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With changes to Australia’s superannuation rules coming into play on 1 July 2017, self-managed super fund (SMSF) trustees would do well to review their fund’s trust deed.
Despite the fact that maintaining an up-to-date trust deed is a vital aspect of managing a SMSF, many trustees fail to do so, usually due to the time and cost restraints associated. However, a SMSF trust deed can only ensure compliance and protect the trustee’s interests if it is regularly updated and reflects current superannuation rules.
As part of the super reforms announced in last year’s Federal Budget, tighter superannuation rules will apply from 1 July 2017, including a $1.6 million super balance cap for after-tax contributions; a maximum of up to $25,000 for concessional contributions; and the removal of the current “bring-forward” rule allowing $540,000 of contributions in one year.
According to some industry analysts, these changes are likely to result in many out-of- date trust deeds. But often changes to superannuation legislation provide the perfect opportunity for trustees to review and upgrade their deed.
One of the major changes to super which will affect traditional SMSF trust deeds is the $1.6 million limit on retirement balances, which the Government also wants to make retrospective. This means those who already have more than $1.6 million saved in their superannuation will need to adjust their strategy and trust deed accordingly to meet the new limit.
Updating a SMSF deed will particularly benefit those SMSF members with money locked in the old term-allocated pension and with a pension balance greater than $1.6 million in a mix of term-allocated pension and account-based pension balances. This is because the term-allocated pension can be converted back (in full or in part) to the accumulation phase to remove any excess over the $1.6 million cap.
Another major change to consider is the deed’s death benefit control mechanisms. The new super rules will allow certain death benefits to be rolled over, so it may be worthwhile reviewing whether the SMSF trust deed has sufficient options in the death benefit payment provisions.
SMSF trustees will also have to consider whether their current trust deed will allow for the terms of the trustee’s pension to change without needing to stop and restart the pension. Many of the upcoming super changes will dramatically affect the strategic landscape of SMSFs in Australia, and some of these changes will challenge old deeds, so, as with any other financial decision, seek professional advice if you are considering updating your trust deed.
The ATO has provided further guidance for healthcare practitioners dealing with lump sum payments from healthcare centre operators.
The Tax Office is concerned with some practitioners who have received lump sum payments and have incorrectly treated the payments as a capital gain. These practitioners have then applied the small business CGT concessions to reduce the capital gain, in many instances reducing it to nil.
The ATO has clarified that a lump sum payment from a healthcare centre operator is more likely to be ordinary income of the practitioner for providing services to their patients from the healthcare centre rather than a capital gain. Practitioners are required to include the full amount of the lump sum payment in their assessable income.
Healthcare practitioners who are considering any arrangements that relate to a lump sum payment for commencing or providing ongoing healthcare services should note that the ATO is looking closely at these arrangements to determine if they are compliant with income tax laws and whether the anti-avoidance provisions may apply.
The Tax Office is aware that some practitioners are using a private ruling that was issued to another taxpayer, however, you can only rely on a private ruling if you applied for it.
Healthcare practitioners entering or planning to enter into an arrangement of this type are encouraged to seek independent professional advice, ask the ATO for a private ruling or make a voluntary disclosure to reduce any penalties. Please contact our office if you have any questions about these arrangements.
One major key to success is the ability to problem solve. Knowing how to respond to and resolve issues that arise creates stronger, more effective businesses. Whilst employees ought be highly skilled in their given fields, one trait that is truly invaluable is that of problem solving. As an employer, there are tips you can follow to encourage and develop the problem-solving abilities of your staff:
Trust your employees
There is nothing more damaging than micromanaging when it comes to building efficient problem solvers. When employees feel trusted and valued, they are more likely to challenge themselves when seeking out new and effective ways to resolve an issue that has arisen. Set goals for your staff rather than giving them rigid instructions to follow; you will lesson your own workload and you will be amazed at what solutions they can come up with.
Always look for hidden opportunities
We often follow the mantra, ‘if it’s not broke don’t fix it’. A problem arising in one area is actually a great opportunity to refine and improve existing surrounding processes and strategies. By viewing a problem arising as an opportunity to develop and strengthen the business, solving the problem often become less about what was failing to work and more about how much more efficient the process can be made.
