How Much Tax Is Taken Out Of My Super Withdrawals?

If you’re aged 60 or over, you usually won’t pay any tax on super benefits you withdraw. However, if you’re under 60 your benefits will be taxed.

To understand how much tax you’ll pay, it helps to remember that your super benefits are split into two components:

  • The “tax free” component of your benefits is not taxed when you make a withdrawal, even if you’re under 60. This component is the part of your super balance made up of things like non-concessional (after-tax) contributions.
  • The “taxable” component is taxed. This component reflects things like compulsory superannuation guarantee contributions, salary-sacrifice contributions and personal contributions for which you claimed a tax deduction, as well as investment earnings.

You can’t “cherry pick” which component you would like to fund your withdrawal. This means, for example, that if your accumulation account is 80% taxable and 20% tax-free at a particular point in time, any lump sum you withdraw at that time would also reflect this 80/20 split for tax purposes. Similarly, any pension you start at that time would have this 80/20 split locked in from the commencement day of the pension.

Therefore, the bigger your “taxable” component as a percentage of your account balance, the more tax you’ll pay when you withdraw benefits. The applicable tax rates are as follows:

  • Pensions: the taxable part of your pension payments is taxed at your marginal rate, less a 15% tax offset.
  • Lump sums: the taxable part of a lump sum withdrawal is tax-free up to your “low rate cap” of $205,000 (for 2018–2019; set to increase to $210,000 for 2019–2020). This is a lifetime cap that you gradually utilise each time you withdraw a lump sum. Once you have fully utilised your cap, the remaining taxable part of any lump sum is then taxed at 17% (or your marginal rate, whichever is lower).

Several exceptions apply to these rules. First, if you’re receiving certain “disability superannuation benefits” or accessing super before you’ve reached preservation age (eg on “compassionate” grounds), different tax treatment applies. Second, some people such as members of public sector or government superannuation funds are subject to special rules that mean they will pay some tax even if they’re aged over 60.

Planning ahead

It’s worth talking to your adviser to plan the best strategy for your super withdrawals. For example, if you’re under 60, a lump sum may be more tax effective than a pension because of the “low rate cap” discussed above.

However, to access a lump sum before age 65 you must meet a relevant condition of release such as “retirement”, whereas you only need to reach your preservation age in order to access a transition to retirement income stream (TRIS).

Your adviser can also help you explore the possible tax benefit of starting a full account-based pension (ABP). Unlike a TRIS, an ABP requires that you’ve met a relevant condition of release such as retirement, but the advantage is that it attracts a partial or possibly a full exemption from income tax on investment earnings inside the fund. So, as you can see, the decision to access your benefits is best made with professional advice that takes into account a range of factors including:

  • your age;
  • employment status and income;
  • lifestyle/cashflow needs;
  • tax efficiency of running a pension;
  • eligibility for the Aged Pension; and
  • special planning required if you hold more than $1.6 million in super (the current limit on the amount you can hold in full pensions like ABPs).

Need to access your super?

Talk to us today and we’ll help you navigate through the tax rules to get the most out of your retirement savings.

 

ATO fires warning ahead of tax time

The ATO has released a wide range of case studies of taxpayers cheating the tax system as it signals its hard-line stance ahead of tax time 2019.

The first case involves 56-year-old Peter Garven, who was sentenced in the Sydney District Court to three years and three months’ jail time for fraudulently obtaining and attempting to obtain more than $200,000 from the ATO.

As the sole director of Peter Garven Consulting and Garven Resources, between October 2002 and July 2004, Mr Garven lodged three income tax returns where he fraudulently obtained $102,504 in refunds and attempted to obtain a further $41,758.

Mr Garven claimed to have received salary and wages of more than $150,000 from the University of New South Wales, despite the university having no record of any payments to Mr Garven.

In addition, between August 2002 and July 2004, Mr Garven fraudulently obtained $51,684 in GST refunds on behalf of his two entities, Peter Garven Consulting and Garven Resources.

In 2004, Mr Garven acknowledged that his claims were false and said he would lodge amendments. The ATO never received the amended returns, which triggered audit action.

Following this, Mr Garven failed to appear in court for his trial in March 2009, with a warrant for his arrest issued shortly after. He went into hiding and was registered on the missing persons list. In 2017, he was arrested on a warrant by the NSW Police in the Watagan Mountains.

Mr Garven has also been ordered to repay $154,188.96.

Fraudulent BAS leads to jail sentence

A wholesale distribution company director has also been sentenced to four years and six months’ jail time for fraudulently obtaining and attempting to obtain nearly $600,000.

