June has arrived and so has winter, as the financial year draws to a close. Now that the federal election is out of the way, it’s time to focus on planning for the future with more certainty.
Cost of living pressures, inflation and interest rates were major concerns in the lead-up to the May federal election. The Reserve Bank of Australia (RBA) lifted the cash rate for the first time in over 11 years from 0.1% to 0.35%, as inflation hit 5.1%. This followed the US Federal Reserve’s decision to lift rates by 50 basis points to 0.75-1.00%, the biggest rate hike in 22 years as inflation hit 8.5%. Global pressures are largely to blame, from war in Ukraine and rising oil prices to supply chain disruptions and food shortages. The price of Brent Crude surged a further 27% in May.
As a result, the RBA has cut its growth forecast for the year to June from 5% to 3.5% and raised its inflation forecast from 3.25% to 4.5%. On the ground, the economic news is mixed. New business investment fell 0.3% in the March quarter but still rose 4.5% on the year. The NAB business confidence index fell from +16.3 point to +9.9 points in April, still above its long-term average. Adding to inflationary pressures, labour and materials shortages and bad weather saw building costs rise 2.8% in the March quarter, while retail trade rose further in April to be up 9.6% over the year.
On the positive side, unemployment fell further from 4% to 3.9% in April, the lowest rate since 1974, while annual wages growth rose slightly in the March quarter from 2.3% to 2.4%, still well below inflation.
Tax Alert June 2022
ATO crackdown on family trusts and GST fraud
With attempted GST fraud on the rise and certain family trust payments under a cloud, the tax regulator is stepping up scrutiny of more transactions.
Here’s a roundup of some of the latest developments in the world of tax.
GST fraud warning
The Australian Taxation Office (ATO) has issued a strong warning to taxpayers not to engage in GST fraud and for current participants to come forward before it takes tougher action, such as imposing tax penalties and seeking criminal charges.
Using sophisticated risk models and intelligence from the banks, AUSTRAC and the Reserve Bank, the ATO has identified a significant fraud involving fake businesses claiming false GST refunds through fictitious activity statements. The average fraudulent amount being claimed is $20,000.
The ATO is aware information on how to attempt the fraud is being shared via social media and has reminded taxpayers they are not anonymous online, with around 40,000 scheme participants already identified.
New rules on family trusts
Taxpayers with family trusts need to check the implications of a new ATO draft guidance package on the taxation of family trust payments that could reduce the attractiveness of these tax structures.
Under its new approach in this area, the ATO will focus on common tax planning strategies relying on the section 100A exclusion covering distributions to companies and family members. The draft ruling clamps down on the use of agreements involving ‘ordinary family or commercial dealing’, making the section 100A exemption unavailable in some situations.
Although parts of the package are draft guidance, taxpayers with a discretionary trust should consider its implications prior to 30 June 2022, particularly where there are parent controllers of the trust and adult child beneficiaries.
SG contribution deadline approaching
Employers planning to claim a tax deduction in their 2021-22 tax return for Super Guarantee (SG) contributions made on behalf of their employees need to ensure their contributions are received by the employee’s super fund prior to 30 June 2022 to be eligible for the deduction.
Your payroll system also needs to be updated to accommodate the 1 July 2022 increase in the SG contribution rate to 10.5 per cent and removal of the existing $450 a month minimum threshold for employees to qualify for SG contributions.
Disclosure of business tax debts
The ATO is currently writing to businesses with tax debts to warn them their liabilities may be disclosed to credit reporting bureaus (CRBs) under the Disclosure of Business tax debts measures.
Disclosure to CRBs can be avoided by engaging with the tax office and making full payment or negotiating a payment plan.
Deductions available for work-related COVID-19 tests
Taxpayers have another tax deduction they can claim in their annual returns after legislation covering the deductibility of COVID-19 testing costs received Royal Assent prior to Parliament rising for the Federal Election.
Expenses incurred by individuals from 1 July 2021 in relation to work-related COVID-19 testing can be claimed as a tax deduction, provided you can substantiate the expenditure.
Employers are also exempt from paying FBT where they pay for or reimburse work-related COVID-19 testing costs for employees.
Lower tax instalments in 2022–23
The GDP ‘uplift’ rate used to calculate both pay-as-you-go (PAYG) and GST instalments has been announced for the 2022-23 financial year. The new rate applies to instalments due after 31 March 2022.
The new rate is only two per cent (which is lower than the 10 per cent rate applying under the statutory formula), providing valuable additional cash flow to small and medium businesses, sole traders and individuals with passive income.
If a business’ earnings exceed the amount calculated, it would then need to pay the extra tax owed at the end of the financial year.
While businesses will still be able to manually set instalments with the ATO, the new PAYG formula is reportedly designed to avoid penalties arising from underpayments.
Attracting ATO attention
New information has been issued on the behaviours, characteristics and tax issues of privately owned and wealthy groups that attract the ATO’s attention.
