Robert Goodman Accountants Blog

Paying company debts by instalments

Does your business have a debt with the ATO? Depending on your circumstances, you may be able to apply for a payment deferral, or work out a tailored payment plan with the ATO. It can be easy if you're an individual or sole trader with a debt of $100,000 or less and can be done quickly online. For businesses with debts of more than $100,000 it may be more complex but if you act early there is still time to get the best outcome.

If your business has gotten into a bit of trouble lately and you suddenly find yourself faced with a tax debt. Don't panic. Despite what has been reported in the media recently, the ATO won't bankrupt your business if you make early contact and make a genuine attempt to either pay or work out a payment plan.

Depending on your circumstances, you may be able to apply for a payment deferral, or work out a tailored payment plan with the ATO. Applying for a payment plan with the ATO can be easy if you're an individual or sole trader with an income tax or activity statement debt of $100,000 or less, it can be done online through your myGov account.

If you have debts of more than $100,000, that's when you and your business may need to jump through a few more loops. Usually, you would need to show the ATO that your business is viable, in that it has the ability to pay its debts and meet ongoing commitments. The assessment considers factors such as gross margin, cash flow, asset/liability position including working capital, liquidity, debtor/creditor position, and the availability of funding.

Typically, if your business has debts of more than $100,000 and you're applying for a tailored payment plan, you will need to provide the following information to the ATO:

  • proposal to pay all amounts owed in the shortest possible timeframe, while allowing all future tax obligations to be met by the due date;
  • details of how the debt arose;
  • steps taken to mitigate the debt (eg loans from either banks or other sources);
  • most recent bank statement for each bank or financial institution account held;
  • detailed profit and loss (statement of financial performance) and balance sheet (statement of financial position) for the year to date and last two financial years;
  • details of overdraft or loan facilities including term loans, hire purchase and leasing facilities (needs to include details such as balances owing, monthly repayment amount for each debt and limit for overdrafts);
  • aged creditors and debtors listing; and
  • any other relevant information.

Once your business has been assessed as viable and you enter into a payment plan with the ATO, you need to be aware that interest will continue to accrue on the unpaid debt until it is completely paid off. Small businesses with a good payment and lodgement compliance history may be eligible for interest-free payment plans for activity statement debts if they meet certain conditions.

If you default on a payment plan, the ATO may impose stricter requirements before agreeing to a new plan. Requirements may include a higher upfront payment, or for payments going forward to be made by direct debit, or both. In cases where you and the ATO cannot reach an agreement on a payment plan, all is not lost. If you're willing to provide security such as a registered mortgage over a freehold property or an unconditional bank guarantee from an Australian Bank, the ATO may consider requests to defer the time of payment of a debt or payment by instalments.

Help! I have an ATO debt.

If you have a debt, the most important thing is to make early contact with the ATO to ensure that they are aware of your situation. Contact us today and we can help your business prepare any proposed payment plans and liaise with the ATO to get the best outcome.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2018. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants. 

Alternative dispute resolution process

Alternative dispute resolution (ADR) is not only used to resolve substantive disputes, and can be used to clarify or limit issues, and remove barriers created by relationship issues between you and the ATO. Usually, if your dispute is not very complex, in-house facilitation may be used. More complex issues will usually be outsourced to an external practitioner. Working out if the ADR process is right for you can save you time, money and heartache in any dispute or potential dispute.

If you're involved in a dispute with the ATO, going straight to the Court or Tribunals may not be the most time or cost-effective way to proceed. As a taxpayer, you can access the alternative dispute resolution (ADR) process in any dispute with the ATO, which used appropriately may be the most cost-effective and efficient way to resolve disputes. Basically, it involves using an impartial person to help resolve the dispute or at least narrow the issues between the parties.

Broadly, the ADR processes encompass 4 branches, facilitative, advisory, determinative, and blended dispute resolution.

Facilitative

In this branch, independent ADR practitioners assists the parties to identify the issues, formulate solutions, and consider any alternatives with the goal of reaching an agreement either about the entire dispute or some issues within the dispute. Examples of the facilitative processes include:

  • Mediation – an external practitioner is engaged to facilitate the process. The parties usually split the costs involved where mediation is voluntarily entered into. Note that mediators do not normally give advice, unless the parties have requested an advisory/evaluative mediation or conciliation.
  • In-house facilitation – a trained independent ATO officer facilitates the process. There are no costs involved in the process. However, the facilitator will not establish facts, give advice, decide on who is "right or wrong". The facilitator's function is to guide the parties through the process and assist them to ensure where are open lines of communication and that messages are correctly received.

