Defined benefit super schemes are bad for members & everyone else
In superannuation land, there’s a really big difference between market linked accumulation accounts & accounts which are called “defined benefit” (DB) plans. I have changed my view recently in relation to DB super plans altogether & feel compelled to discuss why publicly & for the record.
Although the distinction between DB plans & market linked accumulation accounts is very important, an equally important distinction to make is within the DB category itself. Specifically, there’s a massive (& critical) difference between DB plans which offer a guaranteed lifetime pension (DBGLP) & DB plans which only pay out a guaranteed lump sum (DBGLS).
Firstly, DBGLP plans pay a % of some closing salary amount to the member for the rest of that members life. In rare instances with some very old schemes, upon the members death, that ongoing lifetime pension guaranteed entitlement transfers to the members spouse for the rest of his or her life. These plans now practically don’t exist apart from some very rare instances. For example, it’s possible that some federal Judges can still enter into these types of super schemes as can some federal politicians and military personnel. However, even in those instances, it’s unlikely that the DBGLP entitlements will transfer to a spouse. As part of it’s investment mandate, the Future Fund is designed (among other things) to pay for these pension liabilities for federal Government employees.
Next, DBGLS plans pay out a guaranteed lump sum dollar amount when the member reaches some milestone. Usually this involves accumulating some set number of points in a scheme which is generally linked to tenure of service in their role i.e. the longer you stay, the more points you’ll accumulate. These plans effectively lock the worker into their job for life. Now, there’s nothing necessarily wrong with that, it promotes all kinds of stability. However, a key drawback that I have personally witnessed in practice is that the worker is tied (or scared into staying in) to a job from (say) 20 to 60 and doesn’t have to spend any energy thinking about or learning how to invest or understanding the market linked super system or investment more generally. Then, at 60, they’re handed a bag of cash and told that its now market linked and they have to take care of it themselves to fund their retirement – right at the point in time when they need certainty and expertise in managing their nest egg. What could possibly go wrong?
This unbelievable DBGLS situation is at best a massive mistake on the part of those who allowed it to develop this way, and at worst a scam on the worker, locking them into a role with fear of losing their DBGLS – which in most cases, they’d be much better off without anyway. New DBGLS plans should be banned immediately by law & careful thought should be given to how best to fairly unwind existing DBGLS plans so as best as possible to not disadvantage the workers who have unfortunately been trapped into them.
As for DBGLP plans, well, these are simply repugnant to the idea of a market-based economy. Be under no mistake, whatever your market is should be the ultimate arbiter and allocator of resources in any and all imaginable scenarios or your economy will end up in serious trouble. DBGLP plans are highly, highly questionable (and objectionable) now that super caps have been implemented. Specifically, how is it fair for any person’s salary to be guaranteed for life (ever)? No one should be protected unconditionally from the vicissitudes of the market by a historical employment agreement lest distortions are introduced which effectively result in welfare for the rich & over privileged. Commuting all DBGLP plans to market linked pensions is absolutely justified and even if it fails, the message will have been sent loud and clear. If we want to have a fair and open economy in Australia, which we should, we need to shine a light on these dark corners of the retirement system which will (unfortunately) live on, at least for a little while longer. Making this change will ensure Australian taxpayers are never called upon to support the retirement lifestyles of ageing government fat cats from yester-year like retired judges, politicians & figureheads. Cronyism is repugnant to everything good – but don’t take my work for it, ask a Russian.
ATO’s crackdown on residential investment property loans and tax compliance
The ATO has announced the commencement of a data-matching program for property investors to acquire residential investment property loan data from authorised financial institutions.
Sample audits conducted under the ATO random enquiry program indicate a net tax gap of $9 billion for the 2019–20 income year attributable to incorrect reporting of rental property income and expenses.
A significant driver of the gap was incorrect apportioning of loan interest costs where the loan was refinanced or redrawn for private purposes.
