In life, many of us are totally at ease and comfortable talking to our family and friends about many topics. However, for whatever reason, there are certain subjects that we’re either reluctant or feel uneasy to discuss openly – typically they are love and relationships, politics, religion and money … call them the “taboo topics”.
Add another taboo topic to the list. That is the topic of ageing. As we age and reach our elderly years, asking for some help to do things to make life easier can be really hard to bring up in conversation.
When families get together, there are things we just notice but we’re reluctant to say anything. We notice that Dad might be starting to forget things or Mum is having difficulty getting out of her chair and seems a bit uneasy on her feet. Any attempt to say something is usually met either in silence or the words “I’m okay, just getting older” are uttered.
And for many families that’s where things are left.
Then there’s a crisis…
Families are then drawn together when there’s been a crisis such as a fall or a hospital admission. Then discussions and decisions are usually being made under high stress and emotion in hospital hallways and carparks. This is not an optimal starting point.
Making decisions and what’s the trade-off…
Like other life decisions, when it comes to ageing decisions, some are relatively simple to make with minimal consequences, whilst others can be very difficult. When making decisions, there are usually “trade-offs” to be considered.
The impact of these trade-offs usually increases as the importance of the decision increases. Therefore, to make the best possible decision, it’s important to consider as many options as humanly possible.
So what needs to be thought about…
When it comes to ageing and getting some help there are usually many options to consider and everyone is different. For instance, when getting some help in the home, exactly what help is required and possible now and into the future, who will provide the help and at what cost? If moving into an aged care facility, what care will be required, where will the new home be, what to do with the family home, and how to pay for this are all decisions that need to be made and there are usually many options to consider.
So how do families identify these options and make appropriate decisions?
Where do you start? What questions do you ask and who to? Are the answers you get back in your best interest … or someone else’s? What needs to be done and when? What happens if there’s a problem?
How Family Aged Care Advocates fit in…
That’s where Family Aged Care Advocates step in. We provide guidance and support to help families identify the relevant options to help you make informed decisions to get the best care outcomes for the people you love and care for most. We’re independent aged care specialists only interested in the right outcomes for your family … that’s all that matters and there’s no trade-off with that.
Material contained in this publication is a summary only and is based on information believed to be reliable and received from sources within the market. It is not the intention of RGM Financial Planners Pty Ltd ABN 36 419 582 Australian Financial Services Licence Number 229471, RGM Accountants & Advisors Pty Ltd ABN 69 528 723 510 that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication and RGM and its related bodies corporate will not be liable to the reader in contract or tort (including for negligence) or otherwise for any loss or damage arising as a result of the reader relying on any such information or recommendation (except in so far as any statutory liability cannot be excluded).
Liability limited by a scheme approved under Professional Standards Legislation.
As we move towards the end of the 2022-2023 financial year, tax planning becomes a crucial part of any business’s success.
So, it’s never too early to start thinking about how to minimise your tax liability, and RGM is here to help you navigate the complexities of the Australian tax system.
Whether you’re an established business or a startup, there are strategies you should be discussing with your RGM advisor to ensure you’re taking advantage of all available tax planning opportunities.
For established businesses, tax planning is about maximising profits and minimising tax liability. Here are some strategies you should consider discussing with your RGM accountant:
CGT Concessions
As an established business, it’s important to consider the Capital Gains Tax (CGT) concessions available to you. These concessions can help reduce the tax you owe on the sale of certain assets, which can have a significant impact on your financial success.
Small businesses in Australia can access specific CGT concessions, including the 15-year exemption, 50% active asset reduction, retirement exemption, rollover, and restructure rollover. By applying these concessions, you may be able to reduce your capital gain and potentially eliminate some or all the tax owed on the sale of assets.
However, the rules around these concessions are complex and can be costly if you get them wrong. That’s why we recommend seeking professional advice before restructuring or disposing of assets and ensuring your business structure is designed to take advantage of the available concessions.
At RGM, our team of qualified tax professionals can help you navigate the complexities of CGT concessions and advise on the most effective strategy to minimise your tax liability while complying with Australian tax laws and regulations. We can review your business’s financials and provide tailored advice to help you maximise the benefits of CGT concessions and position your business for long-term financial success.
For established businesses, the Instant Asset Write-off can be a powerful tax planning strategy to help stay competitive in the market. This measure enables businesses to claim an immediate deduction for the full cost of newly acquired assets in the first year they are used or installed, rather than depreciating the cost over several years.
This can help free up cash flow, allowing you to invest in new equipment, technology, or other assets that can help grow your business and improve your bottom line.
It’s worth noting that this temporary full expensing measure is set to expire on June 30, 2023, so if you’re considering purchasing new assets, it’s important to act quickly to take advantage of this opportunity.
