LRBA Changes May Hinder SMSF Gearing

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In the last decade, many SMSFs have used a “limited recourse borrowing arrangement” (LRBA) as part of a gearing strategy to build members’ retirement savings. An LRBA is a special type of loan that allows SMSF trustees to borrow to buy an asset – typically real estate. Gearing strategies have been particularly attractive to SMSF members who feel constrained by the current contributions caps.

However, proposed laws currently before Parliament will create some new planning issues for LRBAs.

Under these proposals, an SMSF’s outstanding LRBA loan balance will, in some cases, be taken into account when calculating a member’s total superannuation balance (TSB).

This means some members’ TSBs will increase, which may have significant consequences for the members and the fund. If enacted, these laws will apply to any new LRBAs entered into on or after 1 July 2018.

Why is a member’s TSB important?

A member’s TSB is a calculated amount that essentially reflects the value of all their superannuation interests – broadly, both their accumulation and retirement phase interests. It is an important concept for all fund members because it is used as a threshold to qualify for various superannuation measures, including:

  • whether you may make non-concessional contributions (NCCs);
  • for members under age 65, whether you may trigger a “bring forward” arrangement of up to two or three years’ worth of the annual NCC cap;
  • your eligibility for other contributions measures such as government co-contributions, the tax offset for spouse contributions, “catch-up” concessional contributions and a 12-month exemption from the work test for recent retirees; and
  • whether your SMSF may choose, for tax purposes, to earmark particular fund assets as pension assets so that the income earned from those specific assets is tax exempt while the fund is paying a pension.

How will an LRBA affect a member’s TSB?

Under the proposed new laws, a member’s proportionate share of their SMSF’s outstanding LRBA loan balance will be included in their TSB if the asset acquired under the LRBA supports (to some extent) the superannuation interests of that member and either:

  • the member has satisfied one of the following conditions of release: retirement, terminal medical condition, permanent incapacity or attaining age 65; or
  • the lender under the LRBA is an “associate” of the fund (in practical terms, a related party).

As explained above, an increase in a member’s TSB can have many consequences because the TSB is an eligibility threshold for many superannuation measures. Perhaps most importantly, if an SMSF will rely on members’ contributions to help fund its LRBA loan repayments, the SMSF might have difficulty repaying the loan if one or more members becomes ineligible to make NCCs (or to “bring forward” as many NCCs as originally planned) or to make other types of contributions such as “catch-up” contributions because of a member’s TSB increase. This liquidity issue might also affect the SMSF’s ability to meet its other liabilities, such as minimum annual pension payments.

Planning a borrowing? 

If you are considering an SMSF borrowing strategy or need to review an arrangement already put in place on or after 1 July 2018, contact us to discuss how the proposed new laws will affect you. We can help you to quantify the impact, plan for any liquidity issues that may arise and explore refinancing or other necessary strategies.

 

Are You Getting the Most from Your Investment Property?

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Property depreciation claims

Just as with other assets linked to income-producing activities, you can claim depreciation on your investment property through low value asset pooling. Depreciation works to lower your taxable income, meaning that you pay less tax, which can help boost your return.

What are depreciable assets?

Depreciable assets for an investment property include both items within the building, classed as “plant and equipment”, and the “building” itself. Plant and equipment covers items such as ovens, air-conditioners and carpets, and building includes construction costs for items such as brickwork and concrete. Common property, for example stairways and gardens, can also be included as part of the building.

How to determine asset values

Before we can help you assess your claim, you will need to have your property valued by a qualified quantity surveyor. As construction and property depreciation is a specialised field, accountants are unable to make estimates on construction costs.

As part of the valuation, the surveyor will need to conduct a site inspection and photograph and log all items in a report. The optimum time to do this inspection is after settlement, and before your tenant moves in. Note, too, that it may take a couple of weeks for the surveyor to prepare the report.

The surveyor’s report will allow us to work out the depreciation type and schedule. The good news is that surveyor fees are tax deductible too!

