Tax Alert March 2021

Tax Alert March 2021

Individuals and small business owners who have taken advantage of the government’s COVID-19 support programs will find themselves increasingly under the tax man’s microscope in coming months. This is just one of the key developments occurring in the world of tax at the moment.

Data matching program expanded

The Tax Commissioner has applied for additional data from Services Australia to allow the ATO to verify the eligibility of applicants for the government’s key COVID-19 support schemes.

The ATO will begin matching the data against eligibility criteria for the JobKeeper, temporary early access to superannuation, Temporary Cash Flow Boost and JobMaker Hiring Credit schemes.

Objectives of the program include “verification of applications and identify compliance issues”, identifying individuals and businesses “failing to meet their registration and/or lodgment obligations”, and ensuring all tax and super reporting obligations have been met.

Expenses shortcut extended again

Employees using the shortcut method to calculate their working from home expenses can continue using this method after the ATO extended the deadline for the scheme to 30 June 2021.

The ATO has updated its guidance to enable employees and business owners working from home between 1 March 2020 and 30 June 2021 to claim a flat 80 cents per work hour for running expenses during this period.

Clock runs down on STP exemption

The ATO has reminded small employers (with 19 or less staff) exemptions from the single touch payroll (STP) system end on 30 June 2021.

From 1 July 2021, employers who are currently exempt from reporting closely held payees will need to report them through STP. (Closely held payees include family members, directors or shareholders of the business and beneficiaries of a trust). They will, however, have the option to report the information on a quarterly basis.

Super choice expanded for employees

On 1 January 2021, the rules relating to choice of super fund changed and the ATO is warning employers they must comply.

Any new workplace determination or enterprise agreement made on or after 1 January 2021 must now offer employees the right to choose the super fund into which their employer pays their compulsory Super Guarantee (SG) contributions. This applies to both existing and new hires.

Once an employee has nominated a fund using the ATO’s Standard Choice Form, the employer must pay their SG contributions into that fund. Employers who fail to comply risk being audited and penalised by the ATO.

JobMaker Hiring Credit

Businesses considering hiring new employees aged 35 and under may be eligible for a government payment through the new JobMaker Hiring Credit scheme.

Employers will receive payments of up to $200 a week for each eligible employee aged 16 to 29, or $100 a week for an employee aged 30 to 35. Eligibility criteria include holding an ABN, being registered for PAYG withholding tax, reporting through STP, and being current with your income tax and GST lodgment obligations.

Businesses can register for JobMaker on the ATO website at any time until the program closes.

Business concessions start

Small to medium-sized businesses with an annual turnover of $10 to $50 million are eligible for several new tax concessions from 1 April 2021.

The concessions were announced and legislated late in 2020. Under the new rules, eligible businesses are exempt from 47% FBT when they provide employees with car parking or work-related portable devices (such as phones and laptops).

Eligible businesses are also able to access simplified trading stock rules and remit their PAYG instalments based on GDP adjusted notional tax. From 1 July, they will have up to two years to seek an amendment to a tax assessment.

Claiming GST credits

The ATO is reminding businesses about the rules relating to claiming GST credits for business purchases.

Although a credit is available for most business purchases, valid claims cannot be made if the supplier is not registered for GST, even if their tax invoice lists an ABN and GST amount. The ATO recommends businesses use the ABN Lookup tool to check their suppliers prior to making a claim.

If a purchase is used for both personal and business use, you need to work out the business use portion of the GST and only claim that portion.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Unleashing your creativity

Unleashing your creativity

When you think of creativity, does an easel and pot of paints spring to mind, or perhaps a musical composition or dance choreography? You don’t need to be artistic to be creative. Creativity can benefit all of us, in all aspects of our lives.

In fact some of the biggest success stories come from people who have managed to think outside the box and find a new way of doing things – people who innovate and revolutionise, such as Steve Jobs, Elon Musk, Marie Curie and Alexander Graham Bell.

How did they manage to see the world differently? For many entrepreneurs and innovators, it’s their ability to think creatively. Creative thinking not only spurs innovation, but can assist you to create efficiencies, improve problem solving and work through uncertainty. While creativity isn’t a trait that comes naturally to all of us, fortunately this trait can be developed and fostered with some simple habits.

