Cooper Partners Financial Services wins SMSF Firm of the Year

 

In what has been a highly enjoyable and successful week for our practice, we took great pride in being able to share with our team in celebrating the honour of Cooper Partners Financial Services being awarded the “SMSF Firm of the Year” at the 2017 SMSF Adviser Awards for WA at Crown last night.

The award is a credit to Jemma Sanderson and our team for all of the hard work and dedication put into establishing ourselves and our practice as leaders in the every changing and challenging superannuation and SMSF industry.

We pride ourselves on our technical depth, high quality innovative advice and exceptional service, delivered by specialist staff who are highly trained and skilled.

By being at the forefront of the ongoing reforms, we are able to analyse and communicate the changes as they come to hand not only to our clients, but also to the broader network of advisers that we consult to.

In the technological age where administration is commoditised, we have always favoured the human element and face to face contact with our clients, ensuring that we know all of our clients circumstances and can respond quickly to queries, issues and opportunities as they arise, delivering a value-added service to our high standards. We find that this goes a long way to ensuring a long term relationship with our clients.

We are humbled but proud that Cooper Partners Financial Services has been recognised as a leader in the SMSF industry.

In The Xpress Lane – October 2017 Quarterly Update

A quarterly tax update

Cooper Partners is now providing a summary of the top 5 hot-button issues from the tax world garnered during the last quarter that you might not otherwise have noticed.  A super quick way to stay current on the “need to know” tax developments that are relevant to you.

In this quarterly “In the Xpress lane”, the following is covered:

  1. Cross border debt by junior explorers
  2. Company tax rates for under $10M turnover
  3. Draft ATO ruling on the deductibility of travel expenses
  4. $20,000 instant asset write off
  5. ATO provides a further 7 years to repay certain corporate beneficiary entitlements

Latest ATO discussions re cross border debt and junior explorers

The ATO is currently drafting guidance on interest free loans and how the new arms-length principles under transfer pricing will apply to these arrangements. This will be relevant for junior explorers who are investing outside Australia.

To date there has not been an ATO ruling covering the Commissioner’s view on interest-free loans from related entities.

In the recent WA Tax Convention in August, the ATO said that it doesn’t really have an issue with interest free loans during the pre-feasibility stage, as banks would unlikely have lent to these explorers for such activities.

However, post-feasibility, the entities will need to consider the group’s overall cost of debt. A low interest rate would usually be acceptable despite jurisdictional risk. Considerations include:

  1. If there is capacity to take on debt, then how much?
  2. The level of gearing where a higher gearing ratio will indicate less capacity to take on debt.

The new ATO guidelines won’t focus on factors, but will pose key questions like whether there is a reasonable expectation that an arm’s length party would have provided interest bearing loans.

It is expected a draft tax determination will be issued before January 2018.

The ATO will also issue a Practical Compliance Guideline which will provide further guidance on when an interest free loan is at low risk and not likely to be subject to audit.

It is expected that the term “quasi equity” will be dead.

Cooper Partners will keep you up to date on any developments.

Passive investment companies excluded from small business tax rate

The government has released draft legislation clarifying that passive investment companies and corporate beneficiaries of family trusts will not be able to access the lower tax rate for small businesses.

A recent media release from Minister for Revenue and Financial Services Kelly O’Dwyer revealed that the policy decision made by the government to cut the tax rate for small companies was not meant to apply to passive investment companies.

Previously, there was uncertainty around this with a draft ruling from the ATO stating that passive investment companies constituted carrying on a business making an inference that such companies and corporate beneficiaries of family trusts could access the lower tax rate .

The exposure draft bill amends the tax law to ensure that a company will not qualify for the lower company tax rate if 80% or more of its income is of a passive nature such as dividends and interest.

There are some unintended scenarios that may fall out with the new over layered test when determining the lower tax rate. The rules have been changed so that as soon as 80% of a company’s income comes from ‘passive’ sources, it cannot use the lower tax rate, irrespective that its aggregated turnover is less than $10M. Passive income includes dividends, interest, royalties and partnership and trust distributions attributable to passive sources.

One area of concern is the year-to-year nature of the test. We may find that active businesses may unintendedly fall in the higher tax rate due to interim business inactivity. There could be scenarios where businesses are sold and whether these gains effect the ratio combined with the effect where money just sits in the bank account earning interest.

Due to the tracing rules, corporate beneficiaries of trusts that carry on an active business may be able to take advantage of the lower tax rate. A similar tracing approach applies to dividends received from companies in which a shareholding of at least 10 per cent is held. This will mean holding companies of subsidiaries won’t be disadvantaged due to the dividends received. The amendments only apply to the year ended 30 June 2017 and later years.

Cooper Partners will road-test the 80% threshold through our relevant client base to determine the impact.

In the meantime this draft legislation is currently under industry consultation.

Draft ATO ruling on deductibility of travel expenses

The Commissioner released a draft tax ruling TR 2017/D6, on deductibility of travel expenses, which reflects the ATO’s current view of the taxation treatment of contemporary working and travel arrangements following the pivotal John Holland case with the creation of a new ‘special demands’ travel category.

The ATO’s tax treatment of travel expenses is now clearer since it revised and explained its view of the treatment of many common travel expenses and the ruling includes numerous new and interesting examples of both deductible and non-deductible travel expenses.