Data matching and tax compliance
The ATO will use the data to ascertain information about rental property loans including information such as repayments, interest charged, and borrowing expenses. This information will be used to identify, assess and treat several tax compliance matters including:
Lodgment – confirming that taxpayers with rental properties are lodging tax returns and the relevant rental property schedule on or before the relevant due date;
Income tax – confirming taxpayers with a rental property are correctly reporting interest on loan and borrowing expense deductions in their rental property schedules and associated income tax return labels;
Capital gains tax (CGT) – confirming the calculation of cost base elements used to determine the net capital gain or loss on a rental property used to generate income.
After a return is lodged, the ATO will use the data collected to identify relevant cases for action including compliance activities and education strategies.
If a discrepancy is identified, taxpayers will be contacted by phone, letter or email. Taxpayers will then have 28 days to respond before the ATO takes any action in relation to the discrepancy.
Other matters
ATO’s residential investment property loan data matching program will run from 2021–22 to the 2025–26 income years.
The data collected by the ATO will be made available to tax professionals through pre-filling reports in Online services for agents and practitioner lodgement service (PLS) through standard business reporting (SBR) enabled software.
Individual self-preparers may also access the data collected by the ATO through myTax, specifically the rental property schedule interest on loans or borrowing expense labels and rental income tax return labels.
Should you have any queries in relation to this program and its operation, please feel free to contact our office.
Tax Tips for Trusts 2023
Whether you have a trust set up for investment or business purposes, there are some common elements to getting ready for the trust’s tax return.
Contrary to popular opinion, a trust is not actually a legal entity; rather, it is a formal relationship between other entities, where one entity holds property for the benefit of another entity, which could be a business or individual.
Because a trust is not a person or business entity, its income is usually taxed differently, although this depends on the setup and type of the trust. But even though the tax return is different, many other administrative aspects are the same as for any taxpaying entity.
Trust Administration
One of the most important administrative tasks to attend to is to hold a formal meeting before midnight on 30 June each year to document the basis of distributions to beneficiaries.
If you haven’t already done this for the 2023 financial year, talk to us as soon as possible so we can check your accounts and advise you on the best arrangements for beneficiary distributions.
Record Keeping
The other essential element of trust administration is record keeping. Although a trust may not be a legal taxpaying entity in the same way a person or business is, all records related to income and expenses must be kept for five years after lodgement of the income tax return.
Particularly important are records for any property owned by the trust. If a trust owns multiple properties, you’ll need to separate income and expenses according to each property.
If the trust earns income from overseas interests or investments, all these records must also be kept.
Capital gains, interest earned, and dividends received must also be documented.
The trustee must keep records of the trust deed, trustee contact details, trustee resolutions, statements of assets and liabilities, all business contracts, and for employing trusts, all records relating to wages and superannuation.
Trust Management
Trust management can be complex but well worth the time spent keeping good records to maintain asset protection, streamline the tax return process, and maximise the allowable tax deductions.
We'll help with record keeping, managing investments, checking trust deed compliance, and simplifying the administration. And remember, the ATO has changed the rules around distributions, so we’ll advise you about the best way to allocate income to beneficiaries.
Talk to us now and start preparing for your next trust tax return.
Tax tips for self-managed superannuation funds 2023
Having a self-managed superannuation fund (SMSF) gives you control and flexibility over how you make investments and prepare for retirement.
It’s important to get your deductions and record keeping correct for the SMSF audit process and the tax return, as there are strict laws governing SMSFs.
An SMSF must be set up as a trust and must also have a legal document called a trust deed. A super fund trust is set up for the sole purpose of providing retirement benefits to its beneficiaries. The trust deed governs how the fund is set up and how it will operate and must be used in conjunction with the superannuation laws.
There are many different investment strategies for SMSFs according to the fund’s trust deed and operations.
Common Tax Deductions
Deductible expenses for SMSFs vary according to the nature of investments and the trust deed, however there are some general expenses that apply to most funds.
- Operating expenses, such as management and administration fees, audit fees and ASIC annual fees.
- Investment-related expenses, such as interest, investment advice fees, costs of servicing and managing investments, property fees and brokerage fees.
- Tax-related expenses, such as preparing the SMSF annual return.
- Legal expenses including amending trust deeds.
