Robert Goodman Accountants Blog

Looking for opportunities to improve cashflow? If you import goods as part of your business, you don't have to pay GST upfront if you're registered for the ATO's deferred GST scheme. Instead, you can defer and offset GST amounts in your next activity statement. However, there are some eligibility requirements – including a condition that your business lodge activity statements monthly (rather than quarterly). Find out how you can take advantage of the scheme.

If you import goods into Australia as part of your business, your cashflow position is probably top of mind. So, if you're not already taking advantage of the ATO's scheme to defer GST payments on imports, it's time to talk to your adviser. The scheme can benefit not only wholesalers, distributors and retailers, but also any business that imports goods for use in carrying on its business.

Usually, GST is payable on most imports into Australia and goods will not be released until the GST is paid to customs. This can have significant cashflow implications for importers. While you're generally able to claim a credit later for the GST paid, you still need to have the funds to pay the GST at the time of importation.

The ATO's deferred GST scheme allows participants to defer payment of the GST amount until their next business activity statement (BAS) is due.

This means you can start selling or using the imports in your business right away without having to come up with the GST amount when the goods arrive in the country.

Eligibility for the scheme

Businesses who wish to take advantage of this scheme must apply first and be approved by the ATO. To be eligible, you must have an ABN and be registered for GST. You must also lodge and pay your BAS online. This can be done yourself or through your registered tax or BAS agent.

Another key requirement is that you must also lodge your BAS monthly, which means that if you're currently lodging quarterly you'll need to elect to lodge monthly. (When you make this election, the change won't take effect until the start of the next quarter, so you won't be able to defer GST on imports until the start of that quarter.) If this applies to you, you'll need to weigh up whether the deferred GST scheme is worth giving up quarterly BAS lodgement.

Once you're approved for the deferred GST scheme, it's important that you lodge and pay your monthly BAS on time. The ATO may remove you from the scheme if you fall behind, and in this case you'd need to reapply for the scheme.

Timing of the deferral and credits

Once you're approved, your GST amounts on taxable imports will be deferred until the first BAS you lodge after the goods are imported (which for monthly lodgers is due 21 days after the end of the month). The deferred amount is reported electronically by customs to the ATO, who will use this data to pre-fill the "deferred GST" in your BAS.

The deferred GST liability is then effectively offset by a GST credit you can claim for the deferred amount. As with all GST amounts you pay on purchases you make for your business, you can claim a credit for the deferred GST liability on your imports to the extent that you use the goods in carrying on your business (and you can't claim a credit for private use or to make input-taxed supplies). Therefore, the overall effect of participating in the deferred GST scheme is that your GST on imports is deferred and offset, and you aren't required to have funds available to pay the GST when the goods are initially imported.

Could your cashflow be improved?

Contact our office to discuss how the deferred GST scheme could benefit your business or to explore other strategies for improving your cashflow position.

Email us at Robert Goodman Accountants at reception@rgoodman.com.au © Copyright 2020 Thomson Reuters. All rights reserved. Brought to you by Robert Goodman Accountants.

When can I access my super early?

Thinking about tapping into your super early to help with mounting expenses? Mortgage repayments, medical treatments and hard-to-meet living costs are all potentially valid reasons for early access to super – but the eligibility rules are strict. Find out what criteria apply so you can make an informed decision about your best course of action.

The ATO says it's fielding many calls from Australians who wish to access their superannuation on "compassionate" grounds but don't meet the eligibility criteria. The requirements for this type of release are possibly stricter than many people realise. So, when exactly can you access your super early?

You must meet a "condition of release" before you can access you super. The major events are attaining 65 years and "retirement", which both allow you to access your entire super balance.

If you haven't met these milestones but have reached preservation age (currently 57 years, but set to gradually increase to 60 over the next few years), you can start a "transition to retirement income stream" (TRIS), which enables you to access up to 10% of your super balance each year. Other release grounds include temporary incapacity, permanent incapacity and having a terminal medical condition.

But if none of these grounds apply to you and you're experiencing some financial difficulty, you might qualify under "severe financial hardship" or "compassionate" grounds.

Severe financial hardship

If you're currently receiving income support from the government, you may qualify for "severe financial hardship" release. You must apply to the trustee of your super fund, who will decide whether you qualify. How much you can access depends on your age.