It is interested in entities with a tax or economic performance not comparable to similar businesses; low transparency when it comes to their tax affairs; and large, one-off or unusual transactions, including wealth transfers. Aggressive tax planning and outcomes inconsistent with the intent of tax law also interest the ATO.
Test drive your car finance options
Car finance comes in many makes and models, so make sure you compare features before driving away
Putting a new car in your garage or choosing a commercial vehicle for your business is something most of us will do many times in our lives. But financing your purchase is far from routine. Nowadays there are a bewildering array of car financing options, and it’s worth checking under the bonnet before you proceed. Making the right choice can save you thousands in fees, interest and tax.
We’ve put together a list of financing options, together with their pros and cons, to get you started.
Car loan
Car loans are the simplest form of vehicle finance. You get money at a variable or fixed rate to purchase a vehicle then repay the debt, with interest, in instalments. The more security you can offer the lender, the lower the interest rate.
Pros: Accessible to most, simple to understand and manage. Business owners may be able to claim car cost as a tax deduction if the vehicle is used for work.
Cons:Individuals receive no tax benefit. Interest rates vary depending on security. If it’s a variable rate loan, your interest payments can rise suddenly.
Chattel mortgage
Under a chattel mortgage you borrow money from the lender to buy a car (the chattel) and the lender secures the vehicle with a mortgage. You have legal ownership from the time of purchase and the mortgage is removed once your loan is repaid.
Pros: Automatic security for the loan. Flexible repayment options. Business owners can claim GST.
Cons: Interest rate depends on likely asset recovery price; the lower the recovery price, the higher the interest. Individuals can’t claim GST.
Commercial hire purchase
In a commercial hire purchase arrangement, the lender owns the vehicle and you pay a hire fee to use it until the end of the repayment term, at which point you take ownership.
Pros: Business owners can claim GST on the hire fee and some costs as a tax deduction. If it’s important for you to be seen driving a late-model car, this arrangement makes it straightforward to re-finance and trade up to a new vehicle.
Cons: Lender owns the car until paid off. Individuals can’t claim GST or tax deductions.
Finance lease
As with commercial hire purchase, a finance lease means the lender remains the owner of the vehicle while you pay a hire fee. At the end of the set term, you can choose whether you want to take ownership.
Pros: Businesses can claim GST on the hire fee and some costs as a tax deduction. As with commercial hire purchase, it’s easy to re-finance and trade up to a newer vehicle.
Cons: Lender owns the car. Individuals can’t claim GST or tax deductions.
Operating lease
Similar to finance lease where the lender owns the vehicle and you pay a hire fee, except you never take ownership of the vehicle.
Pros: Businesses can claim GST on the hire fee and some costs as a tax deduction. Once again, this arrangement facilitates re-financing and trading up to a new car.
Cons: Lender owns the car (permanently). Individuals can’t claim GST or tax deductions.
Novated lease
This is a common ‘company car’ arrangement between a business, an employee and a lender. The business borrows money from the lender for a vehicle, which the employee leases. The business then takes money from the employee’s gross salary to make repayments, resulting in tax benefits.
Pros: Reduces employee’s pre-tax income, as the vehicle is part of remuneration package. Business owners can offer this as an employee perk (if they don’t mind doing the resulting paperwork).
Cons: In some cases this may be considered a fringe benefit, attracting fringe benefits tax.
So which is your best financing option? Unfortunately, there’s no simple answer as it will depend on your circumstances.
If you’re thinking about a new car for personal or business purposes, don’t hesitate to call us to discuss financing options and their tax implications.
Time to adjust the goal posts
While the new financial year is a line in the sand that is important from a taxation perspective, it can also be a useful point to take a step back and take stock of the bigger picture – your personal and professional goals.
Goals are important from a personal standpoint and essential when it comes to running a successful business. They can provide a clear focus for your efforts, a way to track progress and be a powerful motivator.
Dealing with change
The past couple of years have been a period of profound change, impacting the way we work and live but the reality is there will always be circumstances beyond your control. Your situation is ever evolving, as are your hopes and dreams for your future.
Personal finances and goals
While Australian household financial comfort improved around 3 per cent through the latter half of last year, that may not have been your experience, particularly as the costs of living have steadily increased.i You may be a little behind where you would like to be and wanting to step things up a little or make some adjustments to take into consideration any changes in circumstances. For those whose financial positions have taken a turn for the better, that creates opportunities and it’s worth thinking about what that means for your short-term and longer-term goals.
Even setting the financial side of things aside, it’s important to review whether what you aspire to has shifted. Our values and aspirations change as we move through life and it’s important to check in and see if your goals still resonate as strongly as they once did or whether you need to redefine what you want to work towards.
Goal setting for business
If you run a business, you have made it through ‘interesting times’. Some sectors have prospered while others have been decimated. If it’s been a while since you have thought about your goals in relation to your business, the following tips will help you raise your head above the day-to-day ‘noise’ and adjust your objectives.
Here is a good process to follow which will help you ensure your goals – whether they be personal; or for your business – are still fit for purpose.