Expand your horizons

To be able to come up with fresh ideas and consider new perspectives, often we have to remove ourselves from what is familiar. This can be as easy as holding a meeting in a new location (such as having a walking meeting in a park, instead of sitting down in the same meeting room), or perhaps a trip is on the cards – the reason work conferences are often held in different locations to the office is that this change in scenery can stir up new ideas.

If you can’t physically go anywhere different, you can still expand your inner world. Make time for reading so that you’ll be exposed to diverse perspectives. The act of reading in itself can have a relaxing effect, which can then leave you more receptive to ideas, a topic which is explored in the book Rest: Why You Get More Done When You Work Less.i

A space for creativity

You don’t necessarily need a room of one’s own to be creative. What is needed however is the space to let your thoughts be. Of course this is easier said than done in the busy world we live in, but there are still pockets of time you can utilise. Rather than reaching for your phone while waiting in a queue, let your mind wander. Try to take regular breaks away from your desk, and opt for a change of scenery when you’re taking a phone call.

It might also be possible to change your working hours to best make use of your time and energy. If you have the flexibility to do so, structure your day so that you fit in enough time to go for a walk or exercise. We don’t often equate going to the gym or participating in sport as a creative activity, yet research shows that being active can enhance creativity.ii

Follow your passions

Our hobbies bring about creativity, often without us even realising it. If you’ve spent hours building a model, tending to your garden, watching the ripples on the water while fishing or listening to bird noises during a bushwalk, you’ve likely entered a state of ‘flow’, when time passes by without your awareness.

Again this allows space for new ideas to come into your mind, which may or may not be related to what you are doing – as goes the legend of the apple falling on Isaac Newton’s head, which led to his discovery of the law of gravity.

By following your passions, you’re not only giving yourself the space to relax and focus on something other than work, but you may find it results in inspiration. If you’re struggling to come up with a solution to a problem or are finding it difficult to string a sentence together, take a break to do something you enjoy – you might find the answer will come to you this way.

Whether you already think of yourself as being creative or not, creativity is an important tool we can utilise in all aspects of our lives. By simply having fun and changing up your routine, your creativity will grow and you can harness its power.

i https://www.scientificamerican.com/article/q-a-why-a-rested-brain-is-more-creative/

ii https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1332529/

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Preserving that holiday feeling when you get back to work

Preserving that holiday feeling when you get back to work

Does the Christmas / New Year break already feel like a distant, fuzzy memory? If your chilled out holiday glow faded all too fast and you're already wishing for more, you’re not the only one.

Fortunately, there are ways to cultivate a more healthy, laid back state of mind, long after your vacation comes to an end.

New research indicates that the mental health benefits of a holiday unfortunately fade quicker than a tan. The study found that it takes us just three days to get back into our normal level of stress.i

Incorporate holiday habits

Morning sleep-ins, days spent outdoors in the sun, having long chats with family and friends, enjoying delicious food and drink, not being tethered to your phone – no wonder we feel more relaxed on holiday than we do in our day-to-day lives!

While most of us don’t have the luxury of sleeping in and turning up to work when we feel like it, you can incorporate some of your holiday habits into your regular working week. This can be as simple as taking regular breaks and scheduling in some outdoors time, whether it’s finding a park near the office, or going on a bush walk on the weekend. You might also like to opt for a screen-free day and instead pick up a book or have a board game night.

Take smaller breaks

Your leave allowance and financial situation may only permit you to take a small time away from work, but rather than just focusing on long holidays, try to also take regular breaks.

This could be weekends away or even just a day spent in a different town close to where you live, acting as a tourist and exploring the area. Just a day of adventuring will add some novelty into your schedule and allow you to unwind without needing to take an extensive period of leave or to travel far.

Rethink your workday

Rethinking your workday can improve your productivity. If you have the flexibility to do so, you may find changing your hours can have a positive effect on your productivity and motivation. For example, if you’re someone who struggles to get going before mid-morning, starting work later can have you feeling fresher and more alert.