Advisory

This process may also be referred to a neutral evaluation (or early neutral evaluation) and involves the parties presenting their arguments to an independent practitioner who provides advice on some or all of the facts of the dispute, the law, and possible or beneficial outcomes.

In tax and superannuation disputes, the practitioner will usually have substantial experience in tax law so they can give an insight into a decision a Court or Tribunal may make if the dispute proceeds to litigation. Once the practitioner gives the advice, it is up to each party whether they accept the advice and how they will use that information. For example, if both parties hear from the independent practitioner that they will not be completely successful in their case before the Tribunal or Court, they may decide to enter into a negotiated agreement to resolve the dispute rather than going through the costly legal proceedings.

Determinative

In this process, an independent practitioner evaluates the dispute and makes a determination, an example of this includes arbitration. However, the ATO notes that determinative processes are not generally appropriate for ATO disputes as it can incur similar costs and delays as litigation, but lack the openness and transparency of Court of Tribunal decisions.

Blended dispute resolution

This is where an independent practitioner plays multiple roles such as conciliation and conferencing, and may also facilitate discussions and provide advice on the merits of the dispute. The facilitator will usually have qualifications in the area of the dispute. This process is usually used by the Administrative Appeals Tribunal in tax and superannuation disputes in the early stages of the proceedings.

I have a dispute, what should I do?

Certainly, in any dispute or potential dispute emotions will be running high, and rash decisions may be made; but keep a cool head to work out which option best suits your circumstances will save you lots of time, money, and heartache. If you're not sure if the ADR process is right for you, we can help you work out your options.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2018. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants. 

How illegal phoenixing affects you

Every year, illegal phoenix activity costs the Australian economy billions of dollars not to mention the direct costs to businesses, employees, and the government. Just how much has been quantified by a recent report commissioned by three government agencies. Overall, the direct cost to businesses, employees, and the government has been calculated to around $2.85bn to $5.13bn, while the total impact to the Australia economy is around $1.8bn to $3.5bn in lost gross domestic product.

According to the Australian Bureau of Statistics, at the end of 2016-17 the number of businesses that ceased operating in Australia amounted to 261,450, an increase of 0.5% from the previous year. While most of these are likely to be honest commercial failures, after all, there are statistics that indicate that around 60% of Australian small businesses fail within the first 3 years, a percentage of these yearly failures may be attributable to illegal phoenixing.

Illegal phoenixing is the deliberate liquidation of a company to avoid liabilities while simultaneously commencing similar operations in another company or trading entity. This type of illegal activity leaves behind not only outstanding payment to tax authorities, but also unpaid creditors, unfulfilled customer orders and unpaid employee entitlements.

"[Illegal phoenixing] can occur in any industry or location. However illegal phoenix activity is particularly prevalent in major centres in building and construction, labour hire, payroll services, security services, cleaning, computer consulting, cafés and restaurants, and childcare services. [it is also seen] in regional Australia in mining, agriculture, horticulture and transport. There is an emerging trend in intermediaries who promote or facilitate illegal phoenix behaviour."

To tackle this issue on a national level, the Inter-Agency Phoenix Taskforce has been established to identify, manage and monitor suspect illegal phoenix activity. This task has been made significantly easier with the development of the ATO Phoenix Risk Model (PRM) which allows for the identification of potential illegal phoenix population which can be more closely monitored by the taskforce. As at June 2018, the taskforce comprises of 29 government agencies including all State and Territory Revenue Offices.

A recent report commissioned by three Phoenix Taskforce member agencies (ATO, ASIC and the Fair Work Ombudsman) into the economic impacts of illegal phoenixing activity shows a sobering picture of how this illegal activity affects all of us, either directly, or through broader economic impacts:

  • direct cost to businesses in the form of unpaid trade creditors is $1,162-$3,171m;
  • direct cost to employees in the form of unpaid entitlements is $31-$298m;
  • direct cost to the government in the form of unpaid taxes and compliance cost is $1,660m; and
  • the net effect to the Australian economy is $1.8bn-$3.5bn lost gross domestic product

As the figures show, illegal phoenix activity has deep financial impact on the Australian economy. Not to mention the costs unable to be captured by the report such as employee stress related to losing their jobs, discouragement effect on labour supply due to people not getting their full entitlements, increased social welfare burden through increased government support, and distortionary competition effects on lawful businesses. 