David Irvine lodged 39 BAS between January 2012 and March 2015. By reporting fake export sales, he reduced the company’s GST payment obligations and fraudulently obtained $480,680 in refunds he wasn’t entitled to.

Mr Irvine also failed to report any income on his personal tax returns for the 2009 to 2011 financial years, resulting in a tax shortfall of $116,056.

Sole trader gets home detention

Linda Taylor was sentenced in the South Australia District Court to two years and nine months to be served on home detention after being convicted of GST fraud made in BAS lodged between April 2013 and September 2015.

Ms Taylor, a sole trader of a home styling business trading as Signature Styling Design Innovation, lodged 32 monthly BAS with the ATO, fraudulently obtaining $138,076 in GST refunds.

The audit found Ms Taylor claimed a total of $2,023,646 in capital and non-capital purchases in her BAS, with her overall reported sales during the same period inclusive of GST being $259,977. To support these claims, Ms Taylor supplied false documents to the ATO.

The court found these claims to be entirely fraudulent. Signature Styling was not entitled to GST refunds that had been claimed and received.

The audit found Ms Taylor used the money obtained to fund private expenses like school and vet fees, meals at restaurants and hotels, as well as significant spending on hair and beauty services, clothing, shoes and accessories.

She has also been ordered to perform 150 hours of community service and pay reparations of $137,936.

Source: www.accountantsdaily.com.au

CGT Strategy highlighted with work test exemption

In December last year, the government finalised the regulations for the work test exemption measure which enables individuals aged 65 to 74 to make voluntary contributions to superannuation for an additional 12-month period from the end of the financial year in which they last met the work test.

In order to be eligible, they have to have a total superannuation balance of less than $ 300,000. According to the ATO website, the regulations will take effect from 1 July this year.

Advisers Digest director Peter Johnson said one of the ways the exemption could be beneficial for SMSF clients is where they want to sell a significant asset and contribute the proceeds from the disposal of that asset into their super fund.

The client may have an asset they wish to sell that is subject to capital gains. If they sell the asset they are going to have a capital gain, and if they want to contribute the sale proceeds to super, they will have to realise that gain in the same year as they are still working.

Under the work test exemption, however, they may be able to sell the asset and then still contribute the money to super in their first year of retirement, he said.

For a couple, he said, each spouse will be able to contribute $ 100,000 in non-concessional contributions and $ 25,000 in concessional contributions.

The government also made an amendment to the regulations which allows members to trigger the bring forward rules under the exemption, which was restricted under the original draft legislation.

The work test exemption could also be useful for those receiving an employment termination payment in July and will be retiring afterwards, he said.

Source: www.smsfadviser.com

Getting Your Small Business Ready For STP Reporting

From 1 July 2019, Single Touch Payroll (STP) reporting will become mandatory for all employers. Small businesses (i.e. those with fewer than 20 employees) have previously been exempt, but will now need to take action to ensure they’re ready. These small businesses have a three-month transition period between 1 July and 30 September to get their STP reporting fully operational.

STP is an electronic reporting system that requires employers to submit payroll information such as salaries, wages, allowances, PAYG withholding and superannuation contributions to the ATO directly through their payroll software (or third-party service provider) when they pay their employees. The government says that STP reporting will improve the ATO’s ability to monitor tax and super compliance, and to take action when required.

How does it work?

You’ll still pay your staff according to your regular pay cycle (e.g. monthly or fortnightly), but with the added requirement of submitting payroll information electronically to the ATO each cycle.

Many businesses will take care of this in-house with payroll software that can connect to the ATO. Alternatively, you can arrange for a registered tax or BAS agent to report on your behalf.

You’ll still give your staff a payslip each pay cycle, but you’ll no longer need to prepare payment summaries at the end of the financial year because your staff will be able to access all of their STP payroll information through the ATO website in order to prepare their tax returns.

If your business has “closely held payees” such as family members who are not paid a regular salary or wage, talk to your adviser about flexible STP reporting arrangements that may be available to you.

Simple software solutions

There are many software providers in the market offering STP-compliant software that meets the ATO’s electronic data requirements. If your business already has payroll software, check with your provider whether it has been made STP-compliant and whether you need to download or purchase an upgrade.

If you don’t have existing software or you want to find a new solution, you should refer to the ATO’s website for help finding a provider. As well as publishing a list of all commercially available STP software solutions that it has approved, the ATO has a separate list of “low-cost” and “no-cost” STP solutions that have been designed for “micro” businesses with four or fewer employees. These have been created by third-party software developers and these solutions:

  • cost $10 or less per month (and some are even free);
  • are designed to take only minutes to complete each pay period;
  • don’t require the employer to maintain the software; and
  • include formats like mobile apps, web-based portals, desktop software and other simple solutions.