If you're below preservation age, there are two major requirements. First, you must have been receiving Commonwealth income support payments for a continuous period of 26 weeks. Second, the trustee of your super fund must be satisfied that you're unable to meet "reasonable and immediate family living expenses". If you meet these criteria, you can access up to $10,000 of your superannuation in any 12-month period as a single lump sum.

However, if you've reached preservation age you can potentially access any amount of your super balance. To qualify, you must have been receiving income support for at least 39 weeks since you reached preservation age, and the trustee must be satisfied you're not currently gainfully employed on a full-time or part-time basis. This is a tough test to meet, so if you don't qualify you could consider accessing the $10,000 option above or commencing a TRIS instead.

Compassionate grounds

Compassionate grounds apply where you don't have the financial capacity to pay expenses for:

  • medical treatment (of certain recognised illnesses and injuries) or medical transport for you or a dependant;
  • making a payment on a loan to prevent foreclosure on your home;
  • modifying your home to accommodate your (or a dependant's) severe disability;
  • palliative care for you or a dependant; or
  • funeral expenses for a dependant.

To access your benefits you must apply to the ATO, who will determine an amount that you "reasonably require" to pay the expense (although special limits apply where you're accessing funds to prevent foreclosure on your home). The approved amount can then be released by your super fund. If your fund doesn't allow early release on compassionate grounds, you could consider moving your benefits to another fund.

Getting approval can be tough. The ATO won't approve a release if you can meet the expense with savings or by selling assets. There are also particular rules (and evidence requirements) for each of the categories listed above, so make sure you understand these beforehand to ensure your application stands the best chance of approval.

Feeling overwhelmed with debts?

Whatever your situation, it's a good idea to talk to an adviser about your financial difficulties for help exploring all your financial options, to consider the tax consequences of accessing super early and to get assistance with applying for a release. Contact us today for expert advice to help you get your finances back on track.

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 Email us at Robert Goodman Accountants at reception@rgoodman.com.au.  © Copyright 2020 Thomson Reuters. All rights reserved. Brought to you by Robert Goodman Accountants. 

Do you have any amounts of offshore income you haven't declared to the ATO – perhaps interest from a foreign bank account? Even if it seems like a small amount, you must declare it. International data-sharing arrangements are making your overseas financial affairs increasingly transparent, so don't get caught out. Find out how foreign income is taxed and what you need to do.

The ATO is reminding taxpayers about their obligation to report foreign income, and it's keen to emphasise that its techniques for detecting offshore amounts are becoming increasingly effective. Cross-border cooperation between different tax jurisdictions means your financial information is being shared more than ever before – increasing the odds of your affairs being uncovered by the ATO.

Failing to report foreign income can attract penalties and ATO scrutiny of your broader tax affairs. Got any amounts you've overlooked? Now is a great time to get help from your tax adviser with making a disclosure.

How is foreign income taxed?

If you're an Australian resident for tax purposes, you're taxed on your worldwide income. This means you must declare all foreign income sources in your return. You should consider whether you've earned any amounts from:

  • investments held overseas, such as dividends, rental income from properties and interest from bank deposits;
  • overseas pensions;
  • overseas employment, including salary and directors' fees; and
  • the sale of offshore assets (ie capital gains).

What if you've already paid tax on the income overseas? You still need to declare it to the ATO. However, you may be able to claim an offset for the tax already paid in order to prevent double taxation.

It's a good idea to get assistance from a tax professional when declaring foreign income. All figures must be converted to Australian dollars according to particular exchange rate rules, and you may also need to apportion amounts that were earned in countries that don't have an income year ending 30 June. Your tax adviser can also help you calculate your available offset for foreign tax already paid, which is subject to a certain limit if your claim exceeds $1,000.

Are you a "resident"?

You're only taxed on your foreign income if you're an Australian resident for tax purposes. If you're a non-resident, you generally only pay tax on your Australian-sourced income.

Being an Australian resident for tax purposes is different to immigration concepts of residency, and your nationality is generally not relevant. So even if you aren't an Australian citizen or permanent resident, you could be a resident for tax purposes.