How to protect yourself

As an employee, you should ensure that you receive a payslip and regularly review your entitlements and superannuation. As a business owner, look out for warning signs such as a company offering lower than market value quotes, or changes to a company name with the same management or staff. If you think you may be dealing with a company the is involved in illegal phoenixing, we can help with the due diligence before you enter into any business arrangements.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2018. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants. 

 

R&D tax incentive overhaul

In simple terms, the Research and Development (R&D) tax incentive provides a tax offset to eligible companies that conduct certain R&D activities that are likely to benefit Australia's wider economy. As a response to various reviews which indicated that the incentive was not meeting its policy objective, the government has introduced draft legislation to overhaul the incentive to better target the program and ensure its integrity.

The Research and Development (R&D) tax incentive is an offset designed to encourage eligible companies to undertake R&D activities that are likely to benefit Australia's wider economy. It provides a tax offset to eligible companies that conduct eligible R&D activities which are classified as experimental activities that are conducted in a scientific way for the purpose of generating new knowledge of information.

Since its implementation, successive governments have undertaken reviews into the effectiveness of the incentive. The 2016 Review of the R&D Tax Incentive and 2018 Innovation and Science Australia 2030 Strategic plan found the R&D tax incentive did not fully meet its policy objectives of inducing business research and development expenditure beyond "business as usual" activities".

As a response to the reports, the government announced in the 2018 Budget that it will be overhauling the R&D tax incentive to better target the program and ensure its integrity. In short, in draft legislation released, the government has proposed an introduction of an "R&D premium", which is the rate of the non-refundable offset plus the applicable company tax rate. The premium will depend on the aggregated annual turnover of the company as well as the R&D "intensity" in some cases.

For companies with an aggregated annual turnover of $20m or more, the R&D premium will be based on R&D intensity, calculated as a proportion of eligible R&D expenditure (up to $150m) and total expenditure (which will be based on the tax returns of the company applying for the incentive). The company will be entitled to differing percentage points of the non-refundable offset based on the intensity of the R&D activity varying from 4 percentage points for 0% to 2% intensity, to 12.5 percentage points for intensity above 10%.

For companies with aggregated annual turnover below $20m, the refundable R&D offset will be a premium of 13.5 percentage points above the applicable company tax rate. However, cash refunds from the refundable R&D tax offset will be capped at $4m per year and those amounts that cannot be refunded can be carried forward as a non-refundable tax offset to use in future income years. It has also been proposed that clinical trials will be exempted from the $4m refund cap, provided it satisfies the Therapeutic Goods Administration definition of a clinical trial.

The government said it was "committed to backing R&D investment and the economic opportunities and jobs it generates. At the same time, we need to make sure that the investment of taxpayers' money is well targeted by encouraging companies to do more, and not just be rewarded for R&D they would have conducted without an incentive…by better targeting R&D investment, these changes will lead to new ideas, products, services and jobs."

The proposed overhaul has been met with a subdued response from various industry groups, particularly in the technology and digital space which see the proposed changes as potentially being limiting. There is concern that start-ups that incur high R&D costs prior to earning significant income may worse off as the refund cap could reduce their cash flow at a time when they need it the most.

Does your company claim R&D?

If your company claims the R&D tax offset currently and you would like to know how the changes may affect you, we can help. Or maybe you are in the middle of setting up your own digital start-up would like some help in understanding the R&D tax incentive offset, we are here for you.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2018. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants.

It follows: Higher education debts

Horror movie monsters have nothing on the higher education debts which will follow you to the ends of the earth. If you go overseas and you have a higher education debt under the Higher Education Loan program (HELP), Trade Support Loan (TSL) or the Higher Education Contribution Scheme (HECS), you are liable to repay those debts if you earn worldwide income over a certain threshold. This applies to all higher education debts regardless of when they were incurred.

