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How to select a default fund for your business

Business owners might be required to select a default fund for employees when they do not want to nominate their own superannuation funds. Funds should meet specific requirements that are stated as per super law, so it is important to select a complying fund. However, there are other factors that you may have to think about before selecting a default fund to make sure that you and your employees get the most out of it.

Pricing
Naturally, one of the main considerations while selecting a super fund should be pricing. Funds that have a lower fee may not cover extras, and this requires careful analysis to see what extras have been left out. Coverage for extras like being able to track down missing super is a key feature that employees will prefer your default fund has.

Employee preferences
Employees are likely to prefer funds that allow flexibility with their investment options and have essential features like insurance policies covering death, total and permanent disability (TPD), and income protection. You may want to consider options that give your employees a comprehensive cover while keeping an eye out for any exclusions that might affect you.

Industry fund
Checking industry funds may help reveal awards that are particularly applicable to employees from your industry. It is a requirement that your default fund is a MySuper product. All listings under Industry SuperFunds are MySuper products, so this can simplify the process of finding an affordable super fund for your employees.

Fund management
Finally, consider taking a closer look at the fund’s insurance offerings. Past performance of the fund doesn’t guarantee high returns in the future. But it is important to be aware of the returns on the fund’s investments to compare how their options have performed against their return objectives. This can increase the chances that the selected super fund will be beneficial to you and your employees.

Posted on 7 August '20 by , under super. No Comments.

Applying for small business income tax concessions

Businesses looking to save on tax for the financial year may consider applying for income tax concessions.

Businesses classified as a small business entity are eligible for income tax concessions. Since 1 July 2016, businesses are considered small business entities in the case that they:

  • are a sole trader, partnership or trust,
  • operate as a business for all or part of the income year, and
  • have an aggregated turnover of less than $10 million.

In the event that you meet the above requirements as a small business entity, here are the income tax concessions available to you.

Small business structure rollover
Small business entities can change the legal structure of their business and transfer active assets from one entity to another without incurring any income tax liability. Assets such as capital gains tax assets, trading stock, revenue assets and depreciating assets are eligible in this rollover. The rollover is also only available in the case that it is part of a genuine restructure and there is no change to ultimate economic ownership.

Simplified trading stock rules
Under the simplified trading stock rules concession, you can estimate the value of your trading stock at the end of the financial year when reporting in your tax return. However, small businesses will also need to show how they calculated their estimated trading stock value. Businesses which choose not to use an estimate will need to account for value changes in their stock and conduct a stocktake. Stocktakes do not need to be conducted if there is a difference of $5,000 or less between the value of your stock at the start of the income year.

Immediate deductions for prepaid expenses
Payments which cover a period of 12 months or less that are ending in the next income year are eligible for immediate deductions. Prepaid expenditure is also immediately deductible when the period ends no later than the last day of the income year following the year in which the expenditure was incurred.

Two-year amendment period
Small businesses receiving a notice of assessment from the ATO have a two-year time limit for reviewing an assessment.

Posted on 7 August '20 by , under tax. No Comments.

How to avoid SMSF disputes

Self-managed super funds (SMSF) can be vulnerable to disputes, especially when family members are involved.

SMSF disputes may be caused by a number of reasons such as relationship breakdowns, (common in funds where parents and siblings are in a member and trustee relationship) and fundamental differences in opinions. Other common triggers for SMSF disputes include:

  • investment strategy disagreements,
  • differences in opinions over the payment of benefits, especially in SMSFs involving both parents and their children,
  • payment of death benefit disputes, and
  • disagreements on the distribution of SMSF death benefit payments between surviving members.

Consider the following methods to avoid SMSF disputes.

Clear decision-making procedures
Disagreements are bound to occur when it comes to money, so it is important to include concise decision-making provisions to keep things fair for all parties involved. For example, trustee decisions can be made by a simple majority rather than unanimously, and a particular trustee may be provided a casting vote in the case that a deadlock occurs. Provisions could also include voting rights that are based on the value of a member’s account balance within the SMSF to avoid situations where a member with minority interest out-votes a member with a large fund account balance.

Updating your SMSF regularly
An SMSF trust deed will provide provisions which determine the trustees’ rights, obligations and options. It is important to keep your SMSF and trustee information up to date to prevent any unwanted beneficiaries and claims. For example, in the case of an unfinalized divorce or legally unchanged relationship status, a former spouse can claim the others’ superannuation death benefits. To prevent such situations and avoid their inevitable disputes, be sure to update your super fund regularly.