- SMSF statutory fees and levies.
- Insurance premiums for death, total and permanent disability, terminal illness and income protection.
The rules for tax deductibility for SMSFs are different to those for individuals and business. Many people are used to claiming deductions for certain things in business or property investment and find they don’t apply to SMSF tax returns. We can help clarify what’s deductible and what’s not.
Expenses must relate to the sole purpose of the super fund being to provide retirement benefits to its members. There may be some items you want to query with us for the audit and tax return to see if they meet the sole purpose test, such as investment training courses, collectibles and artwork, travel expenses or personal computers.
SMSF Annual Return and Records
Once the formal audit of the SMSF has been completed, the annual return must be lodged with the ATO. The annual return is not only a tax return but also reports regulatory information and member contributions. You must keep all records relevant to the annual return.
- Keep all transaction, tax, accounting and financial reporting records for at least five years.
- Keep all records relating to trustee meetings, minutes, investment strategies and appointments or changes of trustees for at least ten years.
Make Your SMSF Management Easy
SMSF management can be time consuming. We can help with researching and managing investments, checking trust deed compliance, setting investment strategies, keeping records and conducting the audit. Talk to us now and get ahead for your next annual SMSF return.
Get Your Business Records Ready for Your Tax Return 2023
Organising your documents now will mean you can get your tax return completed earlier and access any refunds due or start planning for tax payments.
Getting your business records up to date and accurate will allow us to work with you proactively to plan for the coming year.
What Records do you Need to Have Ready for the Tax Agent?
- Have you bought or sold assets? If so, you need full details of acquisitions and disposals.
- Have you taken out a new loan or other finance? You must have details of the finance arrangements and statements of monies owing at 30 June.
- Check that any bonds or deposits paid or received have been allocated correctly.
- Have you prepaid for insurance or other large business expenses that need to be apportioned to the following financial year? Make note of the portion applicable to the current financial year.
- Do you carry stock? If so, you need to perform a full stocktake at 30 June (unless you qualify for the simplified trading stock rules).
- List any doubtful or bad debts to be written off.
- Review your debtors and creditors (accounts payable and receivable). Is the list current and correct?
- Do you have loans with related entities? Reconcile the loans to and from each entity to ensure the same value is reported in the accounts of both entities.
- Ensure that all payments to company directors have been correctly captured. Talk to us now if you want to make director payments before 30 June.
- Provide records of any government grants received during the year.
- If contact details of business owners and key personnel have changed let us know.
We will let you know if there are other matters to discuss with us before completing your tax return, such as cryptocurrency transactions, capital gains, vehicle usage, private usage apportionment or superannuation. This year, there may also be new elements to discuss if you have received grants, refunds, credits or deferrals of business expenses and liabilities.
Remember you need to keep all your business records for seven years, so store everything securely and where possible electronically for safety and ease.
Once you have all your records for the 2023 financial year, make an appointment with us to schedule in your tax return for prompt lodgement.
Keeping your cashflow strong in tough times
Small businesses are particularly vulnerable in tough economic times.
When sales are slow, there are still overheads and salaries that need to be sorted. Pre-planning and being proactive can help you weather tighter economic periods and allow you to continue to thrive.
Make sure you have a clear picture of your payroll, and any other planned expenses that will need to be accounted for.
If there’s even a possibility that there could be a shortfall, it’s essential to meet this head-on. Whether this means talking to your supplier or creditors to figure out an arrangement, or compromising on other business outgoings, you must make a plan to ensure that the business, or your staff, won’t suffer.
Minimise the stress of cash-flow
Invoice early - Send any invoices that you can, and in advance if possible. Perhaps consider whether you have any regular clients or customers that you could offer a retainer or similar deal to if they book services or make a purchase from you in advance.
Chase payment - Use this opportunity to chase up any outstanding payments. Strong communication and relationships matter - talk to clients and chase invoices.
Talk to suppliers - A little honesty can go a long way. Perhaps they can extend a line of credit for your payments to them. In most cases, a good supplier would rather offer a little flexibility to keep an ongoing business relationship.