The ATO is continually updating the list as new products are released.

Need more time?

Small businesses can start reporting any time from 1 July 2019 to 30 September 2019. If you need more time to get ready, you can apply online for a deferred start date through the ATO’s business portal. You can also apply for an exemption from STP reporting for one or more financial years if you operate in an area with poor or no internet.

Get STP-ready

Don’t wait until the last minute – talk to us to get started now. No matter how small or large your business is, we can help you find the right solution to match your STP reporting needs and ensure you’re ready for the deadline.

 

What Does “Retirement” Mean For Super Access Purposes?

Recently, AMP reported that its superannuation support team has seen a surge in questions about the rules for accessing super. It says people are especially unaware about the retirement rules that apply in the 60-to-64 age range. Here, we break down the requirements by age group and clarify what you must do to “retire” and access your benefits.

Under preservation age

Before you’ve reached your preservation age, you can’t access super on any “retirement” grounds. Your preservation age depends on your date of birth, as shown below:

Date of birth Preservation age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
From 1 July 1964 60

 

If you need to access your super before preservation age, speak to your adviser about whether you might qualify on other grounds such as severe financial hardship, compassionate grounds, terminal medical condition or permanent or temporary incapacity.

Preservation age to age 59

Once you’ve reached preservation age you can potentially access your benefits on “retirement” grounds, but if you’re under 60 you must have the intention of permanently retiring. Specifically, two things need to occur:

  • an arrangement under which you were gainfully employed must come to an end (eg you leave a job); and
  • the trustee of your super fund must be reasonably satisfied that you intend never to again become gainfully employed (either on a full-time or part-time basis).

For these purposes, “part-time” gainful employment means at least 10 hours a week. This means you can “retire” even if you intend to work a small amount each week.

If you don’t meet the retirement test, but need to access some of your benefits, consider starting a “transition to retirement income stream” (TRIS). The only eligibility requirement is that you’ve reached preservation age. However, you’ll be limited to withdrawing a maximum of 10% of your account balance each financial year, and you won’t qualify for an income tax exemption on pension asset earnings. Once you’ve met a release ground such as retirement or reaching age 65, these restrictions will no longer apply.

Age 60 to 64

Once you reach age 60, you can potentially access your super without permanently retiring (although you can, of course, retire permanently if you choose.)

All that’s required is that an arrangement under which you were gainfully employed comes to an end (eg you leave a job) after you reached age 60.

That means it’s okay to start another job, or if you were previously working two jobs, it’s sufficient that you leave only one of them. In these cases, you can access a full pension (with an income tax exemption on pension asset earnings, and no 10% maximum annual withdrawal limit) or a lump sum.

Importantly, the Australian Prudential Regulation Authority (APRA) recognises that this is a valid way to access your super, but says that in its view, any future superannuation benefits you then accrue from an ongoing or new job wouldn’t be accessible. To access those benefits, you’d need to meet a further release ground (eg reaching 65 years or “retiring” again).

Age 65 and over

Once you reach age 65, all of your superannuation benefits become accessible. There’s no need to meet any “retirement” or other release grounds.

Need to access your super?

Contact our office and we can guide you through the requirements for “retirement” and other release grounds.

 

ATO tweaks ABN application process

The tax office has amended its Australian business number application process to ensure applicants are entitled to an ABN, giving it greater visibility over an applicant’s history.

According to an ATO spokesperson, the tax office has implemented changes to the ABN application process to make it easier for applicants to determine that they are entitled to an ABN.

Specifically, the ATO has restructured and simplified the ‘Important Information’ page to make it easier for applicants to understand; developed nudge messaging for minors—i.e. under 14 years of age—to ensure they are using the correct entity type; and highlighted the penalty disclaimer on the ‘Declaration’ page, alerting applicants that penalties can apply for making false or misleading statements in their application.

The tax office has also re-ordered the application so they know who is applying and have all the information about the business before they receive an entitlement decision.

“This change enables us to make a more informed decision and to identify those applicants who are applying multiple times so we can provide them, or their tax practitioners, with better support,” said the ATO spokesperson.

The government also recently announced changes for ABN holders that will see them required to lodge an income tax return from 1 July 2021, and confirm the accuracy of their details on the ABR annually from 1 July 2022.

ABN holders are currently able to retain their ABN regardless of whether they are meeting their income tax return lodgment obligation or the obligation to update their ABN details.

Source: www.accountantsdaily.com.au

 

SMSF Benchmark Report – Class

Class provides detailed analysis of newly established SMSFs, delivering revealing insights on key characteristics and trends.

