Catch-up Concessional Contribution Caps

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The ATO has released details of Catch-up concessional contribution caps to the effect from 1 July 2018.

New concessional contribution ‘catch-up’ measure

From 1 July 2017,  the maximum amount of concessional contributions you can put into your account each year will be $25,000 per annum for all age groups. Then commencing 1 July 2018, there is a new catch-up provision available for members with a superannuation balance of less than $500,000 just before the start of the financial year.

If your total superannuation balance is less than $500,000 amounts not paid up to the $25,000 cap each year will be able to be paid over the following five years. You can start catching up any unused concessional contributions from 1 July 2018. For example:

2018/19 2019/20 2020/21 2021/22 2022/23 2023/24
Concessional Contributions $10,000 $10,000 $10,000 $70,000 $10,000 $10,000
Available unused cap $15,000 $15,000 $15,000 – $15,000 $15,000
Cumulative available unused cap $15,000 $30,000 $45,000 – $15,000 $30,000

 

What it means for you

If your superannuation balance is less than $500,000 you may want to seek financial advice on your future contribution options.

 

 

Setting Up Your SMSF

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If you’re thinking of setting up your own self-managed super fund (SMSF), to take charge of your retirement and be able to make investment decisions, there are some important steps you have to take before you seek registration with the ATO such as choosing between individual trustees or a corporate trustee, creating the trust and trust deed appointing trustees or directors, setting up a bank account, obtaining an electronic service address, and preparing a windup strategy.

Itis a complex process with the ATO as the gatekeeper ensuring that only genuine trustees are allowed into the SMSF sector. This is achieved by conducting pre-registration checks on newly registered SMSFs and new members added to existing SMSFs, as well as maintaining the Super Fund Lookup (SFLU) which is a public register of super funds that third-party funds and employers can use to determine if they can pay rollovers or contributions to an SMSF.

The ATO uses analytical risk models that look at a number of factors and data related to new SMSFs or new members to determine the risk of illegal early release of funds or non-compliance.

This consists of the trustees’ financial history and behaviour including: bankruptcy; debts owed to the ATO; outstanding lodgements; poor lodgement or payment compliance history; ability to maintain an ongoing super fund; and whether the individual has been linked to any other SMSFs of concern.

When a risk is identified during the pre-compliance check, the ATO will usually undertake further checks and interviews with the trustees involved to ensure that they are genuine in wanting to establish an SMSF and understand all the obligations and consequences of failing to comply with super laws, as well as having received adequate professional advice or have had appropriate education.

Where there are still concerns with the registration of the SMSF even after speaking to the trustees, the ATO will withhold registration and trustees will need to seek a review of the decision and address any concerns raised during the new registration check. In the 2017-18 income year, there were around 26,000 SMSF registrations and approximately 2,100 were subject to further review. Of those reviewed, 29% had their ABN cancelled and a further 16% had their registration details withheld from SFLU.

Therefore, it is important that the SMSF be set up correctly for the sole purpose of providing retirement benefits for its members. Even at the set-up stage, it is important to look ahead for life events such as marriage, divorce, or death which may impact on an SMSF. While some of these issues may be unpleasant and a conversation involving them unwelcome, it is important to note that an SMSF is a long-term retirement vehicle and it is prudent to ensure from the beginning that there is a strategy to deal with unexpected events and wind up the SMSF if necessary.

Need professional help?

We can advise you on various aspects of setting up an SMSF. We can cast our experienced accounting and taxation eye over your current fund.

Improvements To GST Risk Assessment

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The Inspector-General of Taxation (IGT) has recently released his review into the verification of GST refunds by the ATO. The review was initially conducted as a response to concerns raised by taxpayers which had their GST refunds delayed as a part of the ATO risk assessment program to verify certain details before refunds are issued.

Broadly, the ATO’s risk assessment system uses BASs as input data and automatically selects a number of cases where retention of refund and further checking should be considered. The selection is then further refined by manual intervention. The review conducted by the IGT examined the end-to-end process involved in refund verification including from initial case selection through to the review and audit activities.