Review Inventory - Can you find a cheaper supplier locally to avoid the shipping costs or discuss alternative products that allow you to reduce expenses?
Review your costs - It’s also a good idea to do a general review of expenses. Business costs can creep up, and it’s a great idea to make a time to check on your expenses regularly, no matter what your financial situation. Review all of your regular payments and subscriptions as well as upcoming costs. There may be travel, functions or purchases which you can decide on an alternative approach to.
Talk to the bank or tax department - If cashflow is tight, make sure you have conversations early so you have everything in place to see you through.
We can help you implement strategies to protect your business for the long term and help you alleviate cashflow worries.
6 strategies to clear surplus stock
Excess stock is predicted to be one of the big challenges of 2023 for retailers around the world. It’s been a stock rollercoaster for the past few years: supply chain problems made it hard to get deliveries, then as stock started rolling in, customers started tightening their purse strings.
If you have surplus inventory from 2022, here are 6 smart ways to maximise its use in your business:
- Run sales and specials - A strategic sale on excess stock could be a way to win new customers. A lower price cuts into your profits, so make sure you deliver a superb shopper experience so you have the best chance of converting one-off bargain hunters into repeat customers. A flash sales event can be another way to boost interest in your brand.
- Refresh, reposition and remarket - Repositioning a product can give it a second chance to catch a customer’s eye. Can you move the product’s position in your store and freshen up the display? If it’s online, could new photography or SEO copy help give it a second chance?
- Bundle it up - Bundles can be a great deal for customers, and an excellent way to shift excess inventory. Match up overstocked products with in-demand items and sell them together at a lower price – you maintain a reasonable profit and shoppers appreciate the value. You can also offer multi-buy discounts on items, such as 10% off if you buy two, 20% off if you buy three or more.
- Try a promotional giveaway - Use surplus stock to create promotional giveaways on social media and in-store. You can use a giveaway to attract new shoppers, grow your promotional database, and raise your profile. For instance, it could be ‘go in the draw to win this prize pack’, or ‘get this free gift when you spend X’.
- Make a donation - Depending on the type of stock you have in oversupply, it might be possible to donate it to a charity – your free products support those in need and your business can get a PR boost.
- Liquidate - If you really can’t shift your excess stock to shoppers, you may be able to find a corporate buyer. Local surplus stores, liquidators and auction houses may be willing to buy your overstocked inventory. Buyers will expect a hefty discount off the retail price, but it can be a fast way for you to shift excess product and free up space for new merchandise.
We can help you manage your inventory more effectively
We can talk to you about stock management, surplus inventory and any tax advantages that come with donating or writing off stock.
Do get in touch, we’d love to hear from you.
5 ways to get in control of your business finances
Having proper control of your business finances is a big advantage. It helps you make well-informed business decisions and keeps your organisation profitable.
With so many digital tools for managing your bookkeeping, accounting and management reporting, it’s never been easier to manage, track and forecast your financial position.
But what are the main tools you need? And how do you set up your financial systems, apps, processes and reporting to put yourself back in the finance driving seat?
1. Bring your bookkeeping into the digital age
Digital bookkeeping apps are a great way to digitise your receipts, records and source documents. This not only saves a lot of time at year-end, it also makes it much easier for you to keep track of your company’s finances and accounting. Keeping your receipts in a box to manually enter at period-end is no longer enough. Take the next step and digitise your receipts at source, so you have up-to-date digital records and copies of source documents.
Optical character recognition (OCR) software, like Dext Prepare or Auto Entry, scans the receipt, converts it into a digital format and stores it in the cloud.
2. Do your accounting in the cloud
Cloud accounting is a software-as-a-service (SaaS) solution that helps you carry out all your main accounting and financial management online, without having to install any software.
Cloud accounting providers, like Xero, QuickBooks, MYOB or Sage, design their accounting platforms to take the pain and hassle of business accounting. You get all the tools and features you need to work on your accounting tasks. And your platform provider will also take care of all the data storage, backups and security of your data.
A good cloud accounting platform does more than just save your hard drive space. It also provides you with tools and dashboards that improve your access to management information, financial reporting, forecasting and projections, performance tracking and more.