It’s also crucial to carefully assess your options and determine whether the Instant Asset Write-off is the right strategy for your business. Our team can help you identify whether this measure aligns with your business goals and needs, and ensure that you’re taking advantage of all the available tax planning opportunities.
Contact us today to discuss your business’s unique situation and how we can assist you in optimising your tax planning strategy.
The loss carry-back strategy is a tax planning tool that can provide relief to established businesses facing financial difficulties. It allows businesses to offset losses incurred in the current financial year against profits made in the previous financial years, potentially resulting in a refund of taxes paid in those years.
This strategy can help businesses to manage cash flow and remain financially stable during challenging times such as we are currently seeing, economic downturns or changes in the market.
However, it’s important to be aware that utilising this strategy can reduce a company’s franking account balance, which may impact the ability to pay fully franked dividends to shareholders and affect investor confidence.
Before deciding to implement the loss carry-back strategy, it’s important to carefully consider the potential benefits and drawbacks and seek professional advice to ensure it aligns with your business goals and overall tax planning strategy.
Our team at RGM can provide expert advice and guidance tailored to your business needs and we encourage you to discuss any tax planning opportunities with us.
Writing off bad debt is another tax planning strategy that can benefit established businesses in Australia.
When a business sells goods or services on credit and the customer fails to pay, the business may have to write off the debt as bad debt. By doing so, you can claim a tax deduction on the amount of the bad debt, which can reduce your taxable income and lower your tax liability.
For instance, let’s say that your business has a bad debt of $50,000 from a customer who failed to pay for goods or services delivered on credit. By writing off this bad debt, your business can claim a tax deduction of $50,000, which would reduce the taxable income and lower the tax liability for the financial year.
However, it’s important to note that there are strict rules and requirements around writing off bad debt for tax purposes, and businesses must ensure your meet these requirements to claim the tax deduction.
For example, the debt must be considered irrecoverable, and your business must have taken reasonable steps to recover the debt before writing it off.
At RGM, we can help established businesses navigate the complex rules and requirements around writing off bad debt for tax purposes. Our team can review your business’s financials and advise on the most effective way to write off bad debt and claim the tax deduction while ensuring compliance with Australian tax laws and regulations.
If you’re a startup business, tax planning is equally important. Our team can help you develop a comprehensive tax strategy that aligns with your unique needs and goals.
Some tax planning strategies that may be relevant for startups include:
Structuring your business:
Choosing the right business structure is one of the most important tax planning strategies for startup businesses. The structure you choose can have a significant impact on your tax liability, as well as your legal and financial obligations.
For example, setting up a businessas a sole trader may be the simplest and most cost-effective option, but it also means that you are personally liable for any debts the business incurs. Alternatively, incorporating your business as a company can provide more legal protection but may result in higher compliance costs.
Our team of experts can help you navigate the different business structures available and determine which one is the most tax-effective for your startup. This may involve assessing factors such as your business goals, the size and complexity of your business, your expected profits, and your personal financial situation.
Additionally, we can help you understand the ongoing tax obligations associated with your chosen structure, such as tax reporting requirements, compliance with regulations, and managing your tax liabilities. By having a clear understanding of your tax obligations, you can avoid costly penalties and ensure that your startup is positioned for success.
Contact our team today to discuss how we can help you choose the right business structure for your startup and minimise your tax liability.
In addition to choosing the right business structure, startups can also benefit from taking advantage of the Research and Development (R&D) Tax Incentive. This government program provides tax offsets for eligible R&D activities, which can be a crucial source of funding for startups looking to invest in innovation and growth.
To determine if your startup is eligible for the R&D Tax Incentive, our team can help you assess your R&D activities and expenses to ensure they meet the program’s eligibility criteria. We can also guide you through the application process to ensure you receive the maximum benefit available.
Our team can also provide ongoing support to ensure that you continue to meet the program’s requirements and maintain your eligibility over time. By taking advantage of the R&D Tax Incentive, your startup can potentially access significant funding to fuel your growth and innovation efforts.
As a startup business, you may have incurred significant expenses in setting up your business. These expenses can add up quickly and put a strain on cash flow, which is why it’s important to take advantage of any tax deductions available.
Our team of experts can help you identify which startup expenses are tax-deductible and how to claim them. This can include expenses associated with registering your business, such as ASIC fees, legal fees for setting up your business structure, and costs associated with obtaining any necessary licences or permits.
Other deductible startup expenses may include advertising and marketing costs, website development expenses, and expenses related to product development or research and development activities.
By properly claiming these startup expenses, you can potentially reduce your taxable income and minimise your tax liability.
Our team can work with you to ensure that you are taking advantage of all available deductions and claiming them correctly on your tax return. This can help to improve your cash flow and allow you to reinvest in your business.