However, there are new concepts that need further clarity such as duration and location issues as well as further guidance on how travel between such locations should be treated. In the final ruling, we would like to see the ATO define ‘remote work location’ and include scenarios to address modern work practices.

It would be appropriate to introduce a time frame when travel costs are generally deductible in short term arrangements, as being more consistent with mobility industry standards combined with the general time limits for taxing employment income in Australia in most of Australia’s international double tax agreements.

This ruling has far reaching consequences particularly for employers and those that have been relying on an understanding of the application of the “otherwise deductible rule to reduce FBT exposure. Furthermore, we believe employees receiving travel allowances will be impacted with this new ruling as to what they will be able to claim against this allowance.

In the meantime we encourage you to consider how TR 2017/D6 will impact the deductibility of your employee’s travel expenses. Please contact your Cooper Partners engagement team if you require assistance.

$20,000 instant asset write off

This is the final year of the $20,000 instant asset write-off – to be abolished from 1 July 2018.

Until 30 June 2018, Small Business Entities (SBE’s) can claim an immediate write-off for most depreciating assets used in their business if the asset costs less than $20,000 and the below time frames are met. In broad terms, SBE’s are entities that are carrying on a business and have an annual turnover of under $10 million. This includes the turnover of any connected entities and affiliates.

Being in its final year of operation, the timing requirements around the instant asset write-off are important. To claim a deduction in 2017/2018, the asset must have been acquired on or after 1 July 2017 and first used or installed ready for use in your business on or before 30 June 2018.

If you miss the deadline (i.e. if the asset is not being used in your business or installed ready for use on or before 30 June 2018) then the write-off threshold reverts to $1,000.

Missing the deadline may result in a disadvantage cash-flow outcome for your business than if the deadline is met due to the potential tax savings. But you should not let tax distort or blur your commercial instincts – as you don’t get any extra cash than you would otherwise have under the old rules, you should continue to only buy assets that fit within your business plan.

ATO provides further 7 years to repay certain corporate beneficiary entitlements

The ATO has released Practical Compliance Guideline 2017/13 which will allow trusts to refinance unpaid entitlements (‘UPE’) of corporate beneficiaries for an additional 7 years, where those unpaid entitlements are due to be repaid by the trust by 30 June 2018. This can provide a significant cash flow benefit where you would otherwise have been required to repay such arrangements.

The guidelines relate to unpaid entitlements of corporate beneficiaries to the income of a trust that were converted to a 7-year interest only loan. Under these new guidelines, the ATO will allow the unpaid amount of the UPE to be converted to a Division 7A complying 7-year loan. However, the new loan must provide for principal and interest payments over the additional 7-year term.

The ATO will not accept the refinancing to be done on an interest-only basis or refinance through a 25-year interest and principal loan.

The new Division 7A compliant loan must be put in place prior to the earlier of actual or due date for lodgement of the corporate beneficiary’s income tax return for the year in which the 7-year interest only loan matures which may for many be around May 2019.

The ATO have made no comment at this time whether this position will be extended further to UPEs that are due to be repaid in later income years. We will continue to monitor any announcements in this regard.

What to do now?

Cooper Partners will be reviewing client’s existing UPE arrangements to determine what action is required in light of the ATO’s new guidelines. In the meantime if you have any queries regarding the above please contact your engagement team members.

It’s an Octoberfest of Changes for Employers!

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With the Turnbull Government now settled in, many tax changes previously raised in the Budget are now coming through Parliament. Here is a rundown of the key changes impacting employers.

1. Personal Tax Cuts

Employers be aware as of 1 October 2016, the PAYG Withholding rates for employees have changed. The 32.5% tax threshold from $37,001 – $80,000 has increased to $37,001 – $87,000 for the income year ended 30 June 2017 as follows:

table-1

*Rates do not include the Medicare Levy Surcharge and Temporary Budget Repair Levy for taxable incomes >$180,000

The non-resident tax rates have also been updated to increase the 32.5% tax threshold to $87,000, up from $80,000 as below

table-2

The ATO have released updated PAYG withholding rates for both resident and non-resident individuals who earn over $80,000.

The new withholding rates have application from 1 October 2016, so will apply to your first payroll run from this date.

Actions

  • If you haven’t already updated your payroll systems, we recommend downloading the current tax tables from http://www.ato.gov.au/taxtables or contact your payroll software provider for the relevant update.
  • No further adjustments are required to be made by employers.
  • While the updated tax tables do not include any catch-up component for the portion of the year prior to 1 October, individuals affected will receive a tax adjustment for the 1 July to 30 September period upon assessment of their income tax return for the 2017 income year.

2.  SuperStream deadline is approaching for ‘small employers’

SuperStream is a new standard where employers pay superannuation contributions and disclose other relevant information electronically in the approved format. It applies to all employers and includes contributions made to self-managed superannuation funds (subject to some exemptions).

While medium to large employers (i.e. employers with 20 employees or more) were required to be SuperStream compliant from 1 July 2015, small employers were provided with an extended deadline until 28 October 2016. Where an employer is not SuperStream compliant by the deadline, the ATO can impose penalties, particularly where it considers that no or little effort has been made to comply with the SuperStream requirements.