Even with talk of bubbles bursting and budget-time reforms, property remains a popular choice for investors. An investment property can bring more savings at tax time through property depreciation deductions than many people – particularly new investors – realise.

Factors to consider for the depreciation schedule

Age of building

How old is the building? This will determine which costs can be included in your depreciation schedule. If it was built post-1985, then plant and equipment and building costs can be depreciated. If it was built before 1985, then you can only claim for plant and equipment.

Property purchase date

Did you buy the property a few years ago? This doesn’t mean you have to miss out on the depreciation savings – if deductions are available, we can go back and amend your previous tax returns.

Renovations and repairs

Renovation expenses can be included, but we’ll need to know the amount of these costs. You’re also entitled to claim depreciation even if the renovations were completed by the previous owner. But as with the primary valuation, if you don’t know the cost of the renovations, then a quantity surveyor will need to make that estimation.

Keep in mind that repairs and improvements made to the property before it is leased can’t be claimed in the depreciation schedule, because the costs are incurred before the property is generating income.

Also, some items which you might think are fixtures, such as cupboards, are actually classified as part of the building, and so the expense of replacing them can’t be claimed as a depreciable asset under Div 40 of the Income Tax Assessment Act 1997. However, a percentage of the cost of installation by a tradesperson can be claimed as capital expenditure. The claimable amount will be influenced by the tradeperson’s profit margin.

Contact us

If you own an investment property or are in the process of purchasing – speak to us and let’s make sure we are getting the most for you at tax time.

 

How to Retire happily

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IN BRIEF

  • Identify what brings you a sense of accomplishment and what your personal goals are for after retirement.
  • Financial security is key to a healthy, comfortable retirement.
  • Intellectual engagement, staying socially engaged and regular exercise are also important factors.

Death and taxes are the oft-quoted ‘certainties of life’, but with ageing populations in Australia and New Zealand, you could add ‘retirement’ to that list.

You may be excited by the prospect of retirement, or it may fill you with dread. Either way, planning your next steps will help you take control of this life stage to make it satisfying, meaningful and enjoyable.

No matter how far away the prospect – next week, next month or next year – there is clear evidence of the benefit of planning what you will do after leaving full-time work.

Finances in retirement are usually the headline issue, but social engagement and your own sense of identity are equally important. That’s especially so if your identity (“I’m an accountant”) and all your social activities have been closely tied to your full-time job.

It’s useful to approach retirement as a series of transitions. It can be a very flexible combination of work, paid or unpaid, community/family/social engagement, education and play. Retirement certainly isn’t a one-size-fits-all box.

This is a life stage where you can do a little dreaming and set some goals. Be imaginative and consider all kinds of options. But remember, without planning, those goals will remain dreams!

A crucial step in planning for retirement is to look at what brings you a sense of accomplishment and recognise what are your personal strengths. What energises you in life? What goals do you want to achieve in retirement?

Identifying these is a good guide to what matters to you and what gives you purpose. In retirement, you will be able to do more of what gives real meaning and purpose to your life.

Before you transition to retirement

Finance in retirement

Being financially secure is key to achieving a comfortable retirement. A recent future[inc] report commissioned by Chartered Accountants Australia and New Zealand, Population Ageing: Do we understand and accept the challenge, identified four main sources of income in retirement for Australians and New Zealanders:

  • compulsory superannuation/KiwiSaver
  • age pension/New Zealand Super
  • private savings
  • part-time earnings.

Most of the 2000 respondents surveyed for the report thought they would need income from sources other than the pension to live comfortably in retirement.

In New Zealand, 48% of couples and 24% of singles believe they could get by on current New Zealand Super levels; only 16% of couples and 8% of singles feel they could live on it comfortably.

In Australia, 41% of couples and 35% of singles feel they could get by on the current age pension levels; only 12% of couples and 12% of singles feel they could live comfortably.

So it’s important to have certainty about your retirement income from all sources, including any proceeds from practice succession. Also be aware of your current and expected expenditure and whether there is a gap in the availability of your income from various sources. Will any gaps delay your decision to retire or change the way you retire?