Overall, tax planning is essential for businesses as it can significantly impact your financial success.
By taking a proactive approach and seeking professional guidance where necessary, you can ensure that you’re taking advantage of all available tax deductions and concessions. This can result in improved cash flow, reduced tax liability, and increased profitability.
Businesses need to prioritise tax planning and work with qualified tax professionals to develop a comprehensive strategy that aligns with their unique needs and goals. By doing so, you can position yourself for long-term financial success and stability.
At RGM, we are committed to helping businesses of all sizes achieve their financial goals through effective tax planning strategies.
Whether you’re an established business or a startup, we have the expertise to help you navigate the complexities of the Australian tax system.
Start your tax planning today by booking a meeting with your RGM advisor.
The ATO is cracking down hard on GST frauds after finding a significant number of taxpayers falsely claiming GST refunds.
The Serious Financial Crime Taskforce and Australian Federal Police (AFP) have executed numerous warrants against suspects, with a GST fraudster recently jailed for three years.
The ATO has warned it has zero tolerance for these types of fraud and has put in place a strategy to identify and pursue individuals suspected of inventing fake businesses to claim false refunds.
Falsely claiming a GST refund
GST refund fraud involves claiming a tax refund or other benefit by providing false information to the tax office.
In the recent spate of GST frauds, individuals have invented fake businesses and lodged a fraudulent Australian Business Number (ABN) application. They then submit fictitious business activity statements (BAS) in an attempt to gain a false GST refund.
Detailed information about how to undertake these types of frauds has been circulating as online advertising and content, particularly on social media.
Rules for claiming GST credits
It’s important to understand the rules in this area. Registering for an ABN and applying for GST refunds when you do not own or operate a business – or are ineligible – is fraud.
You can only claim GST credits on the business portion of a purchase and cannot claim GST on private expenses (such as food or entertainment). Discounted prices must be used when claiming GST credits, even if the discount does not appear on an invoice.
GST credits can be claimed upfront for purchases under hire purchase agreements entered into after 1 July 2012 only if your business accounts for GST on a cash basis.
Warning signs for GST fraud
The ATO has made it clear if you are not operating a business, you do not need an ABN and should not be lodging a GST return. The tax regulator has significant data matching capabilities enabling it to detect patterns in taxpayer behaviour that highlight potential tax frauds.
Backdating your business registration so you can apply for a refund is another red flag and will highlight you as a potential high risk in the tax office’s systems.
If you are caught
The ATO is urging anyone involved in a GST fraud to come forward on a voluntary basis, rather than face tougher consequences later.
If you are involved in a fake GST arrangement, the first step is to contact the ATO or your accountant so they can assist you to work through various self-help options. You may be able to correct your situation by revising your BAS, cancelling your ABN and GST registration, and setting up an arrangement to repay the GST refund.
Taxpayers caught engaging in GST fraud are liable to repay the entire fraudulently-obtained refund, regardless of whether they paid someone to lodge a BAS on their behalf. Making false declarations can also impact your eligibility for other government payments.
Fraud and compromised IDs
Selling or sharing your myGov credentials may result in other people accessing your personal information and using it for their financial gain.
If you have become involved in a GST fraud because your identity was compromised, you should contact the ATO immediately so additional controls can be placed on your tax account.
Taxpayers who have given their myGov details to a criminal should contact the ATO so it can assist them to protect their identity from being used to commit further crimes, including future tax crimes undertaken in their name.
Material contained in this publication is a summary only and is based on information believed to be reliable and received from sources within the market. It is not the intention of RGM Financial Planners Pty Ltd ABN 36 419 582 Australian Financial Services Licence Number 229471, RGM Accountants & Advisors Pty Ltd ABN 69 528 723 510 that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication and RGM and its related bodies corporate will not be liable to the reader in contract or tort (including for negligence) or otherwise for any loss or damage arising as a result of the reader relying on any such information or recommendation (except in so far as any statutory liability cannot be excluded).
Liability limited by a scheme approved under Professional Standards Legislation.
Family trust rules and new guidance on contractors
The Australian Taxation Office (ATO) has confirmed its position on family trust distributions, while also providing employers with new information to simplify completion of Single Touch Payroll (STP) activity statements. Here are some of the latest developments in the world of tax.
Prefilling of PAYGW
Completion of PAYG withholding via STP will become easier for employers when the ATO begins prefilling some of the required activity statement data.
From the July 2023 statement, PAYG withholding labels W1 and W2 will be prefilled for all monthly PAYG employers. Quarterly withholders will find the information on their September 2023 statement.
The ATO is also piloting an employer reminder system for businesses with a late activity statement and STP-reported PAYG withholding. If you fail to lodge by the reminder date, the ATO will consider there are no corrections to report and the recorded amounts will be added to your client account.