Actions

  • If not already SuperStream compliant, you should review your current payroll systems to ensure that it meets the SuperStream reporting capabilities, or choose an alternative SuperStream option, such as:
    o   A super fund’s online payment system;
    o   The ATO Small Business Superannuation Clearing House; or
    o   Messaging portal.
  • Once you have chosen an option, you should then collect the relevant information for each employee and their chosen super fund as required under the SuperStream rules in order to commence SuperStream reporting and payment of super contributions.

3.  Backpacker tax changes on the horizon

The House of Representatives has passed changes which impose a ‘backpacker tax’ on individuals holding a Working Holiday 417, 462 or certain related bridging visas commencing 1 January 2017. The proposed changes seek to apply a 19% income tax rate on a working holiday maker’s taxable income on amounts up to $37,000, with the ordinary individual marginal tax rates applying against amounts in excess of this.

Actions

  • Employers of working holiday makers must register with the ATO in order to withhold at the 19% tax rate.
  • Failure to register requires an employer to withhold at the 32.5% rate and may expose the employer to ATO penalties.

4.  Simplified FBT approach for fleet cars

The ATO has released Practical Compliance Guidelines PCG 2016/10 which provides a welcome concession for employers in managing the logbooks of their employees using work fleet cars. The ATO now permits an employer to use a single average business use percentage across all work fleet cars calculated from valid logbooks – this means that the occasional missing or incomplete logbook should no longer cause the problems around FBT time.

There are several conditions in obtaining this logbook concession:

  • The cars must be used predominantly for business – i.e. they are ‘tools of trade’ and are not salary packaged;
  • The fleet has at least 20 cars and none of these cars exceed the luxury car threshold (currently $64,132);
  • The employees are required to keep logbooks for the fleet for each logbook year (i.e. once every five years) and valid logbooks are in fact held for at least 75% of the fleet the relevant year; and
  • The employer either chooses the type of fleet cars, or allows the employee to choose a car from a limited list.

The logbook average can be applied across the entire work fleet for a period of up to five years, including to new and replacement cars in the fleet (subject to certain limited circumstances).

Actions

  •  Review your logbooks
  • Ensure that at least 75% are valid and compliant with the logbook requirements.
  • The logbooks should be maintained for a 12-week period.
  • Review your payroll system
  • Ensure the appropriate value is selected as the reportable fringe benefits on PAYG payment summaries
  • The average business use percentage can be used
  • A comparison should be undertaken as to whether it is more favourable to use the actual logbook business use percentage, versus the average percentage to provide the lowest RFBA
  • We note however that where the total taxable value of reportable fringe benefits provided to an employee is less than $2,000 for an FBT year, no amount is required to be reported in the PAYG payment summary.

Further Actions

If you would like any further information in relation to the new employer obligations and how they may impact your business, please contact Rachel Pritchard or Rebecca Lay on (08) 6311 6900.

 

Super Update – Further details on the new NCC bring forward cap

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Following on from our Super Update last week, the Treasurer has provided further clarification regarding how the transitional rules will work for individuals who trigger the $540k cap before 1 July 2017.

Individuals have one last opportunity this year to use the higher personal after tax contribution limits of $180,000 per year. Where the taxpayer are in a position to take advantage of this, they could contribute up to $540,000 before 30 June 2017. Post July 2017, the bring-forward cap will be recalculated to reduce the remaining period’s annual caps from $180k per year to $100k per year.

Take an example: If an individual was to trigger the $540k bring-forward cap in the current year by making a $250k on after tax contribution to their superannuation fund, they would only be able to contribute a further $130k over the next 2 income years. The total over the 3 years of $380k represents the current year’s annual cap of $180k, plus the $100k annual cap for the next 2 years under the new rules.

Therefore, if you are in a position to consider utilising the $540k bring-forward cap in the current year to be able to contribute up to an extra $160k in non-concessional contributions. Prior to implementing the above strategy, please contact us to ensure you implement correctly.

 

Authored by Jason DeMarte and Jemma Sanderson

Tax Record Keeping – In An Electronic Environment

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Within a rapidly changing digital world and with an increasing number of businesses moving towards paperless offices, we are often asked whether tax records can be stored electronically and how long they should be stored for.

Electronic storage has obvious benefits, including ease of accessibility and storage efficiency. However, you should be aware of specific legislative requirements given the consequences of non-compliance for a company and its officers.

Below is a summary of some of the key record-keeping obligations of a company for taxation purposes and how this inter-plays with an electronic storage system.

We note that the records your business keeps should be considered in the context of your business operations and with regard to all the relevant commercial and statutory requirements specific to your business.

Income Tax Laws and the ATO

  • Income tax laws require businesses to maintain tax records that explain transactions undertaken by them.
  • Under the law, documentation can be maintained either in paper form or by means of electronic storage.
  • As a general rule, tax records should be retained until five years after the later of:
    • The date on which the records were prepared or obtained; or
    • the completion of the act or transaction to which the records relate.
  • It is important to note however that the events that mark the beginning or end of the retention period can vary according to particular laws. For example, capital purchases records will generally be required to be kept from the date of purchase until five years after the capital gains tax event (such as a disposal) has occurred and this period may be extended further if the disposal results in a capital loss.
  • Notwithstanding the above, records that support claims made in income tax returns may need to be kept for additional time, as outlined below.