Overall, the IGT found that the ATO’s administration of GST refunds operated efficiently with the vast majority of refunds released without being stopped for verification, while those refunds that were stopped were processed and released within 14 or 28 days. 

Even though that was the case, the IGT identified an opportunity to enhance ATO’s automated risk assessment tools which have only been achieving a strike rate of 26.7% (approximately 1 in 4 cases), which may be no better than random selection.

In addition to the opportunities to improvement, the IGT also made 5 recommendations aimed at the ATO to:

  1. develop a framework for continuous improvement of its automated risk assessment tools;
  2. streamline guidance to staff and implementing tools to assist them in complying with their statutory obligations;
  3. enhance its information requests to taxpayers and providing a channel for pre-emptive provision of such information;
  4. improve notification of when taxpayers’ objection rights to the retention of refunds has been triggered and assisting them to lodge such objections effectively; and
  5. raise awareness of staff and taxpayers about financial hardship issues, appropriately considering them and enabling automated partial release of refunds.

The ATO has agreed to the majority of the recommendations. Although it notes that activity statements are processed through a system which does not allow for automatic alerts to notify ATO officers whether retention of a refund has been made within the statutory period. However, the ATO said it is looking to migrate activity statement processing to another internal system which may provide opportunities for alerts.

In addition, the ATO partially disagreed with recommendation 3 as it says taxpayers and Tax Agents who lodge electronically already have the option to supply supporting information through various portals and allowing taxpayers to send additional information may cause additional compliance costs, particularly where the refund is not subject to verification activities.

Perhaps the most interesting recommendation that the ATO partially disagreed with is 5. According to the ATO, system limitations prevent the automated partial release of refunds in certain situations. It notes that the manual process which is currently in place is considered to be adequate.

So, what does it mean for your business?

The review has raised several issues which may mean improvements in service for business owners seeking refunds going forward. With the enhancement of the ATO’s risk assessment model, businesses may no longer need to be inconvenienced by an unnecessary delay in obtaining their GST refund. If you’re having issues with your activity statements or a GST issue in general, contact us today.

 

Tax Return Lodgement Due Soon

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With the 31 October fast approaching, so is the deadline for lodging your tax returns. If you’re making the last-minute scramble to gather all your tax documentation, keep in mind there are some changes in this year’s tax return particularly in relation to rental properties and superannuation.

If you own rental property, you should be aware that you are no longer able to claim a deduction for depreciation of second-hand assets in relation to the property in this year’s tax return. The denial of deduction applies to second hand assets acquired at or after 7.30pm on 9 May 2017 (unless it was acquired under a contract entered into before this time), and second-hand assets acquired before 1 July 2017 but not used to earn income in the 2016-17 income year. In addition, travel expenses related to residential investment properties are no longer deductible.

In relation to superannuation, from 1 July 2017, the spouse income threshold for the tax offset has increased, meaning that more people will be able to claim the offset in this year’s tax return. You may be able to claim an offset of $540 if you made a contribution to your spouse’s super fund in the income year and your spouse’s income is less than $37,000. If your spouse’s income is between $37,000 and $40,000, a part offset may be available.

In addition to the changes in the tax return, the ATO has also outlined 5 of the most common mistakes that they have seen, which are:

  • leaving out income from temp jobs or money earned from sharing economy;
  • claiming deductions for personal expenses, such as home to work travel, normal clothes, or personal phone calls;
  • no records or receipts kept of expenses;
  • claiming for something that wasn’t paid for or was reimbursed;
  • claiming personal expenses for rental properties including deductions for the private use of property or interest on loans used to buy personal assets.

Assistant Commissioner Kath Anderson said: “[t]his time we will be paying close attention to claims for private expenses like home to work travel, plain clothes, and private phone calls. We will also be paying attention to people who are claiming standard deductions for expenses they never paid for.”