Health in retirement

The good news is that retirement has been linked to positive lifestyle changes. Being freed from full-time work is an opportunity to improve your health, take up a sport, exercise and work on your fitness, says a 2016 article “Retirement – a transition to a healthier lifestyle?” in the American Journal of Preventive Medicine.

But do you or your partner have existing health issues that could bring forward or delay the timing of your retirement? Do you want the time and good health to climb Kilimanjaro or push your grandchildren on a swing? These are all things you should consider and plan for.

Stay socially engaged

Staying socially engaged is a pillar of ongoing wellbeing. Will stopping full-time work leave a social gap for you that you want to fill with other social activities?

A research meta-analysis published in The Milbank Quarterly, “Supporting well-being in retirement through meaningful social roles”, found that the kinds of social roles you take on matter when it comes to feeling good about yourself.

Those roles that allow intergenerational engagement; have an explicit function in a social group; involve social networking and learning; or voluntary activities that bring a sense of reward all lead to a greater sense of wellbeing.

Keeping your sense of identity after full-time work

The more strongly your identity is tied to your full-time role, the more important it is that you find alternative ways of using your talents in retirement, according to the “Mobilizing resources for well-being” study, published in The Gerontologist.

You may want to explore ways of continuing to use your professional knowledge and expertise by contributing to a not-for-profit (NFP) organisation, or by mentoring someone in your field. Can you identify a NFP or mentees now who might benefit from your experience and support after you have retired?

Intellectual stimulation in retirement

Intellectual engagement and regular exercise are a key to keeping your mind and body healthy. So after you finish full-time work, do you want to retain the same level of intellectual engagement? You might want to stretch yourself by tackling something very different. Do you want to take up playing bridge, learn a language or a musical instrument? Do a degree for pleasure? Or master the cryptic crossword?

Ask yourself, could you start now to engage in activities that stimulate your mind and perhaps your creativity?

Start planning for retirement now

Having a sense of control over your retirement is an important part of getting the most out of it, according to a US study “Extending the integrated model of retirement adjustment” in the Journal of Vocational Behavior. And it might come as a surprise, but planning for your retirement can be enjoyable and exciting.

Think about those things you identified as being energising and meaningful in your life and, ideally, build your plan around them. And be prepared to adjust that plan if you need to.

Committing the plan to writing will make it easier to monitor your progress and make any adjustments. Be clear about what you need to complete each stage and when. The closer the expected retirement date, the SMARTer* (specific, measurable, achievable, realistic and timely) the goals should be.

Think about what support, guidance or assistance you may need to help you achieve your goals. It can be helpful to talk through your plans with someone you trust.

Recognise that it will take some time to adapt to your new life stage, and that there can often be a bit of discomfort around the adjustment. Think about the people who have been most supportive to you in the past. Keep in touch with them.

Like any life change, it won’t all be smooth sailing. But planning, identifying and drawing on the resources you have used in the past to navigate change and set meaningful goals will help you manage this process.

Source: www.acquitymag.com

Article by – CATHERINE KENNEDY FCA – manager of member support at CA ANZ.

 

PAYG withholding: new penalties for non-compliance

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In 2017, a government taskforce on the black economy reported concerns that some Australian businesses are making payments to employees and contractors that are not being properly recorded. In response, the government has acted to deny deductions for payments where businesses fail to comply with the PAYG withholding and reporting rules. This new measure will complement existing administrative penalties for non-compliance with PAYG obligations.

Specifically, new laws commencing on 1 July 2019 will prevent an employer from claiming a deduction for payments to employees such as salary, wages, commissions and bonuses if the employer fails to:

  • withhold an amount from the payment as required under PAYG withholding rules; or
  • report a withholding amount to the ATO as required.

Deductions will similarly be denied for non-compliant payments to directors or religious practitioners, or payments under a labour-hire arrangement.

Under the new laws, businesses will not be allowed to deduct the non-cash payment if they do not comply with the withholding and reporting rules.