It can also help to split your day into 90-minute windows to allow you to focus on a set number of tasks.ii Doing so can improve your efficiency and give you more free time as a result.

Reduce stress

We all know that excess stress is bad for us, but it can be near impossible to remain relaxed and care-free. Being on holiday and away from our regular lives can provide insight into what we are stressed about.

If the constant beep of notifications on your phone grates on you, having phone-free time can help. Maybe you feel under pressure at work or have an unmanageable workload – can you discuss these concerns with a colleague, boss or HR? A cause of stress can even be not having enough to do and being unsure of your purpose, in which case it could be helpful to reach out to a mentor or life coach for guidance. Whatever it may be, identifying your stressors will help you work towards reducing them.

Develop a positive mindset

Hand-in-hand with being more relaxed is having a positive mindset. Our holidays give us much to feel grateful for, such as the freedom of movement and access to beautiful locations, which we may have taken for granted pre-COVID-19.

In our everyday lives, rather than pining for that next holiday, think about what you are grateful for. This focus on gratitude and positivity makes it much easier to enjoy the day-to-day, and may lead you to adjust your priorities to reduce stress and improve your overall happiness.

We hope you all have a happy, prosperous and fulfilled year and we’re here to help if you need a hand. Enjoy your present, with a positive mindset.

i https://www.businessthink.unsw.edu.au/Pages/Rest-and-rejuvenate-why-your-summer-holiday-may-not-have-done-the-trick.aspx

ii https://lifehacker.com/why-we-should-rethink-the-eight-hour-workday-515742249

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Income protection and life insurance cover falling short: how safe is your family's future?

Income protection and life insurance cover falling short: how safe is your family's future?

Are you confident the life insurance or total and permanent Disability cover attached to your super will support your family if things go wrong? If so, it may be worth checking how well you're actually covered.

Life insurance is all about ensuring your family can maintain their lifestyle if you were to die or become seriously ill. Even people who do have some level of protection, might discover a significant shortfall if they had to depend on their current life insurance policies.

That’s because 70 per cent of Australians who have life insurance hold relatively low default levels of cover through superannuation.

Default cover may not be enough

The most common types of default life insurance cover in super are:

• Life cover (also called death cover) which pays a lump sum or income stream to your dependents if you die or have a terminal illness.

• Total and permanent disability (TPD) cover which pays you a benefit if you are disabled and unlikely to work again.

If you have basic default cover and are part of what is considered an “average” household with no children, then it’s likely you only have enough to meet about 65-70 per cent of your total needs. The figure is much lower for families with children. Indeed, a recent study by Rice Warner estimates that while current levels of insurance cover 92 per cent of death needs, they only account for a paltry 29 per cent of TPD needs.i

Such a shortfall means that you and/or your family would not be able to maintain your current lifestyle.

A fall in cover

The Rice Warner study found the amount people actually insured for death cover has fallen 17 per cent and 19 per cent for TPD in the two years from June 2018 to June 2020. This was driven by a drop in group insurance within super which has fallen 27 per cent for death cover and 29 per cent for TPD cover.

This was largely a result of the introduction of the Protecting Your Super legislation. If you are young or your super account is inactive then you may no longer have insurance cover automatically included in your super. You’ll now need to advise your fund should you require cover.

It may make sense not to have high levels of cover, or even insurance at all, when you are young with no dependents and few liabilities – no mortgage, no debt and maybe few commitments. But if you work in a high-risk occupation such as the mining or construction industries, or have dependents, then having no cover could prove costly.

Another reason for the fall in life insurance cover has been the advent of COVID-19. With many people looking for cost-cutting measures to help them through tough times, insurance is sometimes viewed as dispensable. But this could be false economy as this may be exactly the time when you need cover the most.

There is also the belief that life insurance is expensive which is certainly not the case should you ever need to make a claim.ii

An appropriate level of cover for you

It is estimated that an average 30-year-old needs $561,000 in death cover and $874,000 in TPD cover. As you and your family get older, your insurance needs diminish but they are still substantial. So a 50-year-old needs approximately $207,000 in death cover and $499,000 in TPD.