The main test for tax residency is whether you "reside" in Australia. There's no single factor that determines whether you meet this test.

Instead, it requires a weighing up of all relevant circumstances, including things like your intentions, your family and living arrangements, business and employment ties, and so on.

However, even if you don't currently "reside" in Australia for tax purposes, you may still be a resident for tax purposes under several alternative tests (including where both your "domicile" and permanent place of abode are maintained in Australia). Seek professional advice if you're in any doubt about your tax residency status.

Making a voluntary disclosure

If you think you may have omitted some foreign income from a previous tax return, you can make a voluntary disclosure to the ATO and pay any tax you owe. You'll often receive a reduction in ATO penalties and interest that would otherwise apply – and the outcome is generally much more favourable if you make this disclosure before the ATO commences an audit of your tax affairs. Given the ATO's increased powers to detect offshore amounts, taxpayers with unreported income should think seriously about the benefits of proactive disclosure.

Unsure about your foreign income?

Contact our office if you have any questions about tax residency, foreign income or making a voluntary disclosure. We'll help you navigate the rules to ensure your offshore financial affairs are sorted.

Email us at Robert Goodman Accountants at reception@rgoodman.com.au.  © Copyright 2020 Thomson Reuters. All rights reserved. Brought to you by Robert Goodman Accountants.

"Downsizer" contributions let you contribute some of the proceeds from the sale of your home into superannuation – but there are several important eligibility requirements. Learn which areas the ATO says are tripping up superannuation members and ensure you get it right.

Are you thinking about selling the family home in order to raise funds for retirement? Under the "downsizer" contribution scheme, individuals aged 65 years and over who sell their home may contribute sale proceeds of up to $300,000 per member as a "downsizer" superannuation contribution (which means up to $600,000 for a couple).

These contributions don't count towards your non-concessional contributions cap and can be made even if your total superannuation balance exceeds $1.6 million. You're also exempt from the "work test" that usually applies to voluntary contributions by members aged 65 and over.

The government reports that as at June 2019 over 4,000 people around Australia had taken advantage of the scheme in its first year, representing total superannuation contributions of over $1 billion.

The downsizer scheme is a good opportunity for many Australians to boost their retirement savings, but you must ensure you're eligible before making a contribution. If you don't qualify, your contribution could count as a non-concessional contribution and cause you to breach your contributions cap. Here are some areas where the ATO is seeing mistakes with the eligibility rules:

The 10-year ownership requirement

In order to qualify, you, your spouse or a former spouse must have owned the property for the 10 years prior to the sale.

The ATO explains that it's not necessary for the same person to hold the property during those 10 years, as long as it was held by some combination of the person, their spouse and/or former spouse throughout the 10 years.

However, there's an additional requirement: the property must be owned by you or a current spouse (not a former spouse) just before you sell. This means, for example, that where a couple divorces and the property is transferred to one spouse under the property settlement, when that spouse eventually sells the property they can potentially make a downsizer contribution, but their ex-spouse cannot.

Another thing to watch is the 10-year ownership period. The ATO says that the ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale. If you signed a contract to purchase "off the plan" and the settlement occurred much later, be aware that the ownership period for downsizer purposes only starts upon settlement.

The main residence exemption requirement

Another key requirement is that the capital gain from the sale must be wholly or partially exempt from capital gains tax (CGT) under the "main residence exemption". If your home is a "pre-CGT asset" (ie acquired before 20 September 1985 and therefore not subject to CGT), it must be the case that the capital gain would hypothetically qualify for the main residence exemption, in whole or in part, if it had been acquired on or after 20 September 1985.

You won't qualify for any main residence exemption where you've never used the property as your main residence – perhaps because it's a rental property permanently leased to tenants, or your holiday home.

But thankfully, even a partial main residence exemption will allow you to make downsizer contributions. Common situations giving rise to a partial exemption include using your home to generate income (in addition to living there); where the land adjacent to your home's dwelling exceeds two hectares; or where you've only lived on the property for part of the ownership period.

The main residence requirement is not related to the 10-year ownership requirement, so it's not necessary that the property was your main residence during that 10-year period. It's only necessary that you have (or would have) at least a partial main residence exemption.

Want to boost your super?