The new laws also cover non-cash payments, such as goods and services. Generally, businesses must pay a withholding amount to the ATO before making a non-cash payment (equal to the amount they would be required to withhold if the payment were money, based on the market value of the benefit). Under the new laws, businesses will not be allowed to deduct the non-cash payment if they do not comply with the withholding and reporting rules.

Special rules apply for payments to contractors. Businesses are generally required to withhold PAYG from a payment to a contractor where the contractor does not provide their ABN (known as the “no ABN withholding” rules). However, a business that fails to comply with these rules will only be denied a deduction if the payment (either cash or non-cash) relates to a contract for the supply of services; contracts for goods and real property are excluded from the operation of the new laws.

What happens if my business makes a mistake?

If you make a mistake by failing to withhold an amount (or to report it), you will not lose your deduction if you voluntarily disclose this to the ATO before it commences an audit or other compliance activity in relation to your tax affairs. However, you may still incur penalties.

If you withhold or report an incorrect amount, you will not lose your deduction (but again, you may still incur penalties). The ATO encourages businesses to correct their mistakes as soon as possible.

Ensure your business is compliant

Now is a great time to check that your PAYG withholding affairs are in order. Contact us if you have any concerns about your business’s compliance or wish to review your arrangements. Taking early action, once the new laws start in July 2019, to correct and disclose PAYG withholding mistakes will make a big difference to whether your business remains eligible for deductions. Early disclosure may also be viewed favourably by the ATO when it decides whether to impose penalties. We can assist you with the process of correcting and disclosing to the ATO any mistakes that may arise.

 

Selling an inherited property? Here are the rules

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People who want to delay the sale of a dwelling they receive as a beneficiary of a deceased estate, so they can renovate or wait for the property market to pick up, will not get much sympathy from the Australian Taxation Office when it comes to determining their capital gains tax liability.

Under income tax law, if you dispose of an interest in a dwelling that passed to you as an individual beneficiary or as the trustee of the deceased’s estate (and was the deceased’s main residence) within two years of the deceased’s death, any capital gains you make on disposal is disregarded. Capital losses are also disregarded.

The ATO can allow a longer period for disposal, after reviewing the circumstances. It has issued a draft compliance guideline (PCG 2018/D6) outlining the factors it will consider when deciding whether to exercise its discretion to allow a longer period.

Generally, the ATO will allow a longer period where the dwelling could not be sold within two years due to reasons beyond the control of the beneficiary or trustee. It says that in each case it will weigh up all the factors and circumstances.

The guideline sets out a safe harbour compliance approach. If the beneficiary’s circumstances are similar to the following conditions, they can manage their tax affairs as if the ATO had allowed a period longer than two years:

  • during the first two years after the interest in the dwelling passed to the beneficiary, more than 12 months was spent addressing matters such as a challenge to the ownership of the dwelling, a life interest delays disposal, the complexity of the deceased estate causes delays;
  • the dwelling was listed for sale as soon a practically possible after those circumstances were resolved;
  • the sale is completed (settled) within six months of the dwelling being listed for sale; and
  • the longer period for which the beneficiary would otherwise need the discretion to be exercised is no more than 12 months.

Factors that would weigh against allowing a longer period include:

  • waiting for the property market to pick up before selling the dwelling;
  • delay due to refurbishment of the house to improve the sale price;
  • inconvenience on the part of the beneficiary or trustee to organise the sale of the dwelling; or
  • unexplained periods of inactivity by the executor in attending to the administration of the estate.

The ATO has invited comment on the draft, with a due date of September 21. When finalised, the guideline is proposed to apply “both before and after its date of issue”.

Source: https://www.shedconnect.com/selling-an-inherited-property-here-are-the-tax-rules/

Playing to Win in the Gig Economy

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What is the gig economy?

The gig economy is characterised by freelance and project-based work. Its players inhabit a constantly changing workscape and juggle a pastiche of jobs.

In some circumstances, gig economy workers have very little connection with their “employers”. This is typical for the “share economy” workers of Uber, Airtasker and similar companies, where the platform owner facilitates jobs through a technological medium like a website or an app, and the workers’ pay a percentage of their earnings for access.