Facilitate creativity
When employees are inspired to be creative, they are more likely to think abstractly and laterally, which is ideal for problem solving. This can be achieved through simple changes to the workplace, such as incorporating plant life, art, colourful furnishings; and providing opportunities to break up the monotony of a long day in the office through fun and quick activities such as tic, tac, toe or connect four.
Encourage effective communication
Fostering a workplace where employees are encouraged to speak their mind openly and honestly rather than one where employees only say what they think you want to hear is critical for effective problem solving. An environment where peer brainstorming and peer reviewing is encouraged is one where employees learn to think critically and build resilience.
Self-managed super funds (SMSFs) have a number of investment restrictions which apply to transactions conducted within the fund.
One such restriction applies to transactions involving ‘related parties’ of the fund and ‘relatives of members.’
No one associated with the SMSF should obtain a present-day benefit from the fund’s investments. The fund needs to meet the ‘sole purpose test’ of providing death or retirement benefits to the SMSF members or their dependents.
A breach to the investment restrictions may result in significant penalties, such as the disqualification of a trustee and even prosecution.
The Tax Office considers a ‘related party’ as:
all members of the fund
associates of fund members, including:
– relatives of each member
– the business partners of each member
– any spouse or child of those business partners
– any company the member or their associates control or influence
– any trust the member or their associates control
standard employer-sponsors, which are employers who contribute to your super fund for the benefit of a member, under an arrangement between the employer and a trustee of the fund
associates of standard employer-sponsors, which include business partners and companies or trusts the employer controls (either alone or with their other associates) and companies and trusts that control the employer.
The ATO considers a ‘relative of a member’ as a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child of the member or their spouse; or a spouse of any individual specified previously.
Generally, SMSFs cannot borrow money and cannot buy assets from, or lend money to, fund members or other related parties (although there are exceptions to this rule).
The Mid-Year Economic and Fiscal Outlook 2016-17 (MYEFO) announced that from 1 July 2017, the ATO will disclose tax debt information of businesses who have not effectively engaged with the ATO to credit reporting bureaus.
The new measure is aimed at enhancing the integrity of the tax system and ensuring businesses who are not compliant do not gain an unfair competitive advantage over those businesses who are.
The ATO will initially pass on unpaid debts from businesses with an Australian Business Number and with a tax debt of more than $10,000 which is at least 90 days overdue.
In addition, the Government will provide $1.6 million to establish a Black Economy Taskforce to develop an innovative, whole-of-government policy response to this problem. Black economy activities disadvantage honest taxpayers, undermine the integrity of Australia’s tax and welfare systems and reduce the amount of revenue collected by governments.
Most small business owners would love to be able to offer their more valuable employees a pay rise.
Increasing an employee’s pay is likely to reduce staff turnover, increase job satisfaction and boost productivity by raising motivation and commitment.
Unfortunately, most small business owners are simply not in a position to offer their staff a larger pay packet. However, there are a number of non-cash benefits that you may care to consider as an alternative course of action for recognising and rewarding good work.
These non-cash benefits may not have a dollar value. For example, allowing employees to work from home once a week or rearranging their working hours to better suit other commitments. Non-cash benefits may also have an identifiable dollar value, and in this case employers need to be aware of fringe benefits tax (FBT) before they decide to offer a non-cash benefit.
Non-cash benefits that attract FBT include, but are not limited to, personal use of a company car, cheap or interest-free loans, and entertainment in the form of food and drinks. Typically, where an employee is provided with a fringe benefit, the cost of the benefit is deducted from their gross (before tax) pay and the employer must pay FBT on this amount.
Most employers will pass this tax cost onto the employee. In most cases, FBT will not apply to benefits that are provided to independent contractors.
There are also some types of benefits that are not subject to FBT or receive an FBT concession, including some types of work-related items, living away from home allowances, and benefits that are classified as ‘minor benefits’ (less than $300).
Running a self-managed super fund requires trustees to adhere to complex laws and follow a number of onerous rules.
One of the most fundamental investment rules for SMSFs is that the trustees must transact on an arm’s length basis to ensure no conflict of interest arises. An arm’s length transaction requires trustees to conduct on a commercial basis as if there was no relationship between the parties.
This means the purchase and sale price of fund assets should always reflect the true market value of the asset, and the income from the assets held by the fund should always reflect the true market rate of return.
