountants, financial planners, or SMSF specialists when setting up and managing an SMSF. Their expertise can help navigate complex regulations and optimize investment strategies.

Self-Managed Super Funds (SMSFs) have become a valuable retirement planning tool for many Australians, offering unparalleled control, flexibility, and investment options.

However, the decision to establish and manage an SMSF should not be taken lightly. It requires a solid understanding of financial markets, compliance obligations, and a long-term commitment to effective management.

When approached with diligence and professional guidance, an SMSF can be a powerful vehicle to achieve financial security and retirement success.

What you should know about using cryptocurrencies

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In an increasingly technologically dependent age, it can be useful to keep up with new forms of currencies in the digital space. Cryptocurrency is internet-based, digital money that is not controlled by any central authority. Currently, the most prominent cryptocurrency is Bitcoin, which has a market capitalization of over 155 billion U.S. dollars.

How do you buy cryptocurrencies?
There are a number of popular websites and apps that simplify the process of buying cryptocurrencies. In Australia, you can register for accounts to do so on exchange websites such as Swyftx, Coinbase, CoinSpot, or Independent Reserve where you can pick from various cryptocurrencies to purchase.

When choosing a form of cryptocurrency to start with, it is important to do research to ensure the currency is legitimate and trustworthy. Most of the time, it is a good idea to choose a popular one that is already widely used and trusted by other crypto users, such as Bitcoin, Ethereum, Ripple, or Litecoin. Once you have purchased cryptocurrencies, you can store them in a digital crypto wallet for security and easy accessibility.

Benefits:
Some may wonder if cryptocurrencies are just another pointless internet fad, however, there are a number of advantages to using cryptocurrencies.

  • Fast: Transaction speeds are usually fast, making things like paying bills and shopping online easier.
  • Low Fees: There are generally minimal to no transaction fees in crypto exchanges, so using cryptocurrencies can be a good way to avoid online banking fees and charges.
  • Anonymity: Making transactions online with traditional banking methods generally requires information such as your name, credit card number, phone number and address. However, cryptocurrencies allow you to be anonymous in these transactions by only showing your crypto ID or a nickname of your choosing.

Drawbacks:
Despite the benefits of using cryptocurrencies, it is also important to be aware of their disadvantages before diving too deep into crypto investments and purchases.

  • Security risks: While it is harder and more technical to steal digital money as opposed to physical cash, cryptocurrencies are still susceptible to skilled hackers and scams. Because cryptocurrencies are decentralised with no authoritative control, any loss of cryptocurrency due to theft or scams cannot be recovered.
  • Value instability: Cryptocurrencies tend to fluctuate in price and value, which can reduce their reliability as you can never be certain how much they will be worth the next day.
  • Lack of merchants: Many companies have not taken the step to adopt cryptocurrencies as a form of payment, so it can lack usefulness in everyday transactions.

What you need to know about luxury car tax

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Luxury car tax or LCT is a 33% tax on cars that have a value (including GST) above the set threshold. However, the tax is only on the value which is above the threshold. 

Businesses and individuals that sell or import luxury cars are required to pay LCT.

You can make LCT payments in instalments or annually. If you choose to report your payments in instalments, they will be included in your GST instalments. If you choose to pay GST annually, then you don’t need to worry about reporting monthly or your quarterly BAS.

You may be able to defer paying LCT by quoting your ABN. You are able to do this if you are only going to be using your car to:

  • Hold it for trading stock (doesn’t include holding it for hire or lease)
  • Carry out research and development for the car’s manufacturer
  • Export it GST-free

If and once you stop using your car for the above purposes, then you will need to start paying LCT. 

 

What you need to know about lodgement deferral dates

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Due to COVID-19 and unforeseen financial circumstances, the ATO has announced a series of lodgement deferral dates available for tax returns, fringe benefits tax returns, monthly and quarterly BAS, annual GST returns, PAYG summary annual reports and taxable payment annual reports.

Lodgement deferrals extend the due date for lodgement of a document without incurring a failure to lodge on time (FTL) penalty. To request for a lodgement deferral, simply complete an online application and lodge through online services provided by the ATO. The ATO will then assess and approve your requests within a 28-day period.

The extended lodgement dates for particular lodgements are listed below:

  • Income tax 2018-2019 returns: 5 June 2020
  • Fringe benefits tax 2019-2020 returns: 25 June 2020
  • SMSF 2018-2019 annual returns: 30 June 2020

To request for a lodgement deferral for business activity statements, annual GST returns, PAYG summary annual reports and taxable payment reports, the ATO encourages businesses and employers to contact their tax or BAS agent to confirm their lodgement due dates and to submit requests as due dates are determined on a case-by-case basis.

While deferring a lodgement may be beneficial in the long term, it is still important to keep in mind your tax liability and how deferring lodgements may affect your cash flow options in the long term. Always discuss your options with a financial advisor or accountant before deferring your taxes as you may accrue more debt than expected otherwise.