Final rules on family trusts
Taxpayers with family trusts should check the implications of the ATO’s final guidance on the taxation of family trust payments, as the new rules may reduce the attractiveness of these tax structures.
Under the ATO’s new approach, common tax planning strategies relying on the section 100A exemption covering trust distributions to companies and family members may no longer be available in some situations.
Taxpayers with a discretionary trust should discuss the implications with us, particularly where there are parent controllers of the trust and adult-aged child beneficiaries. The ATO website provides a number of case studies outlining common situations.
Employees vs. independent contractors
The ATO is consulting on its new draft guidance covering both classification of employees and independent contractors, and its proposed compliance approach in this area.
The draft guidance outlines the regulator’s priority areas, which include situations where particular risk factors are present and where an unpaid superannuation query has been received from a worker.
The guidance also indicates employers must have specific advice from an appropriately qualified third-party confirming their classification of a worker as a contractor is correct.
Recordkeeping for self-education expenses eased
Taxpayers claiming self-education expenses will find things a little easier this tax time, as new legislation has removed the requirement to exclude the first $250 of deductions for education courses.
The new rules can be used when completing your 2022-23 tax return, while for employers, the change applies to the Fringe Benefits Tax year starting 1 April 2023.
Sharing economy reporting extended
Providers of ride-sourcing and short-term accommodation services will find themselves swept into the compulsory Taxable Payments Reporting System (TPRS) from 1 July 2023.
Electronic platform operators for these services (such as Uber and Airbnb) are required to report all transactions involving Australian purchasers under new legislation passed in December 2022.
Annual TPRS reporting is already compulsory in industries such as building and construction, cleaning, courier and security services.
Plug-in hybrid electric vehicles to face FBT
Under rules applying from 1 April 2025, plug-in hybrid electric vehicles will no longer be considered zero or low emissions vehicles and will not be eligible for the fringe benefits tax exemption applying to these vehicles.
You can apply for the exemption if the hybrid vehicle was exempt before 1 April 2025 and there is a financially binding commitment to continue providing private use of the vehicle after this date.
No business activity could mean no ABN
The ATO is again reminding small businesses their Australian Business Number (ABN) may be flagged for cancellation if there is no reported business activity in their tax return, or no signs of business activity in other lodgements or third-party information.
If an ABN is identified as inactive, the ATO will contact the holder by email, SMS or mail to check if the ABN is still required and explain the action required to keep it. Where the business is no longer operating, the ABN will be cancelled.
Reproduced with permission of Vanguard Investments Australia Ltd
Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.
Important: Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.
This year’s Federal Budget was full of talk about one-off support for households in the form of tax offsets, but most people are a bit hazy on the difference between a tax offset and a tax deduction.
Both can help reduce the amount of tax you pay each year, but a tax offset generally results in a bigger dollar tax saving than a tax deduction of the same amount. The key difference is the point at which they are applied to your income when calculating the final amount of tax payable.
What is a tax deduction?
A tax deduction is one of the first things applied to your income when calculating your tax bill. It reduces your taxable income and hence the amount of tax you pay, potentially moving you into a lower tax bracket. Deductions are intended to ensure you only pay tax on income exceeding the costs associated with earning that income.
For a small business, deductions ensure it doesn’t pay tax if its running costs exceed its revenue. Common deductions include operating expenses such as stationery, and capital expenses such as equipment.
Employees can claim deductions in a similar way. Personal deductions include work-related expenses like the cost of a computer if you have a home office, or supplies purchased for classroom use by a teacher. Other deductions include the cost of managing your tax affairs, donations and income protection insurance.
Offsets are similar but different
Tax offsets on the other hand, are deducted at the end of the calculation process and directly reduce the tax you pay.
Offsets are used by the government to encourage specific outcomes, such as uptake of health insurance through the Private Health Offset, or adding money to your spouse’s super through a contribution offset. They are also used to provide tax relief or financial support to certain groups in the community.
Calculating tax using offsets and deductions
The easiest way to understand the difference between an offset and a deduction is to walk through an example.
In the table below, we have two taxpayers. One person has an income of $30,000 a year paying tax of 19c on every dollar above the tax-free threshold of $18,200. This results in tax of $2,242 before any deductions or offsets. The other earns $130,000 a year, paying the top marginal tax rate of 37c in every dollar above $120,000, resulting in tax of $33,167.
As you can see in the table below, the impact of a $1,000 tax deduction provides a bigger tax saving of $370 for the higher income earner, compared with $190 for the lower income earner.
However, not only does a $1,000 tax offset provide both taxpayers with a bigger tax saving of $1,000 each, but it’s worth relatively more to the lower income earner at 3.3 per cent of $30,000 compared with less than one per cent of $130,000.