These figures are just for basic cover so may not meet your personal lifestyle. When working out an appropriate level of cover, you need to consider your mortgage, your utility bills, the children’s education, your daily living expenses, your car and your general lifestyle.

It’s also important to consider your stage of life. Clearly the impact of lost income through death or incapacity is much greater when your mortgage is still high, your children are younger, and you haven’t had time to build up savings.

While having some life insurance may be better than nothing, having sufficient cover is the only way to fully protect your family. So why not call us to find out if your current life and TPD cover is enough for you and your family to continue to enjoy your standard of living come what may?

Now more than ever, in these uncertain times, you may find that you too are significantly underinsured and need to make changes.

i https://www.ricewarner.com/new-research-shows-a-larger-underinsurance-gap/
(All figures in this article are sourced from this Rice Warner report.)

ii https://www.acuitymag.com/finance/confusion-around-life-insurance-leaves-australians-vulnerable-nobleoak

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Facing redundancy? What to do and how to make the most of it

Facing redundancy? What to do and how to make the most of it.

Hopefully it will never happen to you. But with the eonomic fallout from COVID still being felt, it pays not to take employment for granted.

Should you suddenly find yourself facing redundancy, here are a few things to consider.

If you are offered redundancy, how can you turn a potentially bad situation into a new opportunity?

In the first instance, make sure that you negotiate a good redundancy settlement. By law you are entitled to a certain amount depending on your years of service with the company.i You may or may not come under an award, but the Fair Work ombudsman has a calculator so you can work out your entitlement.

You may even be able to negotiate an increased payment (a golden handshake) in order to keep confidential any specialist knowledge that you may have.

Your redundancy payment may include long service leave, holiday pay and sick leave, so it can be a sizeable amount and that creates opportunity.

How is it taxed?

But first, how much will you end up with after tax? There is a tax-free element for redundancy payments, calculated as a base amount (currently $10,989) plus a service amount ($5,496) multiplied by the numbers of years of service. So, if you have 10 years’ service, your tax-free amount is $65,949.ii

Any redundancy payment above this amount is your Employment Termination Payment (ETP) and subject to tax. If you are below your preservation age (the age at which you can access your super) you would pay 30 per cent plus the Medicare levy on this sum or 15 per cent plus Medicare if you are older than your preservation age. In both cases this tax rate applies up to $210,000 with the balance subject to 45 per cent tax plus Medicare regardless of your age.iii

So what should you do with this money? A large sum can present many opportunities although much will depend on your present circumstances such as how close you are to retirement and what your financial commitments are.

If you are hoping to find another job, assume this could take at least six months, so make sure you have sufficient funds.

Now is the time to take stock of your household budget and look at ways to reduce your overheads to control your immediate demands. For instance, you may look at selling your second car.

But don’t rush to cancel everything. Indeed, your income protection policy, for instance, could still play an important role. Before you act, ask your insurer if they would consider waiving the premiums for a few months. Just because you have lost your job, does not mean you will not be covered if something should preclude you from working in another job. You may well find you are still covered even if you are not currently employed.

Look to the future

Depending on your circumstances, you could consider using some of your redundancy payout to improve your overall financial situation. You could reduce your mortgage and other debts, or perhaps to make an investment or fund a business opportunity.

If you are approaching retirement age, then you might consider putting some of your redundancy pay into super. While this may still be a good idea if you are younger, remember you could be unemployed for longer than six months and you wouldn’t want your money locked in super until you reach preservation age.

If you are still expecting to have a few more years in the workforce, then take the time to seek professional help on your next move and think outside the square. So, rather than just find a similar position to the one you have lost in the same industry, look at widening your horizons. A professional career advisor can help. In many cases, employers provide such assistance as part of a redundancy package.

While redundancy can be confronting, if you think of it as a catalyst for change then you may find it’s one of the best things that has happened to you.

Call us to discuss how to make the most of your redundancy payment.

i https://www.fairwork.gov.au/ending-employment/redundancy/redundancy-pay-and-entitlements

ii https://www.ato.gov.au/business/your-workers/in-detail/taxation-of-termination-payments/?page=4

iii https://www.etax.com.au/employment-termination-payment/

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Would I be better off with an SMSF?