Posted on 30 July '20 by , under super. No Comments.

What types of income do you need to include in your business’ tax return?

Due to changing economic circumstances, businesses may be receiving income from sources they have never received from, and may be unaware of their tax implications. In the event that they are listed below, you will need to include them in your business’ tax return.

Government payments
Due to COVID-19, many government grants and payments have been made to businesses this year. Businesses receiving the following grants will need to report them as part of their assessable income in this year’s tax return:

  • JobKeeper payments,
  • Supporting Apprentices and Trainees wage subsidy,
  • Grants under the Australian Apprenticeships Incentives Program,
  • Subsidies for carrying on a business.

Keep in mind that COVID-19 cash-flow boost payments are non-assessable and non-exempt income, meaning they do not have to be included as part of your assessable income.

Crowdfunding income
Crowdfunding refers to the usage of the internet or social media platforms, mail-order subscriptions, benefit events or other methods to find supporters and raise funds for your business’ projects and ventures. Profits made through crowdfunding are considered part of your business’ assessable income in the case that you have:

  • used crowdfunding in the course of your employment,
  • entered into a transaction with the intention of making a profit
  • received money or property in the ordinary course of your business.

Income from online activities
The current pandemic may have also forced you to move your business operations online for the first time. The ATO provides a clear distinction between online selling as a business or hobby. In the event that you meet the following circumstances while selling online, you will need to report your earnings as part of business’ assessable income:

  • Your main intention is to make a profit,
  • You sell items online on a regular basis,
  • The items or services you are selling are commonly available in a physical store, and
  • You pay for your online-selling presence.

Other basic income streams such as cash income, investment earnings and capital gains and losses also need to be reported in tax returns as usual.

Posted on 30 July '20 by , under tax. No Comments.

What circumstances permit early access to your super?

Early access to your superannuation is permitted under a few limited circumstances outlined by the ATO. In the case that you are experiencing financial struggle and would like to withdraw from your super, be aware of the particular circumstances that will allow you to do so.

Compassionate grounds:

Withdrawing super on compassionate grounds is permitted in the event that you need money to pay for:

  • medical treatment and medical transport for you or your dependant,
  • palliative care for your or your dependant,
  • making a payment on a home loan or council rates so that you don’t lose your home,
  • accommodating a disability for you or your dependant, or
  • expenses associated with the death, funeral or burial of your dependant.

Severe financial hardship:

You can also be permitted access to your superannuation due to severe financial hardship. However, when requesting withdrawals under severe financial hardship, individuals need to contact their super provider for access rather than the ATO.

Both of the following conditions must be met for you to be eligible to withdraw some of your super:

  • you have received eligible government income support payments continuously for 26 weeks, and
  • you are unable to meet reasonable and immediate family living expenses.

Superannuation that is withdrawn due to severe financial hardship is taxed as a super lump sum. You can withdraw up to $10,000 from your superannuation (minimum of $1,000) and in the case that you have less than $1,000 in your super funds, you can withdraw up to your remaining balance after tax.

Terminal medical condition:

You may be eligible to request access to your super (approval by your super fund) in the event that you have a terminal medical condition and all the below conditions are met:

  • two registered medical practitioners have certified that you suffer from an illness or injury that is likely to result in death within 24 months of the date of signing the certificate,
  • at least one of the two registered medical practitioners is a specialist in the area related to your illness or injury, and
  • the 24-month certification period has not ended.

Temporary incapacity:

Those who are temporarily unable to work as a result of physical or mental medical conditions may be eligible for early access to superannuation. Access is dependent on the insurance benefits linked to your super account. Any withdrawals you receive are taxed (with regular rates) as a super income stream.

Permanent incapacity:

Permanent incapacity, also known as disability super benefit, allows for early access to super in the case that a permanent physical or mental condition is likely to stop you from ever working again, in a job you were previously qualified for.

Individuals can choose to receive permanent incapacity super withdrawals as regular payments (income stream) or as a lump sum. Unlike temporary incapacity, permanent incapacity super withdrawals are subject to different tax components, based on:

  • the tax-free component of your super funds,
  • the taxable component your super provider has paid tax on (tax element), and
  • the taxable component your super provider has not paid tax on (untaxed element).