SMSF trustees must obtain independent valuations for assets which are not listed on a public market. Furthermore, if a SMSF sells an asset to a related party or member of the fund, the sale price must be at market value.
Any non-arm’s length income is taxed at the highest marginal tax rate. The ATO considers non-arm’s length income as income which is derived from a scheme in which the parties were not dealing with each other at arm’s length and if it is more than the SMSF might have been expected to derive (if the parties had been dealing on a arm’s length basis).
Whether you are looking to make new contacts in your industry or searching for your dream job; networking is essential to forming new relationships and expanding your connections.
Here are three ways to improve your networking skills:
Listen
Networking is all about building relationships. One of the best ways to establish a connection faster is to simply listen to the other person with no interruptions. Listening helps to understand the other person’s concerns and identify opportunities where you can offer them value.
Ask for an introduction
Ask friends and acquaintances for introductions to people they know or people who you would like to meet. Being introduced through someone else can help ease nerves and take the pressure off approaching a stranger.
Prepare questions
Preparing a few ice-breaker questions can help to get the conversation going and avoid small talk. If you are attending a networking event, do some research ahead of the event about the people who will be there and formulate your questions around their interests, knowledge etc. Having a list of well-prepared questions also helps to increase your confidence and demonstrate your enthusiasm.
Self-managed super funds can access Capital Gains Tax (CGT) relief to provide temporary relief from certain capital gains that might arise as a result of individuals complying with the transfer balance cap, and Transition to Retirement Income Stream (TRIS) reforms, commencing on 1 July 2017.
The transitional CGT relief is designed to preserve the income tax exemption for certain, accrued capital gains which would have been exempt, if the underlying CGT assets had been disposed of before the changed treatment of TRIS’s and before a member transfers to comply with the transfer balance cap starting.
CGT relief is available for certain CGT assets held by a complying SMSF at all times between the start of 9 November 2016, to ‘just before’ 1 July 2017. However, the CGT assets eligible for the relief depends on whether they stopped being segregated current pension assets during this period, or whether the fund continued using the proportionate method for the 2016-17 income year.
Trustees need to be aware that CGT relief is not automatic – it must be chosen by a trustee for a CGT asset. SMSF trustees will need to review their fund’s circumstances and determine if CGT relief is available and appropriate. If trustees do decide to obtain CGT relief, trustees must advise the ATO in the approved form on, or before, the day they are required to lodge their fund’s 2016-17 income tax return.
As the decision is irrevocable, careful planning is required. Trustees should seek professional advice if they are unsure if CGT relief is suitable for their circumstances.
Many small food retailers buy and sell products that are both taxable and GST-free. Depending on the point-of-sale equipment used, identifying and recording these sales can be difficult for business owners.
The ATO has introduced a series of simplified accounting methods (SAMs) to make it easier to account for GST and work out the amount of GST that is liable at the end of each tax period.
There are five SAMs to choose from. The SAM you choose will depend on your business’ turnover, the nature of your business and the nature of your point-of-sale equipment (except for the purchases snapshot method).
These methods help you work out the information you need to correctly complete the GST section of your activity statement. However, they can only be applied to sales and purchases of trading stock.
Here is a summary of the five SAMs you can choose from:
Business norms
Turnover threshold: SAM turnover of $2 million or less.
How you estimate your GST-free sales and/or purchases: You apply the standard percentages to your sales and purchases.
Stock purchases
Turnover threshold: SAM turnover of $2 million or less.
How you estimate your GST-free sales and/or purchases: You take a sample of purchases and use this sample.
Snapshot
Turnover threshold: SAM turnover of $2 million or less.
How you estimate your GST-free sales and/or purchases: You take a snapshot of your sales and purchases and use this.
Sales percentage
Turnover threshold: GST turnover of $2 million or less.
How you estimate your GST-free sales and/or purchases: You work out what percentage of GST-free sales you made in a tax period and apply this to your purchases.
Purchases snapshot
Turnover threshold: GST turnover of $2 million or less.
How you estimate your GST-free sales and/or purchases: You take a snapshot of your purchases and use this to calculate your GST credits.
After electing to use a SAM, you cannot change your method of GST accounting in the first 12 months.
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