It might seem like a horror movie cliché, a monster that follows you wherever you go, but did you know that your higher education debts under the Higher Education Loan program (HELP), Trade Support Loan (TSL) or the Higher Education Contribution Scheme (HECS) debts follow you wherever you go in the world?

Prior to 2017, individuals could incur these higher education debts and move overseas with no repayment obligations. However, these debts are now required to be repaid regardless of where you are in the world, as long as your worldwide income is over a certain threshold. This applies regardless of whether your debt was incurred before or after 2017. As long as you have a higher education debt to the Commonwealth of Australia, you are required to repay the debt regardless of where you reside.

If you have a higher education debt and plan on going overseas, you will need to update your contact details and submit an "overseas travel notification" if you intend to go overseas for 183 days or more in any 12 months.

This includes for any reason such as holiday, study or work. The 183 days is counted cumulatively and does not have to be taken all at the same time. For example, you could go on a holiday for a few months in one country, come back to Australia for a few months and then travel to another country. As long as it exceeds 183 days in total in any 12 months period you will have to submit an "overseas travel notification".

Once you've submitted the notification and have moved overseas, or if you're already living overseas and have a HELP, HECS or TSL debt, the next step is to report your worldwide income to ATO every year through an Australian tax return. Lodgements are usually due by 31 October each year, but it may be extended if you use a tax agent. For the 2018-19 year, your worldwide income will need to exceed $51,957 before the ATO will raise a compulsory repayment (overseas levy) in relation to your higher education debt. The repayment rate depends on how much worldwide income you earn and range from 4% to 8%.

For the 2018-19 year, if your worldwide income is at or below $12,989 you do not have to report your worldwide income but you will need to lodge a "non-lodgement advice form" to notify the ATO of your situation. If you find yourself in financial hardship while overseas and cannot afford the compulsory repayment even though you earn above the minimum repayment threshold, you can apply to the ATO to defer the payment.

Remember, you have options when you report your worldwide income to the ATO, you can choose between one of three assessment methods that work the best with your situation, the self-assessment method, the overseas assessment method, or the comprehensive tax-based assessment method. If it all seems too complicated you can always reduce your debt before you head overseas by making voluntary repayments.

Need guidance?

If you're going overseas and you have a higher education debt, we can help you get your house in order and lodge your returns with the ATO while you're away. We can also help you work out which assessment method is the best for your situation if you're already overseas and you're not sure what the best method is.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2018. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants.

Cash payments limit coming soon

The Government is planning to introduce an economy-wide cash payment limit of $10,000 as a part of its crackdown on the black economy. Any transaction that exceeds $10,000 will need to be made using an electronic system or by cheque. The cash transaction limit will only be imposed for payments (for goods and services) to entities holding an Australia Business Number (ABN). It will not apply to consumer to non-business transactions, such as those in second-hand markets such as Gumtree, or where the selling party does not have an ABN.

As a part of the crackdown on black economy, the Government is planning to introduce an economy-wide cash payment limit of $10,000. Any payments made to businesses for goods and services from 1 July 2019 would be captured, and if the transaction exceeds $10,000, payment will need to be made using an electronic system or by cheque.

This proposed measure has been introduced in response to the findings of the Black Economy Taskforce Final Report. The report noted there were significant risks to legitimate commercial behaviour resulting from using large undocumented cash payments to purchase cars, yachts, other luxury goods, agricultural crops, houses, building renovations, and commodities. According to Minister for Revenue and Financial Services:

"We…know that businesses that insist on cash payment may be doing so to avoid their tax, retain welfare payments, or avoid child support and other obligations, and may therefore receive an unfair competitive advantage over those businesses that do the right thing."

However, consumers should note that the cash transaction limit will only be imposed for payments (for goods and services) to entities holding an Australia Business Number (ABN). The proposal will not apply to consumer to non-business transactions, such as those in second-hand markets such as Gumtree, or where the selling party does not have an ABN.

Further, the proposal will also not apply to financial institutions, so there will be no impediment on the abilities of individuals, businesses, or other entities to deposit large amounts of cash with their bank or to deposit cash in paying off loans with a financial institution. Although, any such deposits would be caught under the existing Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) reporting requirements to AUSTRAC.