To receive concessional tax treatment, your permanent incapacity must be certified by least two medical practitioners.

Keep in mind that the ATO has also announced a new set of rules for the early release of superannuation due to COVID-19. Individuals who have been adversely affected by the pandemic may be eligible to access some of their superannuation early.

Posted on 23 July '20 by , under super. No Comments.

Common tax mistakes that businesses make

Meeting tax obligations as a business owner can be stressful and potentially expensive if done wrong. Certain mistakes warrant severe action, so you can expect the ATO to take a closer look at them if you’ve failed to identify these errors before lodging tax returns for your business. Most mistakes made with regards to tax filing often revolve around poor administrative knowledge of tax laws. Ensure that you are aware of potential mistakes you could be making that might cost you your business.

Inconsistent declarations

The ATO gathers data from numerous businesses across a particular industry to create a benchmark showing a band of percentages within which businesses in that industry should typically fall under. Businesses that fall outside this band can expect delays and a closer look from the ATO inspecting reasons for inconsistencies within your business’ declarations. However, these can also be sources of mistakes from the ATO’s part as some inconsistencies can be very real – such as demographics or personal situations – that can cause variations in data. Ensure that you are declaring all your sales, and that any inconsistency can be justified to the ATO.

Poor bookkeeping

A majority of tax mistakes committed by small businesses revolve around poor bookkeeping. Businesses are required to maintain all financial transactions made – but forgetting to put the purchase through the register or taking money out of the register for personal use without replacement of the difference can show varying cash register tapes that can be problematic when filing your tax returns. You may be missing out on valuable tax credit claims by not keeping proper records of your financial transactions.

Employee payments

Businesses may assume that superannuation payments need not be made if they are employing subcontractors. This can be an expensive mistake, as if the worker has standard hours and is expected to work consistently for your business under your direction, they need to be treated as employees. Businesses may leave superannuation guarantee payments until the end when cash flow becomes restricted – but avoid late lodgements to prevent penalties from the ATO.

Posted on 23 July '20 by , under tax. No Comments.

Common tax mistakes that businesses make

Meeting tax obligations as a business owner can be stressful and potentially expensive if done wrong. Certain mistakes warrant severe action, so you can expect the ATO to take a closer look at them if you’ve failed to identify these errors before lodging tax returns for your business. Most mistakes made with regards to tax filing often revolve around poor administrative knowledge of tax laws. Ensure that you are aware of potential mistakes you could be making that might cost you your business.

Inconsistent declarations

The ATO gathers data from numerous businesses across a particular industry to create a benchmark showing a band of percentages within which businesses in that industry should typically fall under. Businesses that fall outside this band can expect delays and a closer look from the ATO inspecting reasons for inconsistencies within your business’ declarations. However, these can also be sources of mistakes from the ATO’s part as some inconsistencies can be very real – such as demographics or personal situations – that can cause variations in data. Ensure that you are declaring all your sales, and that any inconsistency can be justified to the ATO.

Poor bookkeeping

A majority of tax mistakes committed by small businesses revolve around poor bookkeeping. Businesses are required to maintain all financial transactions made – but forgetting to put the purchase through the register or taking money out of the register for personal use without replacement of the difference can show varying cash register tapes that can be problematic when filing your tax returns. You may be missing out on valuable tax credit claims by not keeping proper records of your financial transactions.

Employee payments

Businesses may assume that superannuation payments need not be made if they are employing subcontractors. This can be an expensive mistake, as if the worker has standard hours and is expected to work consistently for your business under your direction, they need to be treated as employees. Businesses may leave superannuation guarantee payments until the end when cash flow becomes restricted – but avoid late lodgements to prevent penalties from the ATO.

Posted on 23 July '20 by , under tax. No Comments.

Tax-deductible super contributions

Individuals may be able to claim tax deductions for personal superannuation contributions they make. Personal super contributions are made after-tax, not to be confused with the pre-tax contributions made by employers. This includes contributions made using inheritance money, savings, proceeds from the sale of assets, or from a bank account directly into a super fund. To be eligible, individuals must receive their income from:

  • salary and wages,
  • super,
  • personal businesses,
  • investments,
  • government pensions or allowances,
  • partnership or trust distributions,
  • a foreign source.