According to the ATO, around half of the adjustments they make to tax returns are due to the taxpayer having no records or poor-quality records. For those taxpayers who are putting in claims, especially work claims without any evidence, the ATO says it will be checking all the data, either by data-matching against other taxpayers in similar industries to find discrepancies or by contacting the taxpayer’s employer when a “red flag” is raised.

Need help with your return?

If you’re just getting started on your return now and need some help maximising the deduction you’re entitled to or untangling complex tax affairs, we can help. If you don’t think you will make the 31 October deadline, you may be able to get a concessional lodgement date if you lodge your return with us. Alternatively, we can help you apply for a deferral and give you more time to sort out your affairs.

 

Director changes tabled, $1m fines for non-compliance

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Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2018 sets out the legal framework for the introduction of DINs – a unique identifier that will provide traceability of a director’s relationships across companies, enabling better tracking of directors of failed companies and will prevent the use of fictitious identities.

To date, current application to become a company director requires only a name, an address and a date of birth, with no requirement for a person to prove their identity.

The proposed DIN regime will aim to combat phoenix activity, as well as reduce time and cost for administrators and liquidators during the insolvency process by providing a more streamlined tracking of directors and their corporate history.

Under the new requirements, new directors will have 28 days to apply for a DIN from the date they are appointed a director unless they are provided an exemption or extension by the registrar.

Directors who are currently in place will be afforded transitional provisions of 15 months to apply for a DIN from the application days of the new requirement.

Failure to comply with the DIN regime will see a maximum penalty of $200,000 for individuals or $1 million for a body corporate.

BDO national tax director Lance Cunningham said the new measure was a step in the right direction and would help regulators and creditors readily identify individuals involved in failed companies, and flag higher-risk individuals and entities.

“The introduction of DINs will help curb potential phoenix by improving data integrity and security, including by allowing directors to be identified by a number rather than by other more personally identifiable information, such as their name and address,” said Mr Cunningham.

“While it will require some additional regulation, it should not be seen as just an additional layer of red tape. It will offer more effective tracking of directors and their corporate history, which will reduce time and cost for administrators and liquidators, thus improving the efficiency of the insolvency process.

“Mandatory training in director responsibilities will be required, which will be costly. However, these costs will be outweighed by the reduced time and costs and other efficiencies. From a practical perspective, the new obligations will require all companies to incorporate the DIN registration process as an additional step in appointing directors.”

However, Mr Cunningham believes rogue operators might still be able to bypass the measures and has joined calls to increase prosecution powers to deter such activity.

“Companies can structure themselves in ways that dodge the new provisions and directors can still exploit the proposed new rules by misstating information,” said Mr Cunningham.

“Contravention of the proposed new legal obligations constitutes both a civil penalty provision and a criminal offence. However, paradoxically, prosecution under criminal law is difficult to prove as the criminal standard of beyond reasonable doubt is a high bar.”

Business owners, however, have been much more vocal against the proposal.

The pervading concern from the business community is that yet another form of identification, on top of existing ABNs and ACNs, will do little to actually address the problem of phoenix activity while simply adding more cost and red tape onto SMEs.

“Why create a whole new set of ID numbers when we already have one in Tax File Numbers. Who cares that there [sic] original intended purpose was to track interactions with the ATO. The ATO is a federal government agency, ASIC is a federal government agency – why reinvent the wheel,” said one My Business reader after it was suggested the DIN should be rolled out to all company officials, not just directors.

“Besides, I would have thought the ATO would want access to this information itself anyway (i.e. keeping track of the number of companies a person is director of and the financial state of those companies & the individual).”

Source : https://www.mybusiness.com.au/management/5017-director-changes-tabled-1m-fines-for-non-compliance?utm_source=MyBusiness&utm_campaign=04_10_18&utm_medium=email&utm_content=1

 

Taxable SMSF Assets Double: Is Your Fund Affected?