Currently, the Government is planning to leverage the AML/CTF obligations to assist in the administration and enforcement of the cash limit. A combination of threshold transaction reporting and reporting of suspicious matters will be deployed, with the Black Economy Hotline facilitating community referrals on suspicious behaviour. Penalties will apply to both parties to the transaction should the $10,000 limit be breached, that is, the payer and the receiving business. According to the Government this will ensure that both business requesting cash payments and consumers pressuring businesses to take cash in exchange for a discount are captured.

If Australia implements this proposal, it will be in good company and join many other European countries that have introduced cash payments limit. The UK is currently consulting on the issue in a bid to crack down on those who use cash to evade tax and launder money. It seems the inevitable crackdown on cash and its links to illegal activities and avoidance of tax has begun.

Are you ready for the ban on cash?

If you would like to find out more about the proposed cash payments limit and how it will affect the way you do business, contact us today. Or if you would just like to start using electronic payments for your business, we can help.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2018. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants.

Are you an employer that's fallen a little behind on super guarantee (SG) payments for your employees? Don't despair, the Government has announced a one-off amnesty to run until 24 May 2019, to allow employers to self-correct historical underpayments of SG amounts without incurring the penalties that would normally apply. This is subject to the SG shortfall occurring between 1 July 1992 and 30 March 2018 that have not previously been disclosed to the ATO.

Do you run a business that's maybe fallen a little behind on super guarantee (SG) payments for your employees? Perhaps you've had some cash flow issues in the past or forgot to make the payments one quarter. Well don't despair, the Government has announced a one-off amnesty to run until 24 May 2019, which will allow employers to self-correct historical underpayments of SG amounts without incurring the penalties that would normally apply.

 "The ATO estimates that in 2014-15, around $2.85bn in SG payments went unpaid…while this represents a 95% compliance rate, any level of non-compliance is unacceptable".

The amnesty applies to SG shortfalls as far back as 1 July 1992 but will not apply to shortfalls for quarters starting from 1 April 2018. Therefore, if your business inadvertently forgot to make SG payments for an employee during this period, you may be able to take advantage of the amnesty. To qualify for the amnesty, a disclosure must be made to the ATO in the approved form and must not have been previously disclosed.

Employers who take advantage of this amnesty will still need to pay all SG shortfall amounts owing to their employees, including the nominal interest and GIC (but not the administrative component). However, any SG charge payments and offsetting contributions made during the amnesty will be tax deductible for the employer.

According to the Government, those employers that do not take advantage of this amnesty will face higher penalties when they are subsequently caught. In general, a minimum 50% penalty on top of the SG charge that is already owed will be imposed. Additionally, a penalty of 200% of the SG shortfall amount may also apply for failing to lodge a SG statement on time. This is all on top of the SG charge payments and offsetting contributions not being deductible outside the amnesty period.

As a part of the carrot and stick approach the Government is taking, during the amnesty, the ATO will continue its usual enforcement activity against employers with historical SG obligations that don't own up voluntarily. In addition, it is also seeking to give ATO more tools to enforce compliance going forward including:

  • giving the ATO the ability to seek court-ordered penalties in cases where employers defy directions to pay their superannuation guarantee liabilities, including up to 12 months jail in the most egregious cases of non-payment;
  • requiring super funds to report contributions received at least monthly to the ATO which will enable the ATO to identify non-compliance and take prompt action;
  • rollout of Single Touch Payroll (STP) to all employers by 1 July 2019 which will aligning payroll functions with regular reporting of taxation and superannuation obligations; and
  • improving the effectiveness of the ATO's recovery powers, including strengthening director penalty notices and use of security bonds for high-risk employers, to ensure that unpaid superannuation is better collected by the ATO and paid to employees' super accounts.

Want to take advantage of the amnesty?

The amnesty provides a good, if not limited opportunity for employers to get their superannuation obligations in order before the ATO ramps up its compliance action and enforcement actions. If you're unsure about your SG compliance status, we can help you find out and apply for the amnesty if needed.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2018. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants.

A phoenix, in Greek mythology, is a bird that rises anew from its own burning ashes. In a corporate sense, phoenixing is about the rebirth of a company, from the ashes of liquidation.

Phoenixing is not illegal, as long as the newborn has not been created to avoid liabilities to creditors. Not surprisingly the federal government is sniffing out those directors whose plans were fraudulently conceived, and is sending out a warning to directors to clip their wings.

Phoenix activity: kosher or not?