The key to a successful downsizer strategy is to plan ahead and ensure you'll meet the relevant requirements. Contact our office for expert advice on this and other retirement savings strategies.

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 Email us at Robert Goodman Accountants at reception@rgoodman.com.au.  © Copyright 2020 Thomson Reuters. All rights reserved. Brought to you by Robert Goodman Accountants. 

Made a tax loss? If you're a sole trader or individual partner, you may be able to apply the loss against other income like salary or investment income, or carry the loss forward to a future year. Learn what rules apply so you can start factoring losses into your business tax planning.

When you're starting a new business venture, it may take some time before the business becomes profitable. And there may be other situations where an established business operates at a loss in a particular year. So, what does this mean tax-wise? When your deductions in an income year are greater than your assessable income, you have a "tax loss". You generally can't receive a refund for a tax loss, but you can use it in other ways.

Using losses against other income

If you're a sole trader or individual partner, you may be able to use your business tax loss to offset other assessable income you earn personally. This includes salary and wages from employment and income from personal investments.

But watch out: if the loss is "non-commercial", you can't use it immediately to offset your other income. Instead, you must defer it (explained below). To pass the non-commercial loss rules, you generally must meet two requirements. First, your adjusted taxable income must be less than $250,000. For these purposes, you ignore your business losses, but must add any reportable fringe benefits, salary sacrifice or personal super contributions, and total net investment losses.

Second, you must pass one of the following four tests, which are designed to measure whether your business activities are sufficiently "commercial":

  • your assessable income from your business activity is at least $20,000;
  • your business has made a tax profit in three out of the past five years (including the current year);
  • you use real estate valued at $500,000 or more in your business on a continuing basis; or
  • the value of "other assets" (excluding vehicles and real estate) you use in your business on a continuing basis is at least $100,000.

If you don't pass any of these tests (or fail the $250,000 income requirement), you must defer the loss for use in future. You'll be able to apply the deferred loss against future business income when the business starts making a profit, or alternatively against other income sources when you start satisfying the non-commercial loss rules. Your losses can be deferred indefinitely until this happens.

The Commissioner of Taxation can use his discretion to allow you to apply the loss in the current year, but only in "special circumstances" or where the nature of your business is such that there will be a lead time before the business activities become profitable or sufficiently commercial.

There are also special rules for primary production and professional arts businesses. If your income from other sources (excluding any net capital gain) is less than $40,000, you can use your business tax loss against that income and you don't need to worry about the non-commercial loss rules.

Offsetting future income

What if you satisfy the non-commercial loss rules but don't have income against which you can offset your tax loss?

Sole traders and individual partners can carry forward tax losses to a later year to apply against future income. While losses can be carried forward indefinitely, you must use them to offset income at the first opportunity.

If you operate through a trust or company, talk to your tax adviser about the rules that determine when you can use carried-forward losses. These rules look at things like whether there has been a significant change in ownership or control since the loss was incurred (and for some entities, whether it carries on the same or a "similar" business after the change).

Expecting a loss?

Whether you're setting up a new business or need advice about using existing tax losses, contact our office to begin a discussion about tax loss planning to help your business succeed.

Email us at Robert Goodman Accountants at reception@rgoodman.com.au.  © Copyright 2020 Thomson Reuters. All rights reserved. Brought to you by Robert Goodman Accountants. 

The small business CGT concessions are a great tool for business owners to transfer wealth into super. Here, we break down the two essential requirements you must first meet in order to access any of the concessions. Could your business qualify? It may be time to see your adviser to start planning your business retirement strategy.

Have you considered the powerful tax and superannuation planning opportunities that the small business CGT concessions can offer your business? These concessions allow you to reduce – or in some cases, completely eliminate – the capital gain from the sale of a business asset, whether it's held directly by your business entity or in another related structure.

What's more, the concessions also allow you to make extra super contributions – sometimes up to $1,515,000 – in connection with the sale of business assets. This is an attractive opportunity for many small business owners heading for retirement, especially given the restrictive annual contributions caps that usually apply.

There are various concessions available, each with their own eligibility rules. However, there are two basic conditions you must meet before you can access any of the concessions.

Business size

The first requirement tests whether your business is "small" enough to qualify. There are two alternative tests: a turnover test and a net assets test.