3. Use the latest in expense management tools
Expense management can be a time-consuming and tedious job. But it’s also a vital task that helps you ensure you’re spending company money wisely and not overspending. If employees start going over their budget limits, this can be a costly mistake for the company and your cashflow.
Expense management tools, such as Soldo, Weel or Pleo, help you manage staff spending by giving employees virtual cards that are linked to a specific budget, account and code. This helps you track their expenses easily and make sure they’re staying within their budgeted limits. These platforms also give you detailed reporting and analytics, so you can see where money is being spent, and where savings can be made.
4. Make it easy to accept digital payments
The problem of slow payment is one of the most frustrating things for small businesses. If your customers don’t pay on time, this can result in a loss of revenue, poor cashflow and an inability to cover your basic costs and overheads. To resolve this issue, many companies have begun to switch to digital payment platforms that make it simpler, faster and easier to collect payment.
Payment platforms, like PayPal, Square or Stripe offer faster payment times and more control over the customer experience. Some platforms even integrate with your cloud accounting, so you get automatic bank reconciliations.
5. Embrace the latest in digital reporting and forecasting
With digital accounting changing so rapidly in recent years, there’s never been a better time to embrace the benefits of the latest in digital reporting and forecasting.
Economic conditions are hard to predict. So it’s crucial to be able to quickly analyse data, check your performance and make predictions about how your company will fare in the coming months. When you use cloud solutions for financial reporting and key metrics, you’ll be able to monitor trends in real-time while having access to the data anytime, anywhere.
Having this information at your fingertips helps you make informed decisions faster than ever before – and that translates that into more sales, increased business growth and bigger profits.
Talk to us about updating your financial systems
If you’re looking to give your finances a touch of digital magic, please do come and talk to us.
We can walk you through the best cloud platforms, fintech apps and business tools to add to your app stack – so you’re ready to make the most of a digital approach to your finances
Get in touch to supercharge your finances.
2023 Federal Budget Highlights
The Federal Treasurer Jim Chalmers handed down the 2023 Federal Budget on 9 May 2023. The following is a list of highlights from a tax and superannuation perspective.
Businesses
- The instant asset write-off threshold for small businesses applying the simplified depreciation rules will be $20,000 for the 2023-24 income year.
- An additional 20% deduction will be available for small and medium business expenditure supporting electrification and energy efficiency.
- FBT exemption for eligible plug-in hybrid electric cars will end from 1 April 2025.
- An increased capital works deduction rate and reduced withholding on managed investment trust (MIT) payments will apply to new build-to-rent projects.
- The clean building managed investment trust (MIT) withholding tax concession will be extended from 1 July 2025 to eligible data centres and warehouses, where construction commences after 7:30pm (AEST) on 9 May 2023.
- The start date of a measure to prevent franked distributions funded by certain capital raisings announced in the 2016-17 Mid-Year Economic and Fiscal Outlook has been postponed from 19 December 2016 to 15 September 2022.
- The patent box regime announced in the Coalition government’s 2021-22 Budget, and expanded in the 2022-23 Budget, will not proceed.The introduction of tradeable biodiversity stewardship certificates issued under the Agriculture Biodiversity Stewardship Market scheme will be delayed to 1 July 2024.
- The Location Offset rebate and the Qualifying Australian Production Expenditure thresholds will be increased to boost investment in film production in Australia.
- Deductible gift recipients list to be updated.
Individuals
- Income support payment base rates will be increased by $40 per fortnight.
- The minimum age for which older people qualify for the higher JobSeeker Payment rate will be reduced from 60 to 55 years.
- The workforce participation incentive measures to support pensioners who want to work without impacting their pension payments will be extended for another 6 months to 31 December 2023.
- Eligibility for Parenting Payment (Single) will be extended to support single principal carers with a youngest child under 14 years of age.
- Housing measures will be introduced to increase support for social and affordable housing and improve access for home buyers.
- The maximum rates of the Commonwealth Rent Assistance (CRA) allowances will be increased by 15% to help address rental affordability challenges for CRA recipients.