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It’s been a little over a year since the dual changes of the pension transfer balance cap and the reduction of tax concessions for transition to retirement pensions were implemented by the government. Recent research has indicated that these changes has achieved their policy outcome by making almost 25% of previously tax-free SMSF assets lose their status and become taxable.

To recap, a pension transfer balance cap of $1.6m applied from 1 July 2017 to limit the total amount of accumulated superannuation that can be transferred to the retirement phase, where the earnings on assets are tax-exempt. The transfer balance cap is indexed but adjustments are unlikely to occur until at least 2023-24.

The ATO uses the concept of a transfer balance account to track each person’s net pension amounts against their transfer balance cap. Where an individual’s transfer balance accounts exceed their transfer balance cap, the ATO will issue a determination requiring the excess amount to be removed from retirement phase.

In addition, these excess transfer balance amounts are subject to tax, initially at 15% but increasing to 30% for breaches in subsequent years.

Similarly, the tax exemption on earnings for pension assets supporting Transition to Retirement Income Streams (TRISs), also known as transition to retirement pensions (TTRs) was removed from 1 July 2017. From that date, earnings from assets supporting TRISs were taxed at 15% instead of 0%. TRISs have traditionally been used by individuals who have reached their preservation age but do not want to retire.

According to recent research, at June 2018, one year after the sweeping superannuation changes came in, SMSF asset value in accumulation phase was approximately $422bn. This was a 90% increase from March 2017 (before the changes) when asset value in accumulation was around $222bn.

Based on simple modelling (not taking into account contributions tax, deductible expenses, and rebates), assuming a modest return of 5% on assets for the 2018 income year, this increase of SMSF asset value in accumulation phase would result in $3.2bn worth of tax on SMSF earnings. This equates to a $1.5bn increase from the 2017 year.

However, it’s not all doom and gloom for the SMSF sector after the changes, one ray of sunshine in the research is that the changes have led to new strategies being implemented which significantly improved gender imbalance in SMSF assets and balances. Two of the most notable strategies used include:

  • contributions splitting which involve a member of an accumulation fund splitting superannuation contributions with his or her spouse to equalise their total superannuation balances to counter the $1.6m transfer balance cap.
  • re-contributions strategy which involve withdrawal and re-contributions to a spouse’s superannuation account to equalise total superannuation balances up to $1.6m each (subject to the non-concessional contributions limits).

Are you affected?

Is your fund affected by this? Talk to us today, we may have a strategy to help you reduce the taxable proportion of your SMSF assets. Alternatively, if you’re thinking of commencing a TRIS we can help you navigate the tricky laws around this area and make sure you get the maximum benefit from your hard-earned superannuation.

 

ATO holds millions in unclaimed refunds after 200k skipped lodgement

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With the deadline of 31 October for self-preparers edging closer, the ATO is looking to drive lodgement compliance, with about 7 million completed returns lodged so far this tax time.

Broken down, about 4.3 million taxpayers have lodged via a tax agent, with just over 2.7 million taxpayers having lodged their own returns through myTax.

“We estimate there are 200,000 individual salary and wage earners who are likely to have been either due a refund or owed a small amount of tax, but who had not lodged a tax return. Collectively, these clients have millions of dollars of unclaimed refunds,” said ATO Assistant Commissioner Kath Anderson.

“There are a few reasons why Australians might not lodge even if they are due a refund. Some might not lodge because they don’t realize they need to – maybe they are on a low income or haven’t worked recently. Others might be worried about lodging because they haven’t lodged for several years, which often causes them stress and anxiety.”

“We know some people put off lodging because they think they’ll owe money, but for self-preparers the payment is due on 21 November whether or not a return is lodged.”

According to the Tax Office, over 98 per cent of refunds have been issued within 12 business days this year.

However, it has warned against making some common errors, including not declaring all income streams and over-claiming deductions, with over 112,000 tax returns corrected over the first two months of tax time 2018, totalling more than $53 million.

 

Source: Article from Accountantsdaily.com.au

Are You An Australian Resident?