The turnover test is met where you carry on a business and have annual "aggregated turnover" under $2 million.

This includes not just your business turnover, but also the business turnover of any entities that are "connected" or "affiliated" with you, which broadly means related entities that you control or influence. So, if you have another trust or company that carries on a separate business, its turnover will often be taken into account.

In terms of timing, you'll satisfy the test if your aggregated turnover last income year was under $2 million. Alternatively, it's also sufficient if your aggregated turnover this year is likely to be under $2 million, provided it was not $2 million or more in the previous two years.

What if you, the asset owner, don't carry on a business but passively hold the asset and it's used by another of your entities in its business? You can still qualify, provided that entity is sufficiently related to you and it passes the turnover test itself.

The alternative test is the net assets test. You meet this test if the combined net assets of you and certain assets of your "connected" and "affiliated" (ie related) entities is no more than $6 million in total. Being a "net" assets test, you can subtract the liabilities related to the assets. You can also ignore assets like your main residence (provided it's not used to produce income), personal use assets, superannuation entitlements and shares or units in your related entities.

Asset requirements

The second major requirement is that the capital gain must arise from the sale (or other CGT event) of an "active" asset. This means it must have been used or held in a business carried on by you or one of your "connected" or "affiliated" entities for the following time periods:

  • if you owned the asset for 15 years or less – for at least half the ownership period; or
  • if you owned it for more than 15 years – for at least 7.5 years.

What about property you hold in another structure and lease to your business? Property can be tricky because of a rule that specifically excludes assets where the asset owner's main use is to derive rent or other passive income. However, where the property is used by your "connected" or "affiliated" entity in its business, it will generally qualify as an active asset.

If you're planning to sell shares in a company (or interests in a trust), talk to your adviser about the special rules that apply to these types of assets.

Ready to explore your opportunities?

The small business concessions can provide significant tax and super benefits if implemented correctly. Contact our office to begin exploring the concessions for your business.

Email us at Robert Goodman Accountants at reception@rgoodman.com.au.  © Copyright 2020 Thomson Reuters. All rights reserved. Brought to you by Robert Goodman Accountants. 

Unpaid super is a big problem, and the compliance landscape is changing. If you're an employer, now is the time to take action and protect yourself against penalties. Find out how enforcement activity will pick up under Single Touch Payroll reporting and learn about a new extended amnesty for disclosing past unpaid super.

The government is getting tough on unpaid compulsory super guarantee (SG) contributions, but fortunately for businesses it has recently announced a revised "grace period" to rectify past non-compliance. All businesses should review their super compliance to consider what action they may need to take.

How big is the unpaid super problem?

Estimates of the problem vary. Official ATO figures place the annual unpaid super "gap" at $3.26 billion (based on 2015–2016 data) before factoring in ATO intervention, or 5.7% of the super that should be paid by employers. However, some argue the problem is bigger, with Industry Super Australia placing the gap closer to $6 billion, affecting 2.85 million workers.

The extent of the problem can be obscured by "black economy" activity where workers are paid cash-in-hand, and also "sham contracting" where workers are misclassified as independent contractors to avoid paying entitlements like super contributions.

Compliance changes for businesses

The launch of Single Touch Payroll (STP) will dramatically improve the ATO's ability to monitor employers' compliance with compulsory super laws moving forward. This electronic reporting standard is now mandatory for all Australian businesses, and gives the ATO fast access to income and superannuation information for all employees.

What about past unpaid super you might already owe? You may have previously heard about an "amnesty" for coming forward and voluntarily disclosing historical underpayments of SG contributions without incurring penalties. After many hiccups with implementing this policy in 2018 and 2019, the returned Coalition government has finally taken steps to relaunch the policy. Under proposed legislation currently before parliament, the amnesty will work as follows:

  • The scheme applies to any unpaid super you still owe dating back to 1992 until the quarter starting on 1 January 2018.
  • To qualify, you must not only disclose but also pay the outstanding contributions – including interest.
  • You must make this disclosure to the ATO before it begins a compliance audit of your business (or informs you it intends to audit you).
  • If you qualify, the ATO will waive certain penalties that would usually apply. You will also be able to deduct your catch-up payments, provided they are made before the amnesty ends.