Impact of a $1,000 tax deduction and tax offset on tax owed
Unlike tax deductions, the ATO automatically applies most offsets to your tax payable when you lodge your tax return.
In general, tax offsets can reduce your tax payable to zero, but they can’t be used to generate a tax refund if you don’t pay tax. If your taxable income is $18,200 or less, an offset won’t reduce the tax you pay as your tax payable is already zero. If you have paid any tax on this amount, you receive the tax back as a refund, but no offset is applied.
Also, most tax offsets don’t reduce the Medicare Levy and Medicare Levy Surcharge (if any) you are required to pay.
The amount of tax offset you receive also depends on the particular offset and your taxable income. For example, with the Low and Middle Income Tax Offset (LMITO) for 2021-22, if your taxable income is $37,0000 or less, you will receive a $675 offset on your tax payable when you lodge your tax return. If your income is $48,001 to $90,000, however, the offset is worth $1,500.
Reproduced with permission of Vanguard Investments Australia Ltd
Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.
Important: Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.
When it comes to career or life goals, a crucial element often missing from the discussion is that of personal accountability. Accountability is fundamental to effective government and successful business, but we often neglect it in regards to our own ambitions. Practicing personal accountability isn’t easy, but if you embrace it, the effect can be transformative.
Transparency
A critical first step in any accountability process is transparency. This means being honest about your prior successes and failures. You can then use what you’ve learned from them to frame your strategy going forward.
Often what stops us from being honest with ourselves is an inability to accept responsibility for our own contribution to our successes or failures. This in turn can often result in a blame mentality. In every person’s life there is a mixture of internal and external obstacles that prevent us from getting what we want. The problem with always blaming what’s outside of us, is that we lose sight of what we can control. It reduces our power. The outcome can be inertia. To blame is to tread water. To be accountable is to build a raft.
Skin in the game
Indecision, procrastination and laziness are three common factors that get in the way of us achieving our goals. So how do we show some accountability and mitigate these habits? The answer is to put some skin in the game – to raise the stakes.
Let’s take the gym as an example. Your building has a free one for the tenants, but you never use it. Maybe it’s because it’s not very well equipped, but you’re also not really losing anything if you don’t go. But say the gym charges a fee. That might mean it’s better resourced, sure, but you’re also getting charged every week. Nobody wants to waste money so you go. You’ve got skin in the game.
Let’s extend the metaphor. You might decide to pay a bit more and join a class, or even splash out and get a personal trainer. Now you’ve really invested, because not only are you giving up your hard-earned cash, but you’ve got someone who will be disappointed in you if you don’t make the session. Someone else to hold you accountable.
Engaging an ally
When a task is set for you by someone else, the stakes are naturally higher because you’re accountable to them. It’s much harder to let someone else down, than it is yourself. This is why it is important to engage an ally, when working towards your goals. And to be honest, the more the better.
Allies can sort fact from fiction, give constructive feedback and encourage you when you’re feeling flat. And it is a lot harder to veer off course when you have a crowd cheering you on.
Practicing accountability
Practicing accountability becomes easier when you have in place a good set of processes. That’s why we’ve come up with this four-step process.
1. Make sure your goals are concrete. This means being specific about what they are and what they’re not. You can’t kick a goal if you don’t know where the goal posts are.
2. Record your progress. Ask any business leader, and they’ll tell you accountability requires accurate reporting. This is where transparency and diligence come in. Make sure you keep records of your successes and failures, the tasks you did, the time they took, and what they cost. Then let this frame your strategy going forward, including incremental deadlines.
3. Invest and put some more skin the game. This means giving up something that has currency to you in order to compel you to keep going. There needs to be an outcome, a material loss, that comes from not reaching your deadlines.
4. Finally, engage an ally. This can be a mentor or a friend. Someone who checks in with you and encourages you but can also give constructive criticism.
If you’ve got big dreams and need some help making them financially viable, come talk to us. We can help make a plan, and ensure you stay accountable each step of the way.
As Australia’s system of compulsory superannuation celebrated its 30th anniversary in July, this is a good time to take a closer look at one of super’s biggest success stories – the number of people deciding to take control of their retirement savings with a self-managed super fund (SMSF).
There are now almost 607,000 SMSFs worth a combined $894 million, with 1.1 million members.
While one of the benefits of running your own fund is the flexibility to chart your own course, concerns have been raised over the years that SMSFs are too heavily invested in cash and shares and not as well diversified as large public funds. The latest figures show these concerns are largely unfounded.
Comparing SMSFs and large funds
SMSF administrator, SuperConcepts recently surveyed 4,500 funds to find out how SMSF trustees invest and identify any emerging trends.i They also wanted to see how SMSFs compare with large APRA-regulated funds including – industry, retail, public sector and corporate funds – in terms of their investments.