Would I be better off with an SMSF?

Self Managed Super Funds (SMSFs for short) can save you a ton of money — or cost too much — depending on your circumstances. Part of their attraction is the extra flexibility they offer in investing your super - e.g. in real estate.

This quick and easy guide explains exactly who they're best suited for. If you've ever wondered, it will help you decide whether it might be worth your while exploring the possibilities of Self Managing your own Super.

As well as control, investment choice is a key reason for having an SMSF. As an example, these are the only type of super fund that allow you to invest in direct property, including your small business premises.

Other reasons people give are dissatisfaction with their existing fund, more flexibility to manage tax and greater flexibility in estate planning.

What type of person has an SMSF?

If you think SMSFs are only for wealthy older folk, think again.

The average age of people establishing an SMSF is currently between 35 and 44. They’re also dedicated. The majority of SMSF trustees say they spend 1 to 5 hours a month monitoring their fund.i,ii

But an SMSF is not for everyone. There has been ongoing debate about how much you need in your fund to make it cost-effective and whether the returns are competitive with mainstream super funds.

So is an SMSF right for you? Here are some things to consider.

The cost of control

Running an SMSF comes with the responsibility to comply with superannuation regulations, which costs time and money.

There are set-up costs and ongoing administration and investment costs. These vary enormously depending on whether you do a lot of the administration and investment yourself or outsource to professionals.

A recent survey by Rice Warner of more than 100,000 SMSFs found that annual compliance costs ranged from $1,189 to $2,738. These are underlying costs that can’t be avoided, such as the annual ASIC fee, ATO supervisory levy, audit fee, financial statement and tax return.iii

If trustees decide they don’t want any involvement in the administration of their fund, the cost of full administration ranges from $1,514 to $3,359.

There is an even wider range of ongoing investment fees, depending on the type of investments you hold. Fees tend to be highest for funds with investment property because of the higher management, accounting and auditing costs.

By comparison, the same report estimated annual fees for industry funds range from $445 to $6,861 for one member and $505 to $7,055 for two members. Fees for retail funds were similar. Fees for SMSFs are the same whether the fund has one or two members.

Size matters

As a general principle, the higher your SMSF account balance, the more cost-effective it is to run.

According to the Rice Warner survey:

• Funds with $200,000 or more in assets are cost-competitive with both industry and retail super funds, even if they fully outsource their administration.

• Funds with a balance of $100,000 to $200,000 may be competitive if they use one of the cheaper service providers or do some of the administration themselves.

• Funds with $500,000 or more are generally the cheapest alternative.
Returns also tend to be better for funds with more than $500,000 in assets.

Even though SMSFs with a balance of under $100,000 are more expensive than industry or retail funds, they may be appropriate if you expect your balance to grow to a competitive size fairly soon.

Increased responsibility

While SMSFs offer more control, that doesn’t mean you can do as you like. Every member of your fund has legal responsibility for ensuring it complies with all the relevant rules and regulations, even if you outsource some functions.

SMSFs are regulated by the ATO which monitors the sector with an eagle eye and hands out penalties for rule breakers. And there are lots of rules.

The most important rule is the sole purpose test, which dictates that you must run your fund with the sole purpose of providing retirement benefits for members. Fund assets must be kept separate from your personal assets and you can’t just dip into your retirement savings early when you’re short of cash.

Don’t overlook insurance

If you considering rolling the balance of an existing super fund into an SMSF, it could mean losing your life insurance cover. To ensure you are not left with inadequate insurance you may need to arrange new policies.

If you would like to discuss your superannuation options and whether an SMSF may be suitable for you, don’t hesitate to call.

i https://www.smsfassociation.com/media-release/survey-sheds-new-insights-on-why-individuals-set-up-smsfs?at_context=50383

ii https://www.smsfassociation.com/media-release/survey-sheds-new-insights-on-why-individuals-set-up-smsfs?at_context=50383

iii https://www.ricewarner.com/wp-content/uploads/2020/11/Cost-of-Operating-SMSFs-2020_23.11.20.pdf

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Are you really a contractor or employee?