If you don't come forward and you're later caught out, the ATO will be required to apply a minimum penalty of 100% on top of the amount of unpaid super you owe (although this can be as high as 200%). Additionally, catch-up payments made outside of (or after) the amnesty are not deductible.

The timing of your disclosure is important. The proposed new amnesty will cover both previous disclosures made since 24 May 2018 (under the old amnesty scheme that the government failed to officially implement) and, importantly, disclosures made up until six months after the proposed legislation passes parliament.

Watch this space for confirmation of the final amnesty deadline once the legislation passes. But in the meantime, businesses with unpaid super should give serious thought to making a disclosure.

While there's a risk that the amnesty legislation may never pass parliament – which would mean the protections against ATO penalties for disclosing businesses wouldn't be guaranteed by law – businesses do face significant penalties if they're caught by the ATO, with or without an amnesty in place.

Even in the event that the amnesty does not become law, the ATO would still look favourably upon businesses who make voluntary disclosures. This may be a basis for negotiating a partial waiver of penalties.

Review your super arrangements

Contact us for assistance in reviewing your business' compliance and whether you may qualify to make a disclosure under the proposed amnesty. We can help you plan for any large amounts of unpaid super you'll need to pay and help put you in the best position to minimise penalties.

Email us at Robert Goodman Accountants at reception@rgoodman.com.au.  © Copyright 2020 Thomson Reuters. All rights reserved. Brought to you by Robert Goodman Accountants. 

Selling shares: how does tax apply?

Did you know that when you sell your shares, the size of your capital gains tax bill is affected by how long you've held the shares, and how you offset your capital gains and losses? Knowing the tax rules can help you plan ahead.

Whether you own just a few listed shares or have an extensive portfolio, understanding how capital gains tax (CGT) applies when you sell your shares can help you plan your trades effectively. Here, we break down the rules for taxpayers who hold their shares as a passive investment. If you trade shares on a scale that amounts to a business of share trading, talk to your tax adviser about the different tax regime that applies.

Each time you sell a parcel of shares, you trigger a "CGT event" and you must work out whether you've made a capital gain on that parcel (where the proceeds you receive exceed the cost base) or capital loss (where the cost base exceeds the proceeds). You also trigger a CGT event if you give the shares away as a gift – perhaps to a family member. For tax purposes, you're deemed to have disposed of the shares at their full market value.

Here's how the CGT rules work: all of your capital gains for the income year are tallied and reduced by any capital losses.

This includes your gains and losses from all of your assets that year, not just shares. If you have an overall "net capital gain", this is included in your assessable income and taxed at your marginal tax rate. If you have a "net capital loss", you can't offset this against ordinary income like salary or rental income. Instead, a net capital loss can be carried forward to future years to apply against future capital gains.

The 12-month discount rule

As an individual, you can reduce your capital gain by 50% if you've held the shares for at least 12 months. This "discount" is also available to trusts (also 50%) and superannuation funds, including SMSFs (33.3%), but not companies. This is an important consideration when you're deciding what structure to hold investments in.

There's a further detail that may make a big difference if you have multiple gains and losses: the 50% discount is only applied after you subtract any capital losses for the year (and any capital losses carried forward from earlier years). Importantly, you can choose which gains to offset losses against. So, if you have any gains that don't attract the discount because you held the asset for less than 12 months, it's often best to subtract your losses against these non-discountable gains first in order to maximise the benefit of the 50% reduction to the discountable gains.

If you bought the shares before 21 September 1999, you have an alternative option of applying an indexation factor to increase the cost base (rather than applying the 50% discount). Your tax agent can help you determine which choice gives you a better tax outcome.

Working out the "cost base"

Where you bought the shares at market value, your cost base includes what you paid for the shares and also incidental costs like brokerage fees (for both the purchase and sale). Watch out for special situations like dividends you chose to reinvest as additional shares – the amount of reinvested dividends is included in those shares' cost base.

If you received the shares as a gift, you're deemed to have received them at market value on the date of the gift. What if you inherited them from a deceased estate? If the deceased acquired the shares before 20 September 1985, you must adopt the market value on the date of death. But if the deceased acquired the shares after that date, you inherit the deceased's own cost base for the shares as at the date of death.