Background-

The Class SMSF Benchmark Report, released for March 2019, is a statistical analysis of approximately 170,000 Self Managed Super Funds administered on Class Super, representing around 28% of the estimated number of SMSFs in Australia today. The quarterly Report is compiled using a selection of de-identified data extracted from across the Class Super user base.

This quarter’s special feature casts a spotlight on the characteristics and trends of newly established SMSFs, including the average number of members, establishment age, fund balances and asset allocations.

The analysis for the feature was based on a significant data set of 26,100 funds comprising 46,943 members, which were newly established on Class within a 5-year period from 2014 to 2018.

Some of the revealing insights include:

  • Over 72% of SMSFs are established as two-member funds from the outset, making it important to consider overall fund balance when determining the viability of setting up an SMSF
  • Males have a 42% higher average balance than females when funds are established, which compares with a significantly lower gap of 21% overall across all SMSFs
  • The average establishment age for newly established funds is 48.9, with a small difference occurring between gender.

Glenn Day, acting CEO at Class comments: “The Class SMSF Benchmark Report has become a key reference document for the industry, providing timely data and insights to support SMSF accountants, administrators and advisers.

“The insights on average total fund balances in this quarter’s feature were particularly interesting, in light of recent debate around how much money is needed to set up an SMSF.”

The Benchmark Report can be downloaded here.

Single Touch Payroll – Do it Once, do it Right

IN BRIEF

  • The new Australian Single Touch payroll system is coming into effect in 2019, making way for a more efficient and secure system of payroll filing.
  • While the impact for businesses already using online accounting software will be minimal, those employing desktop software or spreadsheets will notice the difference.

Australia’s Single Touch Payroll (STP) mandate comes into effect on 1 July 2019, affecting the nation’s 749,000 businesses with under 20 employees. This follows last year’s requirement for businesses with 20 or more employees to use STP from 1 July 2018.

If a business is already using online accounting software the impact is minimal. However, for businesses using desktop accounting software or spreadsheets, the payroll mandates will likely force them to move to the cloud.

One of the biggest triggers of this migration is MYOB’s decision to not update its popular MYOB AccountRight Classic (version 19) for STP. (MYOB’s AccountRight 2018 and later versions do support STP.) There are several hundred thousand businesses using MYOB’s desktop software, according to MYOB.

“Desktop software is going to be very hard to keep compliant because you need to keep connecting to the portal to convey the information,” says Peter Thorp CA, director of the Australian Bookkeepers Network and director of PT Partners, an accounting firm based in Springwood, south of Brisbane.

“You need to upload the file manually, it’s just not going to work. That’s why the online programs are promoted as the way to go,” Thorp says.

A good percentage of a firm’s customer base could turn up this year asking for help migrating to cloud accounting software. However, there are some good reasons as to why firms may not experience this.

“I think they’re going to go through their bookkeeper rather than their accountant,” Thorp says.

Who decides – bookkeeper or accountant?

Kelly Chard CA is a director of GrowthMD, a practice in Brisbane’s Chermside that provides accounting services to medical and dental practices across Australia.

Even though most of her clients use cloud accounting software, she knows plenty of other medical centres that will need to change. “Many have traditional bookkeepers using MYOB desktop software for the past 20 years and they are scared of changing,” she says.

Chard recognises that doctors’ bookkeepers will strongly influence the choice of software. “It would be easy to say, ‘Let’s just move you to MYOB cloud version’, and the bookkeeper might be happy because it tends to look the same. But it may not be the best solution.”

Some small to medium enterprises remaining on desktop accounting software may have been waiting for the cloud to catch up. MYOB’s M-Powered Services for payments is only now coming to its cloud software under the name MYOB PayBy.

The cloud version of MYOB AccountRight recently added multi-currency, but while importers are supported today, exporters will need to wait a couple more months.

AccountRight Classic also has a more capable inventory than Xero or standard versions of QuickBooks Online. Inventory-heavy businesses wanting to move to these two programs may need to buy a dedicated inventory app that integrates into the cloud accounting software.

Chard recommends Xero to most of her clients and encourages them to look at other tools, such as expense management apps Receipt Bank and Hubdoc.

The payroll migration is likely to redistribute market share among the major accounting software companies. Xero and Intuit are eyeing the trove of several hundred thousand MYOB desktop users and anticipating that a good chunk will move away from MYOB.

But rather than redrawing boundaries, STP and Payday Filing may be an opportunity to expand the market for accounting software. “Think about all those businesses that still use spreadsheets,” says Trent Innes, managing director of Xero Australia.