The table below shows the overall asset breakdown as at 31 March 2022.
Asset type
SMSF %
APRA fund %
Cash and short-term deposits
12.2
9.1
Australian fixed interest
8.4
10.0
International fixed interest
2.1
7.9
Australian shares
40.0
28.5
International shares
16.4
27.0
Property
16.0
8.5
Other (incl. infrastructure, cryptocurrency, commodities and collectables)
4.9
9.0
Total
100
100
Source: SuperConcepts
Several differences stand out:
SMSFs have a higher level of cash and short-term deposits, although not massively so.
SMSFs hold more Australian shares and property
APRA funds hold more international shares and fixed interest, and more alternative assets.
At first glance, these differences conform to the stereotype of SMSFs being too dependent on cash, Australian shares and property.
However, the preference for cash may come down to a higher proportion of SMSF members in pension phase (45 per cent of SMSFs are partly or fully in pension phase according to the ATO). The more members a fund has in pension phase, the more cash and liquid investments it needs to cover benefit payments.
Also, the differences are not so stark when you group assets. For instance, cash and fixed interest combined amount to 22.7 per cent for SMSFs and 27.0 per cent for APRA funds. Similarly, local and international shares (56.4 per cent for SMSFs, 55.5 per cent for APRA funds) and property and other (20.9 per cent vs 17.5 per cent ).
It’s likely that the differences within these broad asset groupings are driven by access to different markets, and SMSF trustees being more comfortable picking investments they know such as local shares and property.
What’s more, while big funds can invest directly in large infrastructure projects with steady capital appreciation and reliable income streams, SMSF investors may be pursuing a similar strategy but with real property instead.
Top 10 SMSF investments
Whether it’s the familiarity factor or ease of access, the top 10 investments by value held by SMSFs in the SuperConcepts survey were all Australian shares. As you might expect, the major banks dominate the top 10, along with market heavyweights BHP, CSL and Telstra.
Another thing the top 10 have in common, apart from being household names and easy to access, is dividends. Just as SMSFs in retirement phase hold higher levels of cash to fund their daily income needs, high dividend paying shares are prized for their regular income stream.
Use of ETFs and managed funds
While SMSFs hold large sums in direct Australian shares, diversification improves markedly when you add investments in Australian and international shares held via ETFs and managed funds.
The SuperConcepts survey found almost one third of SMSF investments by value are held in pooled investments. The highest usage is for international shares and fixed interest, where 75 per cent of exposure is via ETFs and managed funds.
As it’s still relatively difficult to access direct investments in international shares, it’s not surprising that global share funds account for eight of the top 10 ETFs and managed funds.
This latest research shows that the diversification of SMSF investment portfolios is broadly comparable to the big super funds. After 30 years of growth and a new generation taking control of their investments, the SMSF sector has well and truly come of age.
If you would like to discuss your SMSF’s investment strategy or you are thinking of setting up your own fund, give us a call.
Business taxes remained largely unchanged in the second Federal Budget of 2022, but employees working from home can expect less generous deduction rules for the 2022-23 financial year. Here’s some of the latest tax developments.
All quiet on the small business tax front
There were no significant tax changes affecting small business in the October 2022 Federal Budget, although there was a big focus on tax compliance.
The ATO will receive $685 million over four years to help it raise $2.1 billion from a crackdown on shadow economy activities. This may be of concern to some small and mid-size enterprises (SMEs), as the ATO believes the bulk of these activities occur among smaller business taxpayers. The Budget also included a $15.1 million boost for the existing small business debt helpline and programs focused on the financial and mental wellbeing of small business owners. Help with rising energy costs included $63 million to improve SME energy efficiency and energy use.
It’s unknown whether measures of the popular instant asset write-off and carry back of losses will be extended past 30 June 2023. We may need to wait for the May 2023 Budget for the answer.
STP Phase 2 deadline soon
With Single Touch Payroll (STP) Phase 2 reporting now well underway, small business employers need to remember their next reporting deadline is 1 January 2023.
Common STP reporting mistakes seen by the ATO this year include incorrect re-mapping of pay codes and not separately itemising bonuses, overtime and commissions; failure to correctly input existing year-to-date amounts; and incorrectly categorising allowances. The ATO has a range of factsheets and resources available to help employers get their STP reporting right.
Draft guidance on work from home deductions
Taxpayers working from home are likely to face significant rule changes when claiming tax deductions this financial year following release of the ATO’s draft guidance on the issue.
Under the new guidelines, employees will only be permitted to claim a deduction of 67 cents for every hour they genuinely work from home, instead of the 80 cents under the short-cut method available prior to 1 July 2022.