But many gig workers make their living through a combination of employee and freelancer jobs. Sometimes known as “slashies” (for the slashes in their multifaceted career descriptions), these people often work across multiple industries and offer a diversity of skills and experience. A slashie might be, for example, a university tutor/web designer/bartender.

If you are a solopreneur, a casual employee, a contractor or a slashie, the chances are that you are part of the gig economy.

Got a gig?

While recent changes in the labour market have brought flexibility for both employers and workers, they have also brought risk and uncertainty. For many, too, there is an increase in the amount of administration they must do for contracts, recordkeeping and their income stream, as well as greater complexity in planning a financial future.

Each employment type, task and industry has unique characteristics and implications for tax and financial planning. But regardless of the category, similar tax, superannuation and income contingency planning considerations apply. We can help you manage these.

The impact of the gig economy on the employment market and the economy as a whole is yet to be realised, as are the social effects, yet it is touted as the future of work. Many more of us are likely to find ourselves as players. So why not have an advantage? Understanding your obligations and entitlements and having a plan for stability in this dynamic market is critical for success.

Employment status

Are you an employee, a contractor, self-employed – or is your work a combination?

If you are part of the gig economy, then it is essential to establish your status for each job. Fair Work Australia provides a clear summary based on the level of control you have in carrying out the work and responsibility for statutory obligations such as taxes and benefits.

As an employee, you will have pay-as-you-go (PAYG) tax deducted from your wages, and superannuation and other benefits will be paid by your employer. Your contract will specify if you are a casual, fixed-term, or permanent employee. Employees also have the benefit of workers compensation if they are injured on the job.

For any work you undertake as a contractor, you have responsibility for managing your own obligations, including your tax, superannuation and insurance.

Tax

Determining your tax status will be more complex if you have multiple gigs.

If you are a PAYG employee but also use an Australian Business Number (ABN) to invoice for other work, you will need to lodge an annual personal tax return and may also have to lodge a regular Business Activity Statement (BAS) and pay tax installments. You will need to set aside funds out of the income from your invoiced work to make your BAS payments. These tax installments are usually required quarterly, and it’s a good idea to set aside around 35% of each income payment you receive.

To further complicate things, if you derive income from your individual skills or personal efforts – for example, if you are an entertainer, engineer or IT consultant – you’ll need to work out if you are classified as a personal services business (PSB) and/or you earn personal services income (PSI). This is significant, as there are substantial differences between the corporate and personal tax rates and the deductions claimable for the different income types. Accurately identifying your PSI/PSB status can be tricky, depending on your profession, how you are contracted and the scope of your work, especially where you have multiple contracts.

GST registration

If you earn more than the $75,000 threshold through your ABN, you need to register for Australian GST. And if you earn income as an Uber driver, you are now required to register for GST no matter how much (or little) you earn from that work. If this applies to you, talk to us about whether you can use your existing GST registration.

For everyone else who works in the platform economy – watch this space! The Federal Government is setting its sights on better ways of capturing GST on consumption, as we’ve seen with the introduction of the “Netflix tax” on digital products and services and the proposed low-value imported goods tax.

Superannuation

You’ll also need to manage your own superannuation for your gig-economy income, whether you divert money into an existing fund or set up a self-managed super fund (SMSF). An SMSF may be worth considering if you’re looking for greater portability and diversity in investments.

Insurance

PAYG employees are covered for workers compensation by their employer. If you are a contractor or run a small business you will have to take out you own insurance to cover loss of income, illness, disability and death, and possibly other insurance types if you also employ people (workers compensation), sell products or provide certain services (professional indemnity).

Deductions

Negotiating entitlements for cross-industry work and a variety of tasks can be bamboozling. We can help make sure that you’re claiming appropriately for your types of work and business.

Some common issues faced by gig economy workers include distinguishing between revenue and capital expenses, and apportioning claims where assets are for both personal and professional use. Don’t forget that if you’re undertaking project work, you might be entitled to claim for co-working space hire, software that allows for collaboration across a team, travel expenses and equipment depreciation.