Are you really a contractor or employee?

"Having an ABN, agreeing to work on a contract basis and issuing invoices do not guarantee the ATO will see you as a contractor.

Employment and contract relationships have very different tax implications. This short guide will help clarify where you really stand."

For employers, you also need to recognise the potential for the ATO to impose significant penalties for failing to meet your obligations for tax and super payments if you incorrectly categorise an employee as a contractor.

Contractor or employee?

Deciding if you are a contractor or an employee can be complex, but a key distinction is that an employee works in the business while an independent contractor runs his or her own business.

Contractors are self-employed and engaged to undertake a specific task at an agreed price, usually over a set period. They can choose their own hours and must pay for their own insurance, sick leave, holidays and super contributions.

Although COVID-19 has seen many employees working from home and claiming tax deductions for their home office running expenses, they remain an employee.

On the other hand, if you’ve been made redundant and have begun offering services to a range of businesses from your home office, you are likely to be a contractor.

How to tell an employee from a contractor

The table below outlines six factors that, taken together, determine whether a worker is an employee or contractor for tax and super purposes.

 

Employee

Contractor

The worker can’t delegate the work or pay someone else to do it.The worker can delegate the work or pay someone else to do the work.
The worker is paid for the time worked, at a price per item or activity, or via commission.The worker is paid for a result based on a quote, calculated using hourly rates or price per item to work out the total cost of the work.
The business provides all or most of the equipment, tools and other assets required to complete the work; or the worker provides them but the business provides an allowance or reimburses the cost.The worker provides all or most of the equipment, tools and other assets required to complete the work and doesn’t receive an allowance or reimbursement for this.
The worker takes no commercial risks; the business is legally responsible for the work and liable for the cost of rectifying any defects.The worker takes commercial risks, is legally responsible for their work and liable for the cost of rectifying any defects.
The business has the right to direct the way in which the worker does the work.The worker has freedom in the way the work is done, subject to the specific terms in any contract or agreement.
The worker is not operating independently of the business and is considered part of the business.The worker operates their business independently, performs services as specified in the agreement and is free to accept or refuse additional work.

Source: ATO website

Recognising a contracting arrangement

Even if you hold an Australian Business Number (ABN) or a registered business name, you are not automatically a contractor. Being paid after submitting an invoice makes no difference either.

The length of a project or how regular the work is are also immaterial to your employment status. Both employees and contractors can be used for casual, temporary, on-call or infrequent work.

Both employers and contractors can check whether a proposed work arrangement is legally deemed to be employment or a contract using the ATO’s Employee or contractor decision tool.

Avoiding tax and super responsibilities

Under current legislation it’s illegal to make misleading statements to an employee to try to persuade them to take on a contract arrangement. You are also not permitted to dismiss or threaten to dismiss an employee so you can re-hire them as a contractor.

Arranging for an employee to sign a formal document stating they are a contractor will not override the true employment relationship – or your tax and super obligations for them.

If you would like help understanding and complying with your tax and super obligations as either a contractor or employer, contact us today.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Saving tax and interest to boost super

Boosting Your Super Balance by Saving Tax and Interest

Saving tax and interest to boost super

Boosting Your Super Balance by Saving Tax and Interest

Read how a couple close to retirement age was able to add an extra $225K to their Super fund over five years – without having to economise, or make any cutbacks whatsoever. In fact, they were able to spend $1K more per year while growing their wealth.

Sound incredible? We assure you it’s possible with the right kind of financial planning.

Overview

Joanne and Simon, both aged 62, were a married couple nearing retirement when they came to House of Wealth for financial planning assistance. They were looking forward to leisure and freedom in their retirement, but were worried their Super balance wasn’t enough to retire.

House of Wealth helped Joanne and Simon achieve their goals with these services:

  • Restructuring finances
  • Tax planning
  • Income improvement
  • Centrelink advice
  • Retirement planning
  • Investment advice

They were planning to retire in five years, at the age of 67. They had a combined Super balance of $555K. They also had a commercial investment property worth $465K, netting an annual rental income of $4K, with a mortgage of $230K.