A valid notice of intent to claim or vary a deduction must be provided to and acknowledged by your super fund before being able to claim a deduction for personal super contributions.

A valid notice may be:

  • A Notice of intent to claim or vary a deduction for personal contributions form (NAT71121).
  • A form that your super fund provides.
  • A written statement to your fund explaining your wish to claim a deduction for your personal super contributions.

Deductions claimed for a super contribution will result in the contribution being subject to 15% tax in the fund. As well as this, after-tax contributions that have been successfully claimed will not be eligible for a super co-contribution from the government.

Individuals who are eligible to contribute to super will be able to claim a deduction, however, some age restrictions may apply. Those aged 65 or over must meet a work test before voluntary super contributions can be made, while those under 18 years of age may only be able to claim a deduction if they have earned income as an employee or business operator during the year.

Individuals claiming deductions for their personal contributions should also keep in mind that their contributions will count towards their concessional contributions cap of $25,000 a year. Penalties may apply if this amount is exceeded.

Posted on 16 July '20 by , under super. No Comments.

Amending fringe benefits tax return and updated exemptions

The Government has updated fringe benefits tax (FBT) exemptions to include travel in ride-sourcing vehicles under the existing taxi travel exemption. In the case that your business has been providing employees with such travel options and would like to amend your FBT returns to include the new exemption, the ATO has also updated 2020 FBT return amendment instructions.

New FBT exemption
Ride-sourcing vehicles are now included in the FBT taxi travel exemption. Business owners will be eligible for the exemption for travel provided to their employees in a single trip to or from the workplace:

  • On or after 1 April 2020, and
  • In a licenced taxi or other vehicle involving the transport of passengers for a fare, such as a ride-sourcing vehicle (excluding limousines).

Ride-sourcing FBT exemptions also apply to travel in relation to the sickness or injury of an employee.

Amending your FBT return
In the event that you have already lodged your FBT return but are eligible to be exempt from FBT due to the addition of ride-sourcing vehicles, there are a number of ways you can amend your FBT return.

An amendment to your FBT return can only be made if it is requested within three years from the date the FBT return was lodged. In the case that tax has been avoided, the amendment can be made within six years of lodgement. You can amend your FBT return by:

  • lodging electronically using Standard Business Reporting enabled software,
  • requesting an amendment assessment in writing through the ATO’s Business Portal or by post, or
  • working with a tax accountant to submit your request.

Posted on 16 July '20 by , under tax. No Comments.

Tax on super death benefits for dependants vs non-dependants

A super death benefit is the super paid after a person’s death, usually to a nominated beneficiary. These benefits are subject to different tax treatments, depending on whether the beneficiaries are dependant or non-dependant.

Superannuation death benefits will generally be received tax-free by tax dependants, who are considered to be:

  • A child of the deceased who is under 18 years of age,
  • A spouse or former spouse of the deceased,
  • A person who has an interdependency relationship with the deceased (e.g. if they live together or have a close personal relationship),
  • A financial dependant of the deceased.

Dependants will not have to pay tax on the tax-free component of their super in the event that they:

  • Withdraw it as a lump sum, or
  • Receive an account based income stream.

However, they will be taxed at their marginal rate if they receive a capped benefit income stream and:

  • The deceased was at least 60 years of age at the time of death
  • The dependent is over 60 years of age and the total of their tax-free component and taxed element exceeds their defined benefit income cap.

Not all super death benefits are subject to tax; for non-dependants, there is a taxable portion. This component is largely made up of after-tax super contributions that the deceased member has made.

Super death benefit payments are subject to tax when:

  • The payment is made as a result of the SMSF member passing away,
  • The payment is provided to a non-dependent for tax purposes,
  • The payment has a taxable component.

Non-dependants must calculate how much money in the super account is a:

  • Tax-free component,
  • Taxable component the super provider has paid tax on (taxed element),
  • Taxable component the super provider has not paid tax on (untaxed element).

The amount of tax non-dependants pay will be based on their marginal tax rate, however, this amount may be reduced by tax offsets. For the taxed element of the taxable component, the effective tax rate is your marginal tax rate of 17% (whichever is lower). For the untaxed element of the taxable component, the effective tax rate is 32% or your marginal tax rate (whichever is lower).

Posted on 9 July '20 by , under super. No Comments.