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In this global interconnected world, many Australians will no doubt leave Australia to work in many different countries in a vast array of professions. However, just because you leave Australia for a period time, that doesn’t mean that your Australian tax obligations are no longer relevant. Australian tax is based on the concept of “residency”. If you’re considered to be a resident of Australia then you will be taxed on your worldwide income with a tax offset available for any foreign tax paid.

To work out whether or not you’re a tax resident of Australia, there are several tests. The main test is the “resides” test under common law. This test is generally applied by considering your circumstances over the whole relevant year.

Rather than simply looking at the time spent in Australia, the question is whether your behaviour over a considerable period of time (6 months according to the ATO) has the degree of continuity, routine, or habit that is consistent with residing in Australia.

Some of the factors considered to be relevant in determining residency under this primary test include: your living arrangements (i.e. whether your usual place of abode is in Australia and whether you have family here, or whether any children are enrolled in school etc); the purpose, frequency and duration of visits to Australia; extent of any business/employment ties with Australia; extent of family/social ties with Australia; ownership of real estate in Australia; location of other assets and personal effects; where bank accounts are maintained; and nationality and citizenship.

As you can see, this primary test is entirely dependent on the individual circumstances of each case, and one change could sway the residency test one way or the other. It is also wholistic in that it encompasses almost every aspect of a person’s life and thus very complex to apply especially when you have to weigh certain factors against others.

If it is clear that you don’t satisfy the “resides” test, you will still be considered to be an Australian resident if you satisfy one of the following three statutory tests:

  • Domicile and permanent place of abode – you will be considered to be an Australian resident if Australia is your permanent home (note permanent doesn’t mean everlasting or eternal but is rather contrasted with temporary).
  • 183-day test – if you’re present in Australia for more than half of the income year, whether continuously or with breaks, then you will have constructive residence in Australia unless it can be established your usual place of abode is outside of Australia and you have no intention of taking up residence here.
  • Commonwealth superannuation test – If you’re a member of a Commonwealth government superannuation scheme or have a relationship to a member of such a scheme then you will be considered to be a resident of Australia.

A person’s residency is determined on a year-by-year basis and the Commissioner may treat an individual to be a resident of Australia until it can be clearly established that they have cut all relevant ties with Australia. Residency is a complex area, if you’re unsure or you think you’re on the borderline of being an Australian resident, a tax professional should be consulted before you make any decisions with tax consequences.

Are you going to work overseas or thinking of working overseas?

Before you head overseas to work or start a business, come and see us, we can help you figure out if your individual circumstance would make you an Australian resident once you leave. Or if you no longer wish to be an Australian resident and would like to start overseas with a clean slate, we can help you with that, too.

 

Garnishee Orders May Bring Home The Bacon

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Issuing a garnishee order is a cheap and easy way to claw back some of your debt, but there are a few matters to consider first.

Bypass your debtor and go straight to the source of their funds

Once the court has given you a judgment against your judgment debtor, and they have failed to satisfy the judgment, you can apply to the court for a garnishee order. This allows you to bypass the recalcitrant debtor and it sets up a relationship in the form of a triangle between you as creditor, the debtor and the third party.

This third-party garnishee acts as a kind of proxy for the debtor and the order will require them to pay the debt to you in a lump sum or in instalments.

A garnishee order can be directed straight to the debtor’s bank or their employer. In the latter case, you will be able to access the debtor’s pay packet before they do. You do not have to tell the debtor you have applied for a garnishee order and they may only find out when they see their bank statement or pay slip. However, the local and district courts instruct that the amounts claimed in total under the garnishee orders must not reduce the judgment debtor’s net weekly wage or salary received to less than $500.60.

This is known as the weekly compensation amount and is adjusted in April and October each year. When issuing a garnishee order, it must include an instruction to the garnishee about the amount that a judgment debtor is entitled to keep.

Garnishee orders can also be made against those who owe money to the debtor, for example a real estate agent who is collecting the rent from the debtor’s tenanted property.