Step 1. Review and re-evaluate
The first step is to review your goals, assessing what is REALLY important to you. Reflect on why you set your goals in the first place and make sure they truly reflect your objectives. The goal of building your business to generate a certain amount of revenue may be more about the satisfaction of achieving sustainable growth than a dollar value. Equally, your dreams of early retirement may be more about spending more time with loved ones which you don’t necessarily have to retire to do.
Take into consideration the events of the past 12 months and how they have impacted – positively or negatively – on your progress towards your objectives. If your goals are still as important to you given your present circumstances, think about what it will take to achieve them.
Step 2. Redefine
This is where the real change happens. Allow yourself to redefine what success means to you. That can mean accommodating a change in direction or circumstances; or even letting go of a goal that is no longer relevant or adjusting to accommodate a new goal. It’s important to be realistic about what you can achieve, moving the goal posts does not always mean setting more ambitious goals. It’s fine to pull back a little – particularly if it makes the goal more achievable.
Step 3. Re-engage and commit
The final step after you redefine your goals is to commit to them and fully engage in the goal in order to reap the benefits of the process you have just undertaken. This step can be as simple as breaking your goals down into a series of milestones and creating a process and support structure for achieving them.
In no time at all you will be seeing positive outcomes from your efforts and lining up for that winning kick into your newly aligned goalposts. – GOAL!
Get your SMSF ready for 30 June
With the end of the financial year (EOFY) just around the corner, it’s important to ensure your SMSF meets its compliance obligations.
The rules around SMSFs are strict and if you don’t do things the right way, your fund could end up paying extra tax.
Here’s some key tasks trustees need to complete prior to 30 June 2022.
Check minimum pension drawdowns
Check that any members being paid an account-based pension have received the right amount for the current financial year.
Even though the government has extended its 50 per cent reduction in the minimum pension payment, underpayment can cause compliance problems for your SMSF. So ensure pensioner members have been paid at least their minimum percentage factor prior to 30 June. Documentation needs to be updated and minuted to avoid any problems with the fund’s auditor.
Trustees should also discuss with members receiving a super pension whether they intend taking advantage of the temporary extension in the coming financial year.
Stay within the contribution rules
For 2021-22, the general cap on concessional (before-tax) contributions is $27,500, while non-concessional (after-tax) contributions are limited to $110,000.
An individual member’s annual cap may be different to these amounts, so check that members have verified their current position before accepting contributions. Otherwise, they may face tax penalties.
Legislation has now passed abolishing the work test from 1 July 2022 for contributions made by older SMSF members. For this EOFY, however, trustees still need to check whether contributing members aged between 67 and 75
meet the work test (or work test exemption) before accepting their contributions.
Verify bring-forward contributions
An important EOFY strategy for many SMSF members is using a bring-forward arrangement to access up to three years annual non-concessional contribution caps. For eligible fund members, this can be up to $330,000 in a single year.
SMSF trustees should remind members commencing a bring-forward arrangement they need to meet all the eligibility criteria and that their personal non-concessional cap may be lower if they already have a large Total Super Balance (over $1.48 million).
Although members aged 67 to 74 are unable to commence a bring-forward arrangement in 2021-22, your fund will be able to accept these contributions from older members once 1 July 2022 arrives.
Review the fund’s investment strategy
Other important trustee tasks prior to EOFY are checking the fund has a documented investment strategy and that it has been reviewed for its ongoing suitability.
Trustees are required to minute all investment decisions, including why an investment was chosen and whether all trustees agreed with the decision.
You also need to ensure your SMSF’s investments (such as real estate and collectibles) are valued at market value prior to EOFY. The valuation must be based on objective data with supporting documentation, so if a professional valuation is required, don’t leave it to the last minute.
Get the paperwork in place
Trustees are also required to consider whether members should be provided with life and Total and Permanent Disability (TPD) insurance, so ensure this has been reviewed and documented.
If your SMSF is required to hold insurance for members, check the current insurance policies provide adequate cover and all premiums are paid before 30 June.
Also check the SMSF’s recordkeeping is updated, fully documented and ready for inspection by the fund’s auditor or accountant. This includes minuting trustee decisions; collating bank, dividend and investment statements; and preparing details of any asset purchases or sales.
Review the capital gains position
If your SMSF has members in accumulation phase, review any capital gains made during the financial year and the period these assets have been held.
It may be worth considering whether to dispose of investments with unrealised capital losses if the fund made capital gains during 2021-22. The realised capital losses can then be offset against the capital gains to potentially reduce the fund’s tax bill.
Prepare for the audit
Trustees must have appointed an approved SMSF auditor no later than 45 days before you need to lodge your SMSF annual return. You need to have an auditor organised, even if no contributions or payments have been made during 2021-22.
SMSF auditors are required to examine both the fund’s financial statements and assess its compliance with super law, so ensuring all the fund’s records are in order and ready for review will streamline the audit process.
If you would like help preparing your SMSF for the financial year end, contact our office today.
Liability limited by a scheme approved under Professional Standards Legislation. This advice may not be suitable to you because contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information.