Simon’s taxable income was $73K a year, and his tax payable was $16K. Joanne’s taxable income was $42K a year, and her tax payable was $5K.

Joanne and Simon’s Financial Goals

When they engaged House of Wealth as their financial planner, the couple’s financial goals were to:

  • Review their current investment strategies.
  • Minimize income tax payable on their current income.
  • Ensure they would be able to draw down $50K of annual tax-free income after retirement.
  • Be able to Access some Centrelink benefits, especially the Senior Concession Health Card

What the House of Wealth Financial Planner Advised

After talking to Joanne and Simon and making a full assessment of their finances, House of Wealth advised the couple to establish a Self-Managed Super Fund (SMSF) for more flexible management of their Super. We had the couple combine their Super balances into one SMSF for easier management and lower fees.

We also advised them to:

  • Transfer the investment property into the Self Managed Super Fund. This would enable them to save 19.5% of income tax on rental income. With the rental income going directly into the Self Managed Super Fund, it would become tax-free.
  • Draw down a lump sum from their Super to pay off the mortgage on the investment property. This move would save approximately $15.5K in future interest payments.
  • Add an extra $10K per year to the Super fund in Simon’s name. This way, Simon could reduce income tax.
  • Adjust their investment portfolio considering that they would retire in five years.

The Results

Joanne and Simon were able to save $15K in tax, interest, and management expenses each year during the five years left until their retirement.

Despite the extra Super contribution, the couple was pleasantly surprised to discover they had $1000 more in cash to spend each year. This enabled them to enjoy some extra luxuries while knowing their savings were growing.

Each year, Joanne and Simon’s Super balance increased by an extra $45K – on top of their previous Super contributions.

When they retired at the age of 67, the couple’s combined Super balance amounted to over $1M, and they were easily able to generate an annual tax-free income of $50K.

Today, Joanne and Simon are a happily retired couple. They enjoy good health and financial freedom as they live out their dreams.

Wondering if there’s a way you can reduce tax or interest payments and have more money to put into your Super fund? To learn more about your options, book a Free Financial Health Check with House of Wealth today. Click here to pick a time and date.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Tax Breaks for Retraining Staff in 2021

Tax Breaks for Retraining Staff in 2021

For many business owners, fear of incurring a Fringe Benefits Tax (FBT) bill has kept them from retraining and re-skilling their employees to perform different roles or activities within the business.

But a new exemption announced by the government as part of last year’s Federal Budget is changing all that.

If COVID-19 has meant you need to transform your business and the responsibilities of some of your employees, now could be a great time to consider reskilling your existing staff.

Training and the FBT burden

Traditionally, if you provide training to your employees that is not sufficiently connected to their current role, you could find yourself facing a hefty FBT bill at the end of the year.

Say you have someone currently performing an administrative role, but you decide you want to redeploy them into a sales position; to give them every chance of success they will need to be trained in sales techniques.

As these skills are not required in their current role, the ATO would normally deem this type of training to be a fringe benefit you provided to your employees. This means you will have to pay FBT at the 47 per cent tax rate on the total cost of their training.

Not surprisingly, this has been a major disincentive for most employers to retraining or upskilling their workforce into new roles.

Budget announcement

All this changed in the October 2020 Budget, when the government announced it was exempting employer-provided retraining activities from FBT to encourage employers to re-skill their existing staff for new roles within the business. Or even outside the business if the pandemic meant they were to be made redundant.

With the impact of COVID-19 forcing many small businesses to continue reshaping their business to cope with a rapidly changing market, FBT-free training could be a valuable way to retain your staff within the organisation, or to help them transition to new opportunities outside.

The government believes the new incentive will encourage more Australian business owners to retrain and redeploy their existing workers into new roles within their company.

Limits on the exemption

As always, the devil is in the detail.

The new FBT exemption does not extend to retraining acquired by way of a salary packaging arrangement, or training provided through Commonwealth supported places at universities, as this already receives a benefit.

It also does not cover repayments towards Commonwealth student loans.

Where the new exemption does apply, it can be claimed for training costs incurred from 2 October 2020.

This is how it works.