- CPI indexed Medicare levy low-income threshold amounts have been announced for the 2023-24 income year.
- Eligible lump sum payments in arrears will be exempt from the Medicare levy from 1 July 2024.
Multinationals
- Australia will implement key aspects of the Pillar Two solution of the OECD/G20 BEPS Project, meaning certain large multinationals will be subject to a 15% minimum tax in the jurisdictions in which they operate.
- The scope of the general anti-avoidance rules in Pt IVA of ITAA 1936 will be expanded from 1 July 2024.
- Changes will be made to petroleum resource rent tax (PRRT), including the introduction of a cap on deductible expenditure at 90% of assessable income for projects that produce liquefied natural gas from 1 July 2023.
- The meaning of “exploration for petroleum” in the petroleum resource rent tax legislation will be amended to reflect the government’s intent and ATO guidance.
- Taxation legislation will be amended to realign the taxation law with the reissued AASB 17: Insurance contracts for income years beginning from 1 January 2023.
Superannuation
- Superannuation tax concessions will be reduced for individuals with total superannuation balances in excess of $3 million from 1 July 2025.
- Employers will be required to pay their employees’ superannuation guarantee entitlements at the same time as they pay their salary and wages from 1 July 2026.
- The non-arm’s length income (NALI) provisions will be amended to provide greater certainty to taxpayers.
Tax administration
- Funding will be provided to the ATO over 4 years to lower the tax-related administrative burden for small and medium businesses, cut paperwork and reduce time small business spend doing taxes.
- Reduction in GDP adjustment factor for pay-as-you-go and GST instalments.
- Funding to improve the administration of student loans will be implemented.
- Additional funding will be provided to address the growth of businesses’ tax and superannuation liabilities, and a temporary lodgment penalty amnesty program will be provided to small businesses.
- The Personal Income Tax Compliance Program will be extended for 2 years from 1 July 2025 and its scope expanded from 1 July 2023.
GST and indirect taxes
- Funding for GST compliance will be extended for a further 4 years to address emerging risks to GST revenue.
- The Heavy Vehicle Road User Charge rate will increase 6% per year from 2023-24 to 2025-26.
- Indirect Tax Concession Scheme: diplomatic and consular concessions extended.
- The start date for streamlining of excise administration measures announced in the Coalition government’s 2022-23 Budget will be amended.
- Tobacco excise measures to improve health outcomes and align the treatment of stick and non-stick tobacco tax.
If you would like to know more information about any of these measures, please do not hesitate to contact our office.
Business plant and equipment: Buy or lease?
When your business needs new plant or equipment, what’s the best choice – buy or lease? The answer will depend on your specific circumstances, but there are some basic considerations that can help you weigh up the options.
The advantages of buying
Buying gives you certainty and ownership, at a higher upfront price, but a lower total price. Owning an item of plant or equipment gives you unrestricted use for the lifetime of the item. You can alter it to suit your business, and you can sell it if you need to free up some cash. The full cost is paid up front, so you have no ongoing payments, and there may be opportunities for tax depreciation.
When equipment lasts for a long time and maintains its value, ownership can be a particularly good choice. Overall, the total price of ownership is usually lower than the total cost of leasing the item.
The advantages of leasing
Leasing tends to give you more flexibility, at a higher cost. It spreads out the cost of an expensive item – you don’t need to save or borrow the purchase price, and instead you make regular payments. You can return a leased item if it’s not working out, or upgrade to a better model as your business grows.
If the equipment or plant is something that quickly becomes obsolete, or that you’re likely to upgrade, or that you’re not totally certain is right for your business, leasing could be ideal. While leasing is generally more expensive across the lifetime of the item, it also frees up your money to invest in other areas of the business.
Running the numbers can help you find the right decision
The decision to invest in new plant or equipment can be a tricky one, but we can help. We can tally up the upfront and ongoing costs, and weigh these against the economic benefits you might get from the new equipment. We consider your cashflow, the cost of borrowing, and sales projections, so you can make an informed choice.
Drop us an email or give us a call – we’re here to help.