As always, good recordkeeping is essential – hold onto all of your receipts!

Charging clients and low season contingency plans

If you’re a sole trader or casual employee, the level of control you have over the rates you charge will vary according to your profession and from gig to gig. Nonetheless, it is essential to build into your fee structure the amounts you need to cover your tax, superannuation, insurance, purchasing new equipment, training, any certification fees, repairs.

Balancing current work while chasing future work and keeping up with tax and other obligations can be extremely challenging. You should also plan how you’ll deal with periods when you’ll have less work and income, and think about how to fund some holiday time. Talk to us if you’d like help developing a contingency plan.

 

Dealing With An Excess Super Contributions Determination

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Just when most people thought they had finalised their income tax obligations for 2017-18, the ATO has begun issuing determinations for individuals who exceeded their concessional super contributions cap. Concessional contributions include all employer contributions, such as the 9.5% superannuation guarantee and salary sacrifice contributions, and personal contributions for which a deduction has been claimed.

A higher volume of excess concessional contributions (ECC) determinations will be issued for 2017-18, following the reduction in the concessional cap to $25,000. Taxpayers who receive an ECC determination should also expect an amended income tax assessment. This is because excess concessional contributions are automatically included in the individual’s assessable income (and a 15% tax offset will apply for the contributions tax already paid by the super fund). An ECC Charge (approx. 5%) is also payable to take account of the deferred payment of tax.

Individuals have 60 days from receiving an ECC determination to elect to release up to 85% of their excess concessional contributions from their super fund to pay their amended tax bill. Otherwise, individuals will need to fund the payment themselves.

If a person makes a valid election, the ATO will issue a release authority directly to the individual’s nominated super fund. The fund will then pay the release amount to the ATO and the taxpayer will receive a credit equal to the amount released. This credit will be used by the ATO to first pay any tax or government debts (e.g. child support) before refunding any balance to the individual.

Taxpayers below the top marginal rate should have no tax debt on the released excess concessional contributions included in their assessable income. Those on the top marginal tax rate are expected to have a slightly higher tax liability for their excess concessional contributions, due to the additional ECC Charge.

Before making an election to release excess concessional contributions, consider the following:

  • As an election is irrevocable, first ensure that the determination is correct and that the contributions have been correctly reported by the super fund to the ATO for that income year.
  • Individuals with multiple super accounts should request the ATO to release any excess contributions from the account with the largest taxable component. This may help to improve the tax outcome on any benefits paid in the future.
  • Consider whether to only elect to release enough of the excess contributions to cover the additional personal tax liability (rather than the entire 85% of excess contributions). Otherwise, a taxpayer will simply end up with less money in the concessionally-taxed superannuation environment (defeating the whole purpose of the contributions in the first place).
  • Pay the tax and ECC Charge by the assessment due date, otherwise the higher general interest charge (approx. 9%) will be applied until the debt is paid.
  • Finally, review any salary sacrifice arrangements to ensure the individual does not exceed their contributions limits in future years.

Need more guidance?

Talk to us today if you have received an ECC determination from the ATO, or suspect that you may exceed the $25,000 concessional cap for an income year. We can help to confirm that any extra tax payable has been correctly assessed by the ATO, before making an irrevocable election to withdraw the excess contributions, where appropriate. We can also help to organise your super arrangements for a more efficient tax outcome. Time limits apply so act now.

 

I’m Hiring! Getting the Most from the Gig Economy

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What is the gig economy?

The gig economy is a labour market made up of an ad hoc workforce, including freelancers, contractors, sole traders and casual employees, who are engaged in short-term or project-based work. It includes workers whose services are engaged via digital platforms such as Uber, Airtasker and a growing number of platforms that serve the corporate market, connecting workers with businesses that need temporary support.

Data on the true scale of the Australian freelance market is still based on estimates, but if we are following the United States, then our gig economy is on an upwards trend.