Case study

Jane owns two small specialist record and DVD stores in Melbourne. Due to the pandemic and subsequent lock-down, she decided to close her physical stores and make her three sales assistants redundant.

Despite this, Jane is keen to help her employees find new employment and offers them $2,000 each in retraining assistance. During the pandemic Jane’s online sales grew substantially and she now needs three new staff for web design roles.

She has decided to take advantage of her existing employees’ specialist knowledge of her business and is providing them with training in web design so they can take up these new roles.

Previously, if it cost $2,000 each to retrain her three employees, she would have been liable for 47 per cent FBT on the $6,000 cost to her for the training. With the new exemption, she will be able to retrain her staff without incurring any FBT liability.

Personal training deductibility proposal

As part of its statement on the FBT exemption, the government also announced it was planning to consult on a potential reform for individuals who undertake training at their own expense.

The government is considering allowing individuals undertaking training that relates to their future employment to deduct the cost from their income.

This would represent a major change, as the current tax rules limit deductions for personal training to training related to your current employment – not future employment.

Consultation on this reform is yet to be carried out but, if implemented it will provide a great opportunity for employees at all levels to undertake tax-deductible training.

If you have any questions about fringe benefit tax liabilities when retraining your staff or more broadly in your business, please don’t hesitate to give us a call.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Soaring to success in 2021

Soaring to success in 2021

The start of a new year is a great time to reassess where you are in life, your career or business - decide what you want to achieve and put some strategies in place to work towards achieving even your most ambitious goals.

The start of this new year is a little unusual as for many of us, 2020 was a challenging year. The hopes and dreams we had for 2020 may not, in many cases, have come to fruition as planned, whether they were related to your business, your career or personal in nature, were put on the back burner. So let’s look at how to ensure that 2021 is the year to get things back on track and achieve what you are aiming for.

Let’s start with the fundamentals, it’s impossible to get to where you are going, if you don’t know the destination and challenging to make the journey without a road map of how to get there.

Identify your goals

This involves some soul searching. What do you want for yourself personally and professionally? What are your priorities? Do you want to climb the corporate ladder and set your sights on that senior management position, or spend more time with loved ones? Have you got an idea for a new business or are you wanting to take your existing business to the next level?

Make sure you are specific about what you want and don’t be afraid to aim high. Studies show that specific and challenging goals lead to higher performance than “do your best” type of goals.i

Once you’ve identified your goals - jot them down. People who write down their goals, have been found to be 33 percent more successful in achieving them.ii There is something very powerful about the written word.

An incremental approach

Once you’ve got an idea of what you want, it’s time to devise some strategies to achieve them. It’s important to dream big but sometimes big dreams can seem intimidating. The way to make a big task less intimidating is to break it into smaller tasks and approach it incrementally. What do you need to do to set yourself up for that management role? Do you need to go back to study? Start taking on more responsibilities at work?

Set up your plan with things you need to do which will act like a series of stepping stones leading to your destination.

Allocate time and resources

The next part of your strategy is to think about what you need to have in place to support each incremental step in your plan. Do you need to set aside time on a daily basis, each week or every month? Do you need financial support or a loan? How will you access that support?

You don’t have to go it alone - think about whether you can get some external assistance in the form of a mentor or just someone you can use as a sounding board. If you are running a business there may be government support packages you can access or external consultants you can engage to help you on your way.

Staying the course

It takes discipline to stay on target when there are so many distractions along the way. Make sure that your strategy has some review points at particular times or when you have completed the tasks you have set yourself so that you can celebrate your wins and recalibrate the plan if necessary.

If 2020 showed us anything, it was that the best laid plans can and will change and be subject to circumstances beyond our control, so it’s important to have some contingencies in place. Even more importantly, be agile in your approach so that you can adjust and refine the plan as needed.

Having a strategy and a methodology to implement your strategy will give you the best chance of reaching your goals in 2021 and beyond. Add in a dash of determination and self-belief and you’ll be flying high on your way to the success you’ve dreamed of.

i https://psycnet.apa.org/record/1981-27276-001

ii https://scholar.dominican.edu/cgi/viewcontent.cgi?article=1265&context=news-releases

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.