Asset depreciation on items used for work purposes will require a separate depreciation calculation. Employees will not require a separate home office or dedicated work area to claim the deduction, but normal substantiation rules apply.
Alternatively, employees working from home can claim a deduction for their expenses using the traditional actual cost method.
Increase in ATO penalty units
Taxpayers running afoul of the taxman will find themselves facing bigger bills this year after the Federal Budget included measures to increase the fines for regulatory penalty units. From 1 January 2023, fines will jump from $222 to $275 per penalty unit, a 19.3 per cent increase.
This is on top of regular indexation by the CPI, which is every three years, and this will remain in place, with the next one due to take effect on 1 July 2023.
Enhancing tax transparency
Large private business entities will face more scrutiny of their tax affairs after new legislation passed through Parliament to require greater transparency of the tax affairs of private companies.
The reform reduces the tax information reporting threshold for private corporate tax entities to companies with a total income of $100 million or more (previously $200 million or more). This lower threshold applies to reporting for 2022-23 and subsequent financial years.
The previous grandfathering of the exemption applying to certain large proprietary companies from the normal obligation to lodge their annual reports with ASIC was also removed.
Super for holiday season employees
Employers planning to hire staff on a short-term basis for the holiday season need to remember changes to the Superannuation Guarantee (SG) rules mean temporary staff may be eligible for super contributions.
From 1 July 2022, employers must make SG contributions at 10.5% for eligible employees regardless of how much they earn after removal of the $450 per month eligibility threshold.
For new employees who are offered choice of super fund but fail to choose, you must request their stapled super fund details from the ATO to meet your super obligations.
As interest rates and debt levels rise, many individuals and small business owners are feeling the pinch. Most will make it through with some belt-tightening, but some may need to take further action.
As a last resort, a debt agreement or bankruptcy may be an option. But what are the implications?
Solutions to financial pressure
There are many reasons consumers and businesses are finding it harder to pay their bills, with pandemic closures, natural disasters and now an energy crisis piling on the pressure.
Figures from the Australian Financial Security Authority (AFSA) show in April 2022 there were 700 new personal insolvencies across the country, with the majority (61.4 per cent) being bankruptcies. Within these, 37.7 per cent were business-related bankruptcies.
But bankruptcy is not the only option. If you find yourself unable to pay your debts, you can also consider making a debt agreement, a personal insolvency agreement, or seeking temporary debt protection (TDP).
A TDP prevents creditors from seizing your assets or wages and gives you time to seek advice, while the other formal insolvency options (such as debt and personal insolvency agreements) are a longer-term answer for pressing financial problems.
Debt and declaring bankruptcy
The best-known formal insolvency option is bankruptcy. This is a legal process where you are released from most of your debts and can make a fresh start with your finances.
In 2020-21, around 6,800 Australians declared bankruptcy. This was 46.7 per cent down on the previous year, due largely to the special debt forgiveness rules in place due to COVID-19.
Although bankruptcy is tempting when you or your business are drowning in unpaid bills, it’s a serious step so please speak to us to understand the consequences before taking any action.
Once you file for bankruptcy, a Trustee is appointed to manage your ‘bankrupt estate’ and dispose of assets to pay your debts. If you earn over a set amount during your bankruptcy, you may be required to make compulsory ‘contributions’ from your income to your Trustee.
Impact of bankruptcy
Bankruptcy has serious consequences. Your name will permanently appear on the National Personal Insolvency Index, which is likely to affect your ability to obtain credit in the future. When applying, you must inform any credit provider you are bankrupt and credit reporting agencies will keep a record of your bankruptcy for five years from the date you become bankrupt.
You are required to request written permission from your Trustee to travel overseas, even if it’s for work. Travelling without permission could extend your bankruptcy or result in a prison sentence.
Bankruptcy doesn’t stop you from working and normally the AFSA doesn’t inform your employer, but there are limitations when operating as a sole trader. Court permission is required to be a company director or manage a company.
Your Trustee may sell your assets to help repay your debts, although you are able to keep ordinary household goods, tools up to a set amount used to earn your income and vehicles valued under a threshold.
Recoverable debts
Once you are discharged from bankruptcy (which usually lasts for three years and one day), your creditors can’t recover any remaining pre-bankruptcy debts.
Bankruptcy doesn’t, however, release you from all your debts. If you have secured debts (such as a mortgage over your home), creditors have the right to take possession of your property even if you are in bankruptcy.
While most unsecured debts (such as credit cards, personal and pay day loans, utility bills and unpaid rent) are covered by bankruptcy, some debts must be paid. These include court-imposed penalties, child support and debts incurred after your bankruptcy starts.