When a company has failed or becomes insolvent, it is perfectly legitimate to register a company to take over what is left of that company after liquidation. The directors of the failed company may have done everything they could to keep the company buoyant, but the company could not meet its debts. The insolvent company is then put into the hands of a liquidator, who sells the assets to pay the creditors and employees. The directors are then entitled to set up another company, similar to the one that failed, with renewed hope that this time it will succeed. This is kosher.

ASIC sniffing out phoenix directors who rip off creditors

What is not kosher is when the directors deliberately set up a phoenix company to avoid paying debts to creditors and gives these business operators an unfair competitive business advantage. This is done by transferring the assets of the old company to a new company, with the same or a similar name – for little or no cost, before the old company can be handed to a liquidator to realise the assets – leaving nothing for the anxious creditors including the ATO and employees.

This really sets the cat among the birds in the eyes of the regulators, specifically the Australian Securities and Investments Commission (ASIC), who are out to prosecute and punish directors who breach their duties to the company. Penalties can include a gaol term and hefty fines, and can extend to key players including advisers, valuers, liquidators, dummy directors and phoenix operators.

Government proposals aim to save companies from the ashes

As part of a broader policy initiative to "prevent, deter and disrupt" phoenix activity, the Minister for Financial Services, the Hon Kelly O'Dwyer MP has also proposed that directors be assigned a Director Identification Number (DIN) to assist ASIC, the Australian Taxation Office (ATO) and other regulators to trace the directors' corporate paths and relationships.

"The DIN will identify directors with a unique number, but it will be much more than just a number. The DIN will interface with other government agencies and databases to allow regulators to map the relationships between individuals and entities and individuals and other people."

Among a raft of proposals being considered, the government plans to:

  • target high-risk individuals with a "cab rank" system for the appointment of liquidators in a phoenix case, and
  • authorise the ATO to hang on to tax refunds of directors involved in phoenix activity, then issue a Director Penalty Notice and commence recovery proceedings.

Keep your cool

For directors and employees of companies who are the subject of fraudulent phoenix activity, professional guidance is needed to ensure a path towards the best outcome. We can help provide expert advice in this very testing area.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2018. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants. 

Downsize to boost your super

From 1 July 2018, people aged 65 or over will make able to make additional non-concessional contributions of up to $300,000 from downsizing their home subject to certain conditions. This is in addition to the concessional and non-concessional contribution caps. However, this measure may have unintended consequences if you plan on applying for the Age Pension, so wholistic retirement planning is needed to take advantage of the measure while minimising the downsides.

Now all the kids have all flown the coop and you're left with an empty nest, it might be a good time to consider downsizing to pursue that ultimate retirement dream; fishing beside a river, surfing every morning, or getting up to that fresh country air. Your dream could be one step closer with the measure to allow people to make additional super contributions from the proceeds to selling their home.

From 1 July 2018, people aged 65 or over will make able to make additional non-concessional contributions of up to $300,000 from downsizing their home subject to certain conditions:

  • the principle place of residence must have been held for a minimum of 10 years and located in Australia;
  • contribution must be an amount equal to all or part of the capital proceeds of sale of an interest in a qualifying dwelling in Australia;
  • any capital gain or loss from the disposal of the dwelling must have qualified (or would have qualified) for the main residence CGT exemption in whole or part;
  • contribution must be made within 90 days of disposing the dwelling (a longer time period may be allowed by the Commissioner);
  • a choice is made to treat the contribution as a downsizer contribution and the complying superannuation fund is notified in the approved form of this choice either before or at the time the contribution is made; and
  • the contributing individual has not previously made downsizer contributions or has had one made on their behalf, in relation to an earlier disposal.

The advantage with downsizer contributions is that the contribution is neither a concessional nor a non-concessional contribution, so if you have already reached your concessional or non-concessional contributions caps for the year, you are still able to make a contribution through the downsizer contribution, provided you meet all the conditions.

If you and your spouse jointly own a home, and decide to downsize, you can both benefit from this measure. For downsizing the same home, you and your spouse could potentially contribute a maximum of $600,000 into your individual super funds or SMSF. The other advantage with this measure is that the restrictions on non-concessional contributions for people with total superannuation balances above $1.6m will not apply. Therefore, the total superannuation balance of the individual will also not affect their eligibility to make a downsizer contribution. However, any downsizer contributions will still be subject to the $1.6m pension transfer balance cap.