Income tax returns and other ATO statements

  • There is no legislative requirement to keep copies of signed income tax returns or activity statements, provided taxpayers retain copies of the records used to prepare these documents for five years after either:
    • the due date; or
    • date of lodgement (whichever is the later).
  • This five year period also applies to taxpayer declarations relating to returns and documents lodged by a tax agent on the taxpayer’s behalf.
  • If the period in which the Commissioner may amend a tax return assessment is extended, records relating to transactions disclosed in that tax return are required to be retained until the end of the extended assessment period.
  • Income tax laws require that written records must be kept in the English language, or so as to be readily accessible and convertible to English.

The above records may be kept electronically as scanned documents provided that the electronic copy is a true and clear reproduction of the original and is in a form that the ATO can access and understand in order to ascertain a taxpayer’s tax liability.

Tax governance

We recommend that taxpayers prepare detailed records and supporting documents at the time they either enter into a transaction or adopt a tax position in order to manage tax risk.

Although five years is generally the period for retention for tax purposes, other legislation may require longer periods.

Company law

The Corporations Act outlines reporting requirements for financial records as well as for registers and meeting minutes books as outlined below.

Financial records

  • The Corporations Act requires that companies keep financial records for seven years from the date after the transactions covered by the records are completed.
  • These records must correctly explain the entity’s transactions and financial position and performance, and must enable true and fair financial statements to be prepared and audited.
  • Financial records include working papers that are needed to explain the methods by which financial statements are prepared and adjustments to financial statements are made.
  • The Corporations Act specifically allows for financial records to be kept in electronic form, provided they are convertible into hard copy and a hard copy is capable of being made available to a person entitled to inspect the records within a reasonable time.

Registers

  • Registers are required to be maintained for the duration of a company’s registration plus five years after the date on which the last entry was made.
  • Minute books of the Directors and Shareholder meetings are required to be maintained for the duration of a company’s registration.
  • These records can be prepared and stored electronically provided they can be reproduced at any time in a written form.
  • For this reason we believe it is prudent to retain minutes and resolutions in written form.
  • Companies are required to take reasonable precautions to protect records against damage and tampering.

Industrial law

  • All employers are legally required to keep time and wages records to provide support that employees have been paid correctly and have received their full entitlements.
  • Under West Australian state law, time and wages records must be kept for at least seven years after they are made, for both current and past employees.
  • Records relating to long service leave must be kept during the period of employment and for seven years from the date employment ends.
  • Employment records may be kept electronically provided they are readily accessible and are convertible into a legible form in the English language.

There are other record-keeping requirements that may apply to companies in relation to their employees, for example workers compensation legislation and industry codes to which the company is a party, may also impose specific record retention requirements.

SMSF law

If you have your own SMSF, over and above the general 5 year rule relating to tax records, SMSF’s need to keep the following records for a minimum of 10 years:

  • minutes of trustee meetings and resolutions
  • records of all changes of trustees
  • trustee declarations recognising the obligations and responsibilities for any trustee, or director of a corporate trustee
  • members’ written consent to be appointed as trustees
  • copies of all reports given to members
  • documented decisions about storage of collectables and personal-use assets.

Electronic record keeping

The Electronic Transactions Act 1999 (ETA 1999) contains specific provisions which state that a requirement or permission under a law of the Commonwealth for a person to provide information, in writing, to sign a document or to retain information or a document can be satisfied by an electronic communication, subject to certain minimum criteria being satisfied.

Where information is kept in electronic form, the electronic form used must be:

  • readily accessible so as to be useable for subsequent reference; and
  • a reliable means of assuring the maintenance of the integrity of the information contained in the electronic form.

Both the ETA and the ATO emphasise that the integrity of information is maintained only where the information remains complete and unaltered. Therefore, it is important to ensure that electronic record keeping systems contain sufficient security to ensure that the record cannot be altered or manipulated.

The ATO’s guidelines on the controls and features that electronic record keeping system should have in order to meet the record keeping requirements under the tax law are set out in Taxation Ruling 2005/9.

Further to these guidelines national and international standards exist for electronic records against which companies may assess their electronic record keeping systems, including AS/NZS ISO/IEC 17799:2006 which provides best practice recommendations for information security management.

Actions

  • Best practice is to ensure your business maintains reliable record keeping processes. The ATO will accept documents to be stored electronically so long as when printed or reproduced they are a reliable representation of the original.
  • We recommend that businesses consider implementing the above electronic standards as part of their tax record retention policies and systems to ensure that they are able to rely on their electronic records if and when the need arises.
  • Ensure appropriate back-up copies of computer files and programs are occurring and there is an ability to recover records if your computer system fails.
  • Ensure there are adequate controls to safeguard the security and integrity of the records, such as passwords or restrictions to access as appropriate.
  • Note that the above summarises the record keeping for tax. Any legal documents like contracts, leases, trust deeds, documents that need witnesses still require the original written version to be maintained.

If you would like us to conduct a health check of your record keeping for taxation purposes and sign off your electronic tax records or CGT asset registers please contact us.
This article was authored by Michelle Saunders and Robyn Dyson.