What you need to know about investment bonds

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Investment bonds are a practical investment option for those who earn a high income and seek long term tax efficiencies.

Investment bonds, also known as tax-paid, insurance or growth bonds, work similarly to a managed fund, except they are combined with an insurance policy. There is a ten year rule which allows tax free earnings on the bond if no withdrawals are made in the first ten years and contributions do not exceed 125% of the previous year’s contribution. Most investment bonds offer a range of investment options to cater for differing risk levels such as cash, fixed interest, shares, property or a range of diversified investment options.

Investment bonds are particularly suitable for high income earners with a marginal tax rate higher than 30% who want to build wealth without increasing their personal tax liability. They are also useful for estate planning purposes as beneficiaries other than dependants can be nominated and will not incur tax upon receiving proceeds.

n investment bond can be used as an investment structure for future financial needs of children such as education expenses. Alternatively, investment bonds can be used for supplementary retirement planning as investment bonds are not subject to preservation age, unlike superannuation investments, which may be more viable for those planning an early retirement.

Investments held in an investment bond are generally not subject to capital gains tax (CGT). Where an investment does not qualify for a CGT discount, the maximum tax rate of 49% may apply on earnings whereas an investment bond generates a maximum rate of 30%.

However, investment bonds do carry some risk that individuals should consider before making a decision. Common fees such as establishment, contribution, withdrawal, management, switching and adviser service fees may be applicable depending on your provider and the investment options you choose.

If you do choose to invest in an investment bond ensure you will be able to make regular contributions over the lifetime of the investment and can comply with the 125%. It is important to align your financial and estate planning goals with an appropriate investment structure suitable to your risk profile.

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.

What you need to know about BFAs

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A Binding Financial Agreement (BFA) is the Australian equivalent of a prenup. It is used to agree in advance on how a couple’s property and other assets would be distributed should their marriage or de facto relationship break down. The Agreement can cover financial settlement, spousal maintenance and any other incidental issues.

BFA’s can be entered into at any stage of a relationship, i.e. before, during or after a marriage or de facto relationship. Couples may consider entering into a BFA if one party has more property, assets or is expected to receive an inheritance at a later stage.

Some benefits of entering a Binding Financial Agreement include:

  • Establishing a level of reassurance if one or both partners has been through a separation or divorce before.
  • Protecting some or all of the assets from each party.
  • Being able to specify the ground rules when it comes to how the couple will acquire property, who will pay the bills, and where weekly wages or income will be saved.
  • Preserve family or other businesses for future generations.

Properly drafted and executed BFA’s are particularly beneficial for those who want to establish a level of reassurance that there would be a harmonious division of property and assets in the circumstance of separation or divorce without the need for stressful court action. A BFA can also make both parties feel secure knowing that any property or assets accumulated before their relationship or marriage is safe.

Couples should also be aware, however, that there can be some risks and downsides to entering a BFA. They include:

  • Legal fees for drafting the agreement.
  • Content of the agreement may be complicated.
  • Use of the agreement could be unfair to one half of the couple.

Couples also need to ensure that the BFA is in fact binding. Both parties must sign the BFA and receive independent legal and financial advice before doing so. It is also worthwhile to evaluate the potential effects of the BFA on the relationship, especially if it is considered unfair to one half of the couple.

What You Need To Check Before Purchasing Life Insurance

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If something unexpected or untoward happens to you or your loved ones, life insurance is financial protection that you don’t want to skimp on. It’s crucial to find the right insurance to suit your needs, as the cost of life insurance can become a costly amount in your budget.

Different life insurance products are designed to protect you and your loved ones from various events that can occur. Some of the products that may be covered under life insurance (depending on the provider) include:

  • Life Cover pays out a lump sum if you die.
  • Total and permanent disability (TPD) insurance pays a lump sum to help you with rehabilitation and living costs.
  • Trauma insurance covers you if you’re diagnosed with a major illness.
  • Income protection insurance pays some of your income if you can’t work due to illness or injury.

Before making a purchase, you should read the life insurance provider’s product disclosure statement (which legally must be provided to you before purchase). Check the product disclosure statement for:

  • What’s covered and excluded under the policy
  • What information you will need to give to an insurer
  • Information on premiums and how they change over time
  • Waiting periods before you make a claim
  • How to make a claim
  • How to make a complaint about the claims process or decision

As it is a significant financial decision, shop around before making the final decision to ensure that you are getting the product that best suits your needs.

You should also check whether or not you already have life insurance through your super to make sure that you are not paying for your insurance twice. If you’re not sure about whether or not your super provider already covers your life insurance, it’s best to speak with them directly to be certain.

It is also important to know that only licensed financial advisers can give you advice about what life insurance you should hold.