Benefits galore of a garnishee order

One of the benefits of a garnishee order is that there is no filing fee, although a service fee may be payable. There is also no extensive research on the debtor required before the order is issued, the debtor’s name may be enough. And if the order fails to recover all or some of the money, the order can be reissued on the same garnishee several times.

There is also little the garnishee can do to stop the order unless they apply to the court or they repay the debt.

Guidance on garnishing

If you have received a judgment and have an outstanding debt you are trying to recover from your judgment debtor, we can help take the lead on it for you and take you straight to the debtor’s funds.

 

Age Pension Eligibility Rule

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The Government has announced that the Age Pension eligibility age will not go up to 70, as planned. But it is still going up, as is the superannuation preservation age.

The move to take the Age Pension eligibility age up to 67 was legislated by the last Labor Government. The process started in July last year, when Age Pension age went up from 65 to 65 and six months. It is scheduled to go up by six months every two years until 2023, when it will be 67.

The proposal to take Age Pension age up from 67 to 70 was announced in the 2014 Federal Budget. The plan was that from July 2025 the eligibility age would start increasing above 67 until it reached age 70 by July 2035.

The move up to age 70 was included in a bill that was never passed. This means that the decision announced by the Prime Minister last week does not require any legislative amendment.

The move up to age 67 will continue as planned.

The Government also introduced changes to the assets and income tests last year, which have a bearing on Age Pension recipients. Once you get to Age Pension age, the Department of Human Services, will apply a couple of tests to see whether you are entitled to a full or part pension.

Assets test. A single home owner can hold assets worth $258,500 before having the full age pension entitlement reduced. For a single non-home owner, the limit is $465,500.

A home owning couple can hold assets worth $387,500 before having their full age pension entitlement reduced. For a couple who do not own a home the limit is $594,500.

Assets included in the test include superannuation accounts, shares and other financial assets, investment property, business assets, motor vehicles, boats and caravans, collectibles. The family home is exempt.

The Department of Human Services updates these limits in January, March, July and September each year.

For each $1000 of assets over the threshold pension payments are reduced by $3.

Applying this taper rate, a single home-owner’s part pension runs out when asset value reaches $561,250. For a single non-home owner, the part pension runs out when assets reach $768,250.

A home owning couple’s part pension runs out when their asset value reaches $844,000. A non-homeowner couple’s part pension runs out when their assets reach $1.05 million.

Income test. A single person can earn up to $172 a fortnight ($4472 a year) without any reduction in their pension. The pension is reduced by 50 cents for each dollar of earnings over $172. When earnings reach $1987.20 a fortnight the pension cuts out altogether.

A couple can have combined income of up to $304 a fortnight ($7904 a year) without any reduction in pension entitlements. The pension is reduced by 50 cents for each dollar of earnings over $304. When earnings reach $3040.40 a fortnight the pension cuts out altogether.

Preservation age. While the eligibility age for the Age Pension will stop increasing at age 67, the age at which people can get access to their superannuation is still going up

The age at which people can get access to super, under normal circumstances, is called the preservation age. It used to be 55 for everyone but the rules have changed. Here is how it works now:

  • If before July 1, 1960 your preservation age is 55.
  • If date of birth is between July 1, 1960 and June 30, 1961, your preservation age is 56.
  • If date of birth is between July 1, 1961 and June 30, 1962, your preservation age is 57.
  • If date of birth is between July 1, 1962 and June 30, 1963, your preservation age is 58.
  • If date of birth is between July 1, 1963 and June 30, 1964, your preservation age is 59.
  • If date of birth is after July 1, 1964 your preservation age is 60.

There are some circumstances where you can get your super out early but they are very limited and relate mostly to serious medical conditions and severe financial hardship.

To get access to your super you must satisfy what is called a “condition of release”. In addition to reaching the preservation age you need to retire from full time work.

Once you reach age 65 you can take your super, even if you are still working.