Super Update- $500k lifetime cap scrapped

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Since the initial announcement on 3 May 2016, the Government’s proposal to introduce a lifetime cap of $500k for non-concessional contributions, has caused much uncertainty and lack of confidence towards the superannuation system.

In response to the backlash surrounding this controversial measure, the government has now announced their decision to scrap the $500,000 lifetime after-tax non-concessional contributions cap. This is set to be replaced by a reduction to the existing annual non-concessional contributions cap from 1 July 2017, from $180,000 per year to $100,000 per year for individuals under the age of 65 with a 3 year bring-forward for those who have a superannuation balance of $1.6 million or less.

If your superannuation balance is above $1.6 million, you will no longer be eligible to make non-concessional contributions from 1 July 2017.

In light of these revised limits, there is much opportunity to review your contribution strategy to take advantage of the last year of the current contribution limits and maximise your after-tax contributions before 30 June 2017.

 

Potential Actions:

  • Individuals under the age of 65 with a balance of $1.6 million or greater in their superannuation fund and wishing to contribute more should look to utilise the $540,000 bring-forward cap in the current year in order to maximise their superannuation balances, subject to the use of their bring-forward caps in previous years.
  • Individuals under the age of 65 with a balance well below $1.6 million will have access to the bring-forward cap, and could utilise this subject to cash-flow. These individuals will post 1 July 2017 still have access to the $100,000 in non-concessional contributions every year with an ability to access the 3 year bring forward until such time that their balance reaches $1.6million.
  • Where an individual does not fully utilise the $540,000 bring-forward cap before 30 June 2017, they will be subject to transitional arrangements where the remaining bring-forward amount will need to be determined so as to consider how this will affect your post 1 July 2017 contributions with the interaction with the new caps.
  • Note that where an individual is approaching the $1.6 million and the bring-forward cap has not been fully utilised in the previous 2 financial years, you will still have the opportunity to contribute up to the maximum $540,000 bring-forward cap albeit taking you over the $1.6 million lifetime limit before 30 June 2017.
  • Where your superannuation ends up being over $1.6M, this in our view should not be of concern as superannuation will still be a tax efficient vehicle to hold your investments enjoying the concessional tax rates of 15% on income and 10% on long term capital gains.

 

The government has also opted against removing the work-test for individuals aged between 65 and 74 which was previously announced. People in this age bracket will still be required to work for at least 40 hours over a 30 day period in the financial year that they wish to make a contribution.

Finally, the government will also be deferring the commencement date of the ability to catch up on concessions by one year, to now 1 July 2018. This measure allows a person with unused concessional contribution limits in previous years to utilise them in future years, over a rolling 5-year period. This option is only available to people with a superannuation balance of less than $500,000. The concessional contributions limit is still limited to $25,000 for all individuals as previously announced in the budget.

 

If you would like to discuss any of these changes to superannuation, please contact Michelle Saunders, Marissa Bechta, or Jemma Sanderson on (08) 6311 6900.

Single Touch Payroll Reporting

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As you may be aware, the Budget savings (Omnibus) Bill 2016 (“the Bill”) has been introduced to Parliament. The bill contains the ‘Single touch payroll reporting’ (“STPR”) measures, which introduce significant changes to current employer reporting requirements.

The STPR rules are designed to reduce compliance cost for employers by providing relief from certain year end reporting requirements. However, employers subject to the new rules will need to report payroll data more regularly to the ATO.

Which employers will be affected?

From 1 July 2018, ‘substantial employers’ will need to comply with STPR. If an employer has more than 20 employees on 1 April 2018, it will be considered a substantial employer. For the purposes of the Bill, employees are defined under common law such that contractors and other individuals that may be considered employees under the extended meaning of employees under the Superannuation Guarantee (Administration) Act 1992 are excluded from the definition.

Further, the headcount to establish employees does not take into account the full-time equivalency, casual nature or the fact that they work overseas.

Employers satisfying the ‘substantial employer’ test at 1 April in a later year, will need to comply with the STPR rules from the following 1 July. Importantly, once an employer becomes a substantial employer, it will need to continue to report under STPR even where it later ceases to meet the definition of a substantial employer, unless the ATO grants an exemption.

Employers with less than 20 employees may voluntarily choose to report under the STPR.

What needs to be reported?

The following payments will need to be reported to the ATO on or before the payments are made:

  • Ordinary times earnings and salaries
  • PAYG withholding amounts
  • Superannuation contributions

Essentially, employers will need to lodge reports to the ATO via STPR compatible payroll software as part of their payroll process. Employers already compliant under the SuperStream measures are likely to satisfy the STPR reporting requirements for superannuation contributions.

The Bill does not propose any changes to the current due dates for payment of PAYG withholding liabilities.

What reliefs will be available?

Employers subject to the STPR rules will be exempt from the following reporting obligations:

  • Payment summaries to employees
  • Payment summary annual report to the ATO

It is envisaged that monthly activity statements will be pre-filled with information reported to the ATO through the STPR enabled software.

The Bill also introduces further measures to streamline the employee commencement process by integrating data from the STPR software into TFN declarations and superannuation choice forms.