Does this measure seem too good to be true? Well, there is also the Age Pension side you should be aware of. Currently, the family home is totally exempt from the Age Pension assets test, however, downsizer contribution may count towards the Age Pension asset test and any changes in your superannuation balance as a result of using this measure may also count towards the Age Pension Asset test.

Want the whole picture?

Need advice on how you could potentially take advantage of this measure and need to know what the downsides are?  Consult your licensed financial planner for advice or contact us and we can refer you to reputable licensed financial planners for wholistic advice for your planned retirement to help you realise your dreams. 

© Copyright 2018. All rights reserved. Source: Thomson Reuters.  IMPORTANT: This communication is factual only and does not constitute financial advice. Please consult a licensed financial planner for advice tailored to your financial circumstances. Brought to you by Robert Goodman Accountants. 

Areas of concern for SMSF trustees

If you are the trustee of one of the approximately 577,000 SMSFs in Australia at the moment, there are some areas the ATO wants you to pay particular attention to including the sole-purpose test, the in-house asset rules, unlawful schemes and arrangements, and dividend-stripping. If it all seems a bit confusing or you're unsure about anything, we can help you get it right.

Are you the trustee of one of the approximately 577,000 SMSFs in Australia at the moment? As the SMSF sector continues to grow and the number of funds continue to increase, the workload of the ATO as the regulator increases. Instead of the rigid enforcement of the rules, the ATO has taken an educational and early engagement approach with the SMSF sector. As a part of that early engagement, it has shared some insights into the common areas that cause concern in a bid to make trustees more aware.

The sole-purpose test

The test requires that the SMSF maintains investments for the sole purpose of providing for retirement and death benefits to members. If you're using SMSF assets to provide residential accommodation to a member or a relative, the ATO considers that to be a contravention of the sole-purpose test. This is the case even if the fund receives arm's length rent.

In-house asset rules

The rule requires that an SMSF's in-house assets cannot exceed 5% of their total assets. Put simply, an in-house asset includes:

  • a loan to, or investment in, a related party of the fund;
  • an investment in a related trust of the fund;
  • an asset of the fund subject to a lease or lease arrangement with a related party of the fund.

The most common regulatory breach seen by the ATO in relation to in-house assets relate to the lending money or assets to members or relatives of members of the SMSF.

Unlawful schemes and arrangements

While the ATO only sees a small number of cases where SMSF trustees are targeted in the promotion of unlawful schemes and arrangements, the consequences for SMSF trustees and their funds are very serious. If you or your fund gets approached with promises of significant tax or financial benefits beyond what is ordinarily available, remember, if it's too good to be true, it probably is.

Recently, the ATO has also seen an arrangement which incorrectly promotes that individuals can roll their retirement savings out of APRA-regulated funds into SMSFs to be withdrawn as a deposit on a house. It warns that these arrangements are illegal and that you could lose all your retirement savings and be subject to enforcement action for breaching the superannuation rules.

To date this financial year, the ATO has disqualified 214 trustees, the majority related to illegal early release of funds and loans to members.

Dividend-stripping

In the last 24 months, the ATO has seen quite a number of dividend-stripping cases involving SMSFs.  Dividend-stripping in its classic form involves the acquisition of controlling shares in a company that has a considerable balance in its profit and loss account and corresponding liquid assets, the acquiring entity arranges for the company to declare a large dividend then sells the shares. These arrangements are typically used to move large amounts of money into SMSFs to get concessional tax benefits.

As a result of ATO's investigations, there have been cases where the trustee has been removed, and also those that have agreed to roll their assets into APRA-regulated funds. Trustees were also required to repay franking credits and forego the benefit of future franking credits.

Need some support?

Whilst doing everything yourself saves you money, the decisions you make in your SMSF is especially important for your future and retirement. If you're unsure about a new investment, considering making additional contributions, or looking to start paying benefits from your fund, consult your licensed financial planner for advice or contact us and we can refer you to reputable licensed financial planners. 

© Copyright 2018. All rights reserved. Source: Thomson Reuters.  IMPORTANT: This communication is factual only and does not constitute financial advice. Please consult a licensed financial planner for advice tailored to your financial circumstances. Brought to you by Robert Goodman Accountants.