Australian freelance market ranking snapshot

  1. Web, mobile and software development: 44%
  2. Design and creative: 14%
  3. Customer and administrative support: 13%
  4. Sales and marketing: 10%
  5. Writing: 8%

Benefits for businesses

All organisations have much to gain from a fluid workforce, easy access to on-demand specialists, and the opportunity to bring in new perspectives and skills – but small to medium sized businesses are potentially the biggest winners. Traditional recruitment models can be time-consuming and expensive, and smaller players and start-ups may struggle to afford recruiting, training and retaining the best talent while experiencing economic uncertainty or a variable level of activity. The platform gig economy has pushed labour costs from fixed to variable, so hiring becomes more economical for many businesses. This is advantageous for you, for example, as a fledgling sole trader or small company looking to balance your workload when your business is taking off.

While we aren’t looking at employment issues specifically here, if you’re hiring via a platform it’s worth knowing that there is pressure for providers to recommend, if not enforce, minimum standard fees. And there are many moving parts involved in managing a temporary or remote workforce, despite our highly connected 24-hour world – you may need to take into account uncertainty over legal and regulatory developments, the risk of a low “care factor” from contingent workers, and the logistics of geography and time zones.

If you have a portfolio of jobs, and also hire workers, you’re probably facing extra administrative burdens. So how can you best realise the benefits of incorporating freelancers into your business? By being on top of the latest employment and tax issues, and by being open to new approaches.

Who’s in the line-up?

It’s important to understand the employment status of any additional hires you make. Are you hiring a casual employee, or a contractor? The difference significant. You can face taxation penalties for misclassifying an employee as a contractor, and there is a lot of misleading and even false information about. If you are unsure, get in touch with us to discuss your situation.

Australian employment law provides clear definitions of “employee” and “contractor” – although this could change, as it has in other countries, to keep up with the growing numbers of workers in the gig and platform economies. Broadly, you need to ask: do you control what the worker does and how they perform their job? If the answer is yes, they are likely to be an employee under Australian law.

Employees

If you hire an employee, the following obligations apply:

  • withholding taxes from the worker’s wages, and reporting and paying these amounts to the ATO;
  • paying superannuation for eligible employees; and
  • reporting if you provide your employee with fringe benefits (eg car, travel or meal expenses) as part of, or in addition to, their wages – this means you must register for and pay fringe benefits tax (FBT).
Contractors

You are not obliged to withhold tax for contractors, unless they don’t provide their Australian Business Number (ABN) to you, or you have a voluntary agreement with them to withhold tax from their payments.

You won’t have FBT obligations, but you may still have to pay superannuation for individual contractors if the contract is principally for their labour.

Gigs and GST

The Federal Government has been re-evaluating how to tax consumption through two major legislative changes, The Tax and Superannuation Laws Amendment (2016 Measures No. 1) Act 2016 – otherwise known as the “Netflix tax”, on digital goods and services – and the Treasury Laws Amendment (GST Low Value Goods) Bill 2017. The latter is still being debated (as at May 2017), but might have tax implications for you if you engage overseas workers to provide legal or architectural services.

As companies with a smaller permanent workforce will be less affected by withholding taxes, the gig economy revolution will inevitably spur further tax reforms, with the government seeking new ways of keeping the tax revenue stream flowing.

Talk to us

The gig economy comes with numerous benefits for employers, but has certainly has equal challenges. This can be daunting in the face of such rapid change. We can help. Contact us today to talk about the specifics of your business, your tax obligations and financial concerns.

Guidance on Superannuation measure for downsizer contributions

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The ATO has released a ruling and a guidance note on the measure allowing downsizer contributions to be made into superannuation funds.

The ruling discusses these contributions and how the measure interacts with other income tax and superannuation concepts including:

  • contribution caps
  • superannuation fund acceptance rules, and
  • capital gains tax (CGT).

Generally, a personal contribution that an individual makes on their own behalf is treated as a non-concessional contribution unless a deduction has been claimed for it, or it is subject to an exclusion from treatment as a non-concessional contribution. Downsizer contributions are excluded from the definition of a non-concessional contribution and if an election is made to treat a contribution as a downsizer contribution, and it is reported as such, a deduction cannot be claimed for it.