Way forward

At this time, no action is required by employers on the basis that the Bill is still subject to passage by Parliament and in any case, will not be in effect until the 2019 financial year.

SuperStream Deadline Extended for Small Employers

SuperStream

While the deadline to comply with SuperStream for larger employers was 1 July 2015, the ATO has announced they have extended the deadline for employers with 19 or fewer employees to be fully SuperStream compliant until 28 October 2016.

SuperStream is a government initiative with the purpose of improving the efficiency of administering the Australian superannuation system. The system requires employers to remit employee contributions and other relevant information in a standardised electronic format.

If you are a small employer, this is what you need to do before 28 October 2016:

Step 1: Choose a system
To use SuperStream you need to pay super and report to your employees in the required format electronically.

The different solutions are as follows:

  • Using the ATO Small Business Superannuation Clearing House – this is a government run service available to employers with an annual turnover of less than $2 million and is free of charge.
  • Using a commercial Clearing House – the default fund which you recommend to your employees may have one of these already. However, these will most likely not be free of charge.
  • Upgrading your payroll software – a list of compliant software is available on the ATO website.
  • Outsourcing your payroll function – they should provide a SuperStream solution as part of the engagement. If you select this course of action, you should ensure that they have the required processes in place that will make you SuperStream compliant by the deadline.

Step 2: Update your employee records
You will likely need additional information about your employees choice of fund details to enter all the required information to use SuperStream, like the Fund’s ABN and unique superannuation identification number. This information is only required for current employees and any new employees standard fund choice forms will have the information you need.

Step 3: Implement SuperStream

  • Avoid last minute rush
  • Don’t wait until 28 October 2016
  • Start implementing SuperStream as soon as possible
  • It may take time for you to familiarise yourself and collect information
  • If any information is incomplete the super payment will be rejected and you may miss your superannuation guarantee obligations by the due date.

Where SuperStream is not complied with by the deadline, the ATO can impose penalties, in particular where it is held that no or little effort has been made to comply with the SuperStream requirements.

If you would like to speak to us about how SuperStream may impact you, please call us on 08 6311 6900.

2016 End of Financial Year Planning

shutterstock_351897620As 30 June is rapidly approaching, it’s a great time to stock take and identify any last minute planning opportunities and prepare for the year ahead.

Small Business Entity (“SBE”)

If you qualify as a SBE the following tax concessions are available;

  • Immediate Asset Write-off (assets less than $20,000 GST exclusive) until 30 June 2017
  • Small Business Depreciation Pooling.
  • Immediate Deduction for prepaid expenses.
  • Company concessional tax rates (28.5% for 2015/16, 27.5% for 2016/17).

To be eligible to be classified as a Small Business Entity (SBE) for the year ending 30 June 2016, you must have an aggregated turnover of less than $2 million.  If the government is re-elected this threshold will increase to $10 million from 1 July 2016.

Many of these concessions especially the instant asset write off is a great way for your business to reduce its looming tax burden and improve the future cash flow. If you are planning on purchasing assets for your business in the near term, to take advantage of the Small Business Instant Asset Write-Off you may wish to bring forward the acquisition to before 1 July 2016.

Alternatively, if you do not qualify as an SBE for 2016, consider deferral of asset purchases to the 2017 year where the proposed change to increase SBE threshhold increases to $10 million.

Trading Stock

Businesses are required to conduct a stocktake of all trading stock as close as possible to the end of each income year.

You can choose to value trading stock via one of the following methods;

  • cost,
  • market selling value; or
  • replacement value.

Whilst the opening balance of trading stock has to reconcile to the closing stock balance of the previous year, there is an option in regards to the method that the taxpayer may choose for the current financial year.

A lower trading stock valuation may result in lower taxable income. A review of all trading stock will identify any obsolete stock (which can bet valued at nil) and help minimise your taxable income.

Debtor Management

End of year is an ideal time to sit down with us or your bookkeeper to review your cashflow and your financial outlook for the upcoming year. It is also the ideal time to chase up any debtors or to write off debts that are unrecoverable. If there are debts that are unrecoverable, where you write them off before 30 June, you can claim a deduction. Also if any debtors are over 12 months, you may adjust your BAS to claim back the GST.

Trusts

Prior to 30 June 2016 trusts need to draft an income distribution resolution by the end of the year or earlier if required by the trust deed. It is important to prepare the income distribution minutes before 30 June to avoid the trustee paying the highest marginal tax rate of 49%.

Whilst considering who the beneficiaries will be for the 2016 year, consideration needs to be provided to the Trust Deed which defines whom qualifies as an eligible beneficiary. Beneficiaries such as related companies, trusts and de facto spouses may not be covered by this definition.

Trustee’s may decide to distribute its profit to beneficiaries with low tax threshholds. However, whilst it may seem like a positive tax saving strategy, the unpaid distribution can be called upon at any time from the beneficiary.

Furthermore, the Trustee may consider distributing to company beneficiaries. Such distributions will be taxed at the corporate flat 30% tax rate.

Company Tax Rate reductions

From 1 July 2016, the current government is planning to lower the corporate tax rate for small businesses even further to 27.5%, and make this tax rate available to businesses with an aggregated turnover of less than $10 million.