MYOB’s general manager – product, David Weickhardt, agrees. “There are a lot of small businesses that are using very manual processes. Our biggest competitors are Microsoft Excel and Word.”

What if a client wants to stay on desktop?

It is possible to ignore the push to the cloud and keep using desktop accounting software.

A business can lodge its payroll information manually through the Australian Taxation Office’s (ATO) website. However, these manual methods increase the chance of error and are far less efficient than the automated process common to online accounting software.

An alternative is to use an online payroll software just to lodge your payroll details.

MYOB has launched a standalone payroll program for micro-businesses that is compliant with Single Touch Payroll (STP). The program is in effect the automated payroll module from MYOB Essentials and costs A$10 a month for four employees or less.

Xero announced an identical standalone solution for up to four employees at about A$10 a month. The payroll product integrates with Xero’s ledger and GST cashbook.

 

Solicitors Trust Account Audit March 2019

For any Law Practitioner, the Law Society requires an audit of the trust records at 31st March each year under the Law Professional Uniform Law (NSW).

The Law Society website sets this out as follows:

Appointing an external examiner

Your law practice must appoint an external examiner to complete a written external examiner’s report on your trust records, which the examiner then forwards to the Law Society by 31st May each year.

Notification

Law practices are required to notify the Law Society of the person appointed as their external examiner and must also notify the Law Society when they terminate an appointment.

To notify the Law Society complete the Notification of appointment or cessation of external examiner form and return it completed to the Trust Accounts Department. Further, prior to terminating the appointment of an external examiner the law practice is required to seek the approval of the designated local regulatory authority – the Law Society. To request approval, complete the Request for Approval for Termination of External Examiner form.

If you require an audit of a Trust account prior to the date of 31 May 2019, please notify our office as we are currently conducting the audit for practitioners.

ATO Benchmarks A Handy Business Check-up

The ATO has released its latest benchmark data to help businesses in over 100 industries compare their performance against competitors. These valuable benchmarks can help you assess measures like your cost of sales or total expenses, among others, which can greatly assist in gauging business performance and spotting tax compliance risks.

How can I use this data?

Businesses can use the data to help them assess their performance against the standards for their industry. For example, if your expenses seem high compared to your industry’s benchmark range, this may prompt you to explore ways you can improve profitability. Additionally, if your figures are outside the benchmark range, you might consider reviewing your records to ensure your business is accurately recording all income and expenses.

Naturally, the ATO also uses this data for compliance purposes. By identifying businesses that are “outliers” compared to their industry benchmarks, the ATO is better able to select businesses for audit. This might include businesses that are reporting significantly less income than competitors relative to expenses or claiming significantly more expenses relative to income.

Being outside a benchmark range does not necessarily mean that something is wrong, but it may lead the ATO to ask questions. ATO Assistant Commissioner Peter Holt likens the benchmarks to the red and yellow flags at the beach: “If you stay between the flags, you’ll be less likely to attract our attention.”

What benchmarks are available?

The ATO calculates the benchmarks using data from the tax returns and activity statements of over 1.5 million small businesses. The latest updated benchmarks are sourced from the 2016–2017 income year. The types of benchmarks that the ATO publishes for each industry vary, but often include useful benchmark information such as:

  • cost of sales as a percentage of turnover (and average cost of sales);
  • total expenses as a percentage of turnover (and average total expenses);
  • non-capital purchases as a percentage of total sales;
  • labour as a percentage of turnover;
  • rent as a percentage of turnover; and
  • motor vehicle expenses as a percentage of turnover.

Most of these benchmarks are expressed as a range (eg “23% to 33%”), and for each industry the ATO provides different benchmark ranges for different annual turnover ranges.

Data is available for over 100 industries across the following categories:

  • Accommodation and food.
  • Building and construction trade services.
  • Education, training, recreation and support services.
  • Health care and personal services.
  • Manufacturing.
  • Automotive electrical services.
  • Machinery and equipment repair and maintenance.
  • Architectural services.
  • Veterinary services.
  • Retail trade.
  • Transport, postal and warehousing.

How to access the benchmarks

An easy and quick way to access the data is to use the “business performance check” tool on the ATO app. After entering a few details about your business, the app will show you how your business compares to your industry’s benchmark ranges. The ATO will not record the information that you enter when using this tool.

Alternatively, you can manually view your industry’s data on the ATO website, where it is arranged both alphabetically (A to Z list of industries) and by industry category.

How is your business performing?

Contact us today for expert advice to help your business succeed. We can help you assess how your business measures up against industry benchmarks, review record-keeping for tax compliance and develop effective strategies for improving your business’ profitability.