For a contribution made to a complying superannuation plan to be a downsizer contribution, the following conditions must be satisfied:

  • the individual must be aged 65 years or older at the time the contribution is made
  • the contribution must be an amount equal to all or part of the capital proceeds received from the disposal of an interest in a qualifying dwelling in Australia held by the individual or their spouse just before the disposal
  • the 10-year ownership condition
  • any capital gain or loss from the disposal of the dwelling must have qualified (or would have qualified) for the main residence CGT exemption in whole or part
  • the contribution must have been made within 90 days of disposing of the dwelling, or such longer time as allowed by the Commissioner
  • a choice is made to treat the contribution as a downsizer contribution, and the complying superannuation plan provider is notified in the approved form of this choice at or before the time the contribution is made
  • the individual has not previously made downsizer contributions, or had one made on their behalf, in relation to an earlier disposal, and
  • the maximum amount of the contributions is the lesser of either $300,000, or the proceeds from the sale of the interests in the dwelling.

Individuals are not required to purchase another dwelling following the sale of the relevant dwelling interest to be eligible to make a downsizer contribution. A contribution can only be a downsizer contribution where the contract for the disposal of the relevant dwelling interest is entered into on or after 1 July 2018.

A downsizer contribution is neither a concessional nor a non-concessional contribution and therefore is not counted towards the respective contribution caps. The total superannuation balance of the individual will not affect their eligibility to make a downsizer contribution. Note, however, that any downsizer contribution amount will still be counted towards their total superannuation balance.

ATO’s Use Of Real-Time Data For SG Compliance

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As technology improves, there’s a continual move towards real-time data for enhanced and timely administration of the tax system, particularly in the superannuation sector.

The ATO is leveraging this real-time data and event-based reporting to make inroads in ensuring employees receive their full super guarantee (SG) entitlements.

In the 2017-18 year, the ATO received 31,000 employee notifications regarding SG entitlements and contacted around 24,000 employers. It completed 19,000 SG entitlements cases which were initiated by employees and a further 13,000 SG audits and reviews based on risk modelling. Total liabilities raised by the cases were approximately $850m.

On the back of that success, the ATO has continued to undertake additional SG casework through the current year financial year using funding from the SG taskforce. Thus far, it has completed around 537 cases and raised around $22.8m in liabilities including $3m in penalties. Most of the cases completed (65%) were from either NSW or Victoria. According to the ATO, it is on track to close over 2,600 cases from 1 July 2018 to 30 June 2019, raising around $130m in liabilities.

As event-based reporting from large APRA funds improves – the ATO is currently receiving data for 55% of APRA fund members which equates to 17.47m members – ensuring employer compliance with SG obligations as well as monitoring whether super contributions caps are exceeded will become progressively easier and more timely.

Currently, event-based reporting through the ATO member account attributable service (MAAS) platform, includes information such as member’s name, address, TFN, and date of birth. Changes to such details are reported to the ATO within 5 business days of the event. The ATO has also started to receive information from a few funds through the ATO member account transactions service platform, which includes details on employer contributions, non-employer transactions, retirement-phase events and notice of intent. Any changes to these details will usually be reported to the ATO within 10 business days of the event.

What this means for you is that for the first-time, there will be event-based reporting on things such as employer contributions, employer SG, award payments, salary sacrifice, voluntary employer contributions, as well as details of the employer and the period of payments. By extension, the ATO will also know who has not received an SG payment from their employer.

This will be an enormous help for younger people that increasingly work in more transient industries and/or roles, who often don’t find out that their employer has not been contributing to their super until years later or when the company collapses. It is envisaged the complete transition to event-based reporting will be completed by mid-2019 which will better enable the ATO to protect employees and ensure super caps and other changes to superannuation are attended to in a timely manner.

Do you have an SG entitlement issue?

If you think your employer hasn’t been paying the correct amount of super guarantee, or if you just want to find out whether you’re doing the right thing by your employees, we can help you get everything in order. Contact us today.