Accordingly, consider bringing forward deductions and deferring assessable income;

  • Is there any income you are due to derive that you may not have to recognise until next financial year?
  • Are there any repairs and maintenance you should carry out prior to 30 June 2016?
  • Review your depreciable assets register and write off or dispose of any assets no longer used. For example assets used in your business such as computer equipment, office furniture and kitchen appliances.
  • Commit to outgoings before 30 June, like consumables.
  • Super is only deductible when paid. Make sure you pay your employee superannuation before 30 June to obtain a deduction in 2016.

While the outcome of the election is still obviously unknown, given these developments, it is an opportune time to consider whether restructuring business operations from a trust into a company is appropriate.

Private Companies and Deemed Dividends

Make sure you review any loans made to shareholders during the past and/or current year.

Ensure all loans are documented appropriately and any required minimum annual repayments are made before 30 June.

Also watch out for any unpaid distributions owing to corporate beneficiaries as they similarly will need action and documentation before 30 June.

Individuals

Individual taxpayers have access to a variety of different deductions which they may be able to claim against their assessable income.

The ATO will be keeping a close eye on individuals this year and showing extra scrutiny to people claiming high work-related expenses and rental property deductions particularly non-commercial holiday rental income.

Work related travel

There has been recent changes made to the methods available for deducting a work related car expense.

The cents per kilometre method and logbook method are the only methods available from 1 July 2015.

  1. Under the logbook method, full substantiation is required for all expenses; or
  2. Under the cents per kilometre method;
    1. the deduction is now to be claimed using a flat rate set at 66 cents per kilometre.
    2. this will apply to all motor vehicles regardless of engine
    3. you can claim business use of up to 5,000 kilometres.

Travel allowances received by your employee to cover expenses that are incurred when you travel are prima facie assessable income. You can deduct a travel allowance expense for travel within Australia without written evidence or travel records if the Commissioner considers the total of the losses or outgoings you claim for travel covered by the allowance to be reasonable. For overseas travel covered by a travel allowance you must still keep travel records if the travel involves you being away from your ordinary residence for 6 or more nights in a row.

You can claim a deduction for travel expenses, such as fares incurred when you attend work-related conferences, seminars and training courses if the main purpose of your travel is attending the conference. If your attendance at the event is only incidental to a private activity (e.g. a holiday) then only the expense related to the work-related activity are deductible.

 

As it can be seen, there are many factors which need to be considered before 30 June. If you wish to discuss any of the above in further detail, please contact our office on (08) 6311 6900.

Superannuation – Pre 30 June Considerations

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As 30 June 2016 rapidly approaches, it is important to consider your options to maximise your superannuation and attend to any outstanding matters before year end.  This is particularly relevant given the proposed changes announced in the 2016/2017 Federal Budget on 3 May 2016, whereby optimising your superannuation is incredibly important.

The areas for consideration include:

  1. Maximising contributions
  2. Ensuring minimum pension payments are made
  3. Asset Valuations – Property and Unlisted Assets
  4. SuperStream
  5. Collectibles and Personal Use Assets
  6. Limited Recourse Borrowing Loan Repayments
  7. In-House Assets

1. Maximising Contributions

On 3 May 2016, the Federal Budget was handed down that contained proposed changes to the contribution caps. The following sections (a) and (b), outlines how the current law applies, with the proposed changes outlined in section (c).

(a) Concessional Contributions

The annual concessional contributions cap for the 2015/2016 year is $30,000 for individuals aged under 49, and $35,000 if you were aged 49 or over at 30 June 2015. Concessional contributions include:

  • Employer’s compulsory superannuation guarantee (9.5%);
  • Salary sacrificed contributions; and
  • Personal contributions claimed as a tax deduction in your personal tax return.

(b) Non-concessional contributions

The non-concessional contributions cap for the 2015/2016 year is $180,000.

Non-concessional contributions include any after-tax voluntary contributions made by members.

Where you were 64 or younger on 1 July 2015, you are able to bring forward up to two future years’ contributions. This “bring-forward” provision allows you to make a one-off non-concessional contribution of up to $540,000 in the 2015/2016 year. The bring-forward provision will automatically be triggered where you are 64 or younger and you contribute more than $180,000 in the financial year.

It is important to note that where you have previously triggered the bring-forward provision in the either the 2013/2014 or 2014/2015 year, this will limit the contributions that you can make in the 2015/2016 year. Accordingly, prior to making any contributions you should review the contributions that you have made in the prior period to ensure you do not exceed the non-concessional contributions cap. Where the bring-forward rule was triggered in the 2013/2014 year, your non-concessional cap is still $450,000 over the three year period.

(c) Proposed changes

Concessional Contributions

From 1 July 2017, the concessional contribution limit will be reduced to $25,000 for all taxpayers, regardless of their age.  This will be indexed in line with wages growth.

Non-Concessional Contributions

From 3 May 2016, a lifetime non-concessional contribution limit of $500,000 is proposed to apply to every taxpayer, rather than the limits outlined in section (b) above.  Contributions made after 1 July 2007 will count towards this lifetime limit. This means that where a member has made more than $500,000 in non-concessional contributions since 1 July 2007, they will be unable to make any further non-concessional contributions into superannuation.