Tax and bankruptcy
If you declare bankruptcy, you still need to lodge a tax return and outstanding personal returns and Business Activity Statements must be filed.
The ATO ranks equally with other unsecured creditors, so if it’s one of your creditors, your Trustee will not necessarily pay this debt first. The only priority tax claims are unpaid Superannuation Guarantee Charge (SGC) debts if you have employees.
If your Trustee decides to sell some of your assets to clear your debts, this may create a capital gain or loss and the CGT event must be recorded in your annual tax return. The ATO may also offset any tax refunds you become entitled to against any tax, child support or family assistance debts.
If you are experiencing financial difficulties, please contact your adviser to discuss your optionsvia email or call us on 03 5120 1400.
Material contained in this publication is a summary only and is based on information believed to be reliable and received from sources within the market. It is not the intention of RGM Financial Planners Pty Ltd ABN 36 419 582 Australian Financial Services Licence Number 229471, RGM Accountants & Advisors Pty Ltd ABN 69 528 723 510 that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication and RGM and its related bodies corporate will not be liable to the reader in contract or tort (including for negligence) or otherwise for any loss or damage arising as a result of the reader relying on any such information or recommendation (except in so far as any statutory liability cannot be excluded).
Liability limited by a scheme approved under Professional Standards Legislation.
Receiving an inheritance is always welcome, but people often forget the tax man will take a keen interest in their good fortune.
When ownership of an asset is transferred, it triggers a capital gain or loss with potential tax implications. So what are the tax rules when you inherit a property, or another investment asset like shares, and when you eventually decide to sell?
Tax and your inheritance
The main tax applying to the transfer and sale of an asset is capital gains tax (CGT). This is added to your tax bill in the financial year in which you sell an asset acquired on or after 20 September 1985.
CGT is not a separate tax but forms part of your normal income tax and is imposed at your marginal tax rate. It applies to the sale of assets such as residential and investment properties, shares and managed funds.
The tax is calculated based on any increase in the value of the asset between the time you acquire or buy it and when you eventually sell.
Inheriting an asset
Fortunately, when someone dies, a capital gain or loss does not apply when an asset passes to the deceased person’s beneficiary, their executor, or from the executor to a beneficiary.
This means if you inherit a property, shares, or an interest in an investment asset, the capital gain on the asset is disregarded by the tax man.
There are also exemptions for personal useassets you inherit that were purchased for less than $10,000. This includes furniture, household items and the like.
Generally, CGT is not payable if you inherit collectables such as art, jewellery, stamps or antiques, provided their market value is $500 or less.
Selling your new asset
Although there is no CGT when you inherit a property, that’s not the end of it, as there may be a tax bill when you eventually sell. If the asset is a dwelling, special rules such as the main residence exemption apply in part or full.
Generally, if you sell an inherited property within two years of the person’s passing and it was either purchased before September 1985 or was the deceased’s main residence at the time or just before their death, and in most cases, not rented being at the time of their death, CGT does not apply.
The two-year period relates to the time from the date of death to the settlement – not exchange – of the sales contract. In some cases, it’s possible to apply to the ATO for an extension to this two-year period.
Special tax rules may also apply if the property was not the deceased’s main residence but it was purchased priorto 20 September 1985. This may result in a full or partial exemption from CGT, so it’s important to talk to us about your particular situation.
After the two-year deadline
If you decide to sell your inherited property after the two-year exemption period has elapsed, you will generally have to pay CGT on the capital gain on your property unless it has become your main residence.
The amount of CGT you pay is based on the increase in your property’s value from the date of the deceased’s death to the date of the sale.
Whenworking out the capital gain on an inherited property asset, CGT is calculated based on the sale price less the cost base of the asset. In most cases, the cost base is equal to the market value of the asset at the date of the deceased’s death, although this will depend on when the home was purchased (before or after 20 September 1985).
If CGT applies when selling an asset, you normally receive a 50 per cent discount on the amount of tax payable if the asset is owned for over 12 months.
CGT is a complex area of taxation, especially as it applies to inheritance, so if you would like help with handling the tax matters relating to an inherited asset, contact our office today on 03 5120 1400 or click here to send through your enquiry and an adviser will be in contact.
Material contained in this publication is a summary only and is based on information believed to be reliable and received from sources within the market. It is not the intention of RGM Financial Planners Pty Ltd ABN 36 419 582 Australian Financial Services Licence Number 229471, RGM Accountants & Advisors Pty Ltd ABN 69 528 723 510 that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication and RGM and its related bodies corporate will not be liable to the reader in contract or tort (including for negligence) or otherwise for any loss or damage arising as a result of the reader relying on any such information or recommendation (except in so far as any statutory liability cannot be excluded).
Liability limited by a scheme approved under Professional Standards Legislation.