Accordingly, from 3 May 2016, members may no longer have the ability to make non-concessional contributions up to $180,000 per year, or utilise the $540,000 every 3 years.  Please note, although the above changes are effective from 3 May 2016, this is still a proposal and the legislation has not been enacted.

Pre 30 June 2016 considerations:

In order to maximise your contributions to superannuation prior to 30 June 2016, consider the following:

  • Are you able to make concessional contributions up to your cap? This might include the ability to salary sacrifice an amount from your employer, or perhaps make a personal contribution and claim a deduction (please note, eligibility criteria apply to personal deductible contributions);
  • Do you have the capacity and available funds to make non-concessional contributions into superannuation?
  • Where any non-concessional contributions are to be made, should this be in accordance with the proposed lifetime cap of $500,000, or based on the current law?
  • Where you intend to make contributions electronically, ensure that you have left sufficient time for the contribution to be cleared into the fund’s bank account.  It is the time that the fund receives the contribution that is the relevant date for the fund, not the time that it leaves your bank account.

2. Ensuring Minimum Pension Payments are made

To satisfy the 2015/2016 annual pension requirements, all pension payments must be withdrawn from the fund and transferred to your personal bank account by 30 June 2016.

Failing to the meet the minimum pension requirements could lead to your fund losing the tax exemption with respect to the income and realised capital gains generated by the assets supporting the pension, and as a result the fund’s income will be subject to tax

30 June 2016 considerations:

  • Ensure you have paid the minimum pension amount prior to 30 June 2016.  In this regard, where you intend to pay electronically, ensure that you leave plenty of time to provide instructions to your bank or investment adviser if required to realise assets in order to pay out the pension in cash;
  • Individuals that have Transition to Retirement Pensions in place are subject to a 10% maximum drawdown of the pension balance at 30 June 2015 or the date the pension commenced.

3. Asset Valuations – Property and Unlisted Assets

Where a superannuation fund has unlisted assets (such as direct property, unlisted shares, and units in unlisted trusts), the fund Trustees are required to value their investments at market value as at 30 June.

June 2016 considerations:

  • Consideration should be given to whether a market appraisal/valuation is required to be obtained for the assets and whether or not the services of an independent valuer is required;
  • Where the fund holds property, additional consideration should be given to ensure the required lease payments are made prior to 30 June and the lease payments are based on a market rate. Where the market rate has changed, this may need to be reflected from 1 July 2016 and in accordance with the lease agreement.

4. SuperStream

The deadline for small employers (19 or fewer employees) to be SuperStream compliant is 30 June 2016, with all large employers already required to be SuperStream compliant.  Further, if you are a member of a Self-Managed Superannuation Fund (SMSF) and you receive employer contributions from an unrelated employer, you also need to be registered for SuperStream by 30 June 2016.

June 2016 considerations:

  • All employers should ensure that they are compliant with SuperStream; and
  • If you are a member of an SMSF and you are receiving contributions from an unrelated employer, you should ensure that your fund is registered for SuperStream.

5. Collectables and Personal Use Assets

New legislation came into effect from 1 July 2011 in relation to SMSFs investing in Collectables and Personal Use Assets (CPUA). The new rules applied immediately to any CPUA acquired from 1 July 2011. However, there was a transitional period for SMSFs that held CPUA on 30 June 2011, which ends on 1 July 2016.

To comply with the new rules, generally, the collectables will be unable to be leased or used by a related party, stored at a private residence of a related party and must be insured in the fund’s name.

June 2016 considerations:

  • If you hold CPUA in your SMSF you need to ensure you comply with the rules prior to 1 July 2016.

6. Limited Recourse Borrowing Loan Repayments

Where a superannuation fund has a limited recourse borrowing arrangement (LRBA) where the lender to the fund is a related party, the Trustee should ensure any obligations under the loan terms are complied with.  Further, in April 2016, the ATO released Practical Compliance Guideline 2016/5 (PCG 2016/5) in relation to borrowing arrangements entered into with related parties. Where an LRBA is structured in accordance with PCG 2016/5, the arrangement will be considered to be maintained on an arm’s length basis, and the ATO has indicated that it will not undertake any compliance action with respect to the relevant fund. The deadline to ensure that an LRBA complies with PCG 2016/5 is 31 January 2017.

June 2016 considerations:

  • Ensure that all interest and principal repayments have been made in accordance with the loan agreement;
  • Consider reviewing and updating LRBA loan terms and making appropriate principal and interest repayments prior to 31 January 2017.

7. In- House Assets

Where a superannuation fund has an investment or loan with a related party that is captured under the in-house asset rules, the Trustee needs to ensure the arrangement complies with the relevant provisions.

June 2016 considerations:

  • Where an SMSF has in-house assets that exceeded the allowable limit of 5% at 30 June 2015, the excess over 5% may be required to be disposed of prior to 30 June 2016;
  • Where an SMSF has in-house assets that exceeded the allowable limit of 5% from 1 July 2015, consideration should be given to reduce the IHA to less than 5% prior to 30 June 2016.

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The Next Steps

If you would like further details or assistance with respect to any of the above strategies, superannuation in general, or wish to have your position reviewed in light of the proposed Budget changes, please contact Jemma Sanderson at jsanderson@cooperpartners.com.au or 08 6311 6900.