Looking to invest in the share market?

Contact our office for expert advice on managing your share portfolio to achieve the most tax-effective investment returns.

Need help?

Have you sold some shares during the year and need to calculate the tax impact? Contact us for expert assistance.

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 Email us at Robert Goodman Accountants at reception@rgoodman.com.au.  © Copyright 2020 Thomson Reuters. All rights reserved. Brought to you by Robert Goodman Accountants.  

You may have heard a lot recently about super funds providing either opt-in or opt-out insurance and have wondered how will affect you and your retirement savings. Perhaps you've heard horror stories about super funds cancelling people's insurance. Don't fret, in most cases cancellation of insurance only happens in limited instances, and your fund will most likely notify you before any cancellation occurs. As for opt-in and opt-out insurance, the changes are coming, but not until 1 April 2020, so if you're affected you'll have plenty of time to prepare.

Insurance within superannuation has always been a mixed blessing, good for some who enjoy having cheaper insurance, while others see as an erosion of their super balances. It doesn't matter which camp you fall into, the recent changes to the way super funds provide insurance may impact you depending on your super balance, age, and when your last contribution was.

Since July this year, super funds have been required to cancel insurance on accounts that have not received any contributions for at least 16 months unless the member elects to continue the cover. In addition, inactive super accounts with balances of under $6,000 will either be automatically consolidated by the ATO with other accounts you may hold or transferred to the ATO. If your super is transferred to the ATO, any insurance will also be cancelled.

This applies to life insurance, total and permanent disability (TPD) insurance and income protection (IP) insurance that you may have with your super fund. Before cancelling your insurance, your super fund will most likely notify you, although if you're worried about your insurance being cancelled, you can contact your super fund to discuss your options.

Remember, once your insurance is cancelled, you can no longer make a claim and it doesn't matter how long you had held the policy previously.

Whilst this change is designed to stop people from paying unnecessary insurance premiums, it can have unintended consequences for those on longer periods of leave such as parental leave and long-term sick leave. The best thing to do is to engage with your super fund regularly to ensure that an adequate level of insurance is maintained and you're not paying too much for insurance cover you don't need.

Another change coming to super funds in the not too distant future of 1 April 2020 is opt-in insurance for members under 25 years old and those with account balances of less than $6,000. From that date, members under 25 who start to hold a new choice or MySuper product will need to explicitly opt-in to insurance. Currently, the onus is on the member to opt-out of insurance if they do not want it. This change is designed to protect younger people on their first jobs from super balance erosion stemming from unnecessary insurance but may disadvantage those who assume that they will automatically have insurance based on previous rules.

For members with active super account balances less than $6,000, super funds will be required to notify them of the change in the opt-in insurance requirements by 1 December 2019. This will give members plenty of opportunity to opt-in to the relevant insurance policies by 1 April 2020 if they choose to do so.

However, if you work in a "dangerous occupation" such as a member of the police force, fire service or ambulance service, among other occupations, the change in the opt-in insurance requirement will not apply to you even if you're under 25 years or have balances below $6,000.

The insurance changes may be good for some and not so for others, it is difficult to strike the right balance between the two camps. The best thing you can do for yourself is have an awareness of your superannuation, including fees, insurance and other outgoings. After all, it is your hard-earned money and you want it to be working hard for your retirement.

Need help?

Do you need help in figuring out if you're affected by the changes in insurance rules in superannuation? Perhaps you'd like help in working out how much insurance cover you really need to protect you and your family? Or maybe you'd just like to get your super organised by consolidating your accounts? We can help you with this and more, contact us today.

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 Email us at Robert Goodman Accountants at reception@rgoodman.com.au.  © Copyright 2020 Thomson Reuters. All rights reserved. Brought to you by Robert Goodman Accountants.  

The qualifying age to receive a genuine redundancy payment has recently been increased to the age pension age, so even if you're over 65 you may still be able to receive the payment. The advantage of that is you'll potentially be able to work longer and retire later in life whilst still being able to receive a tax-free genuine redundancy payment. However, the rules surrounding this area is quite complex and is largely dependent on the facts of each case, so caution is advised.

With everyone retiring later in life and working longer, the government has been playing catch up to align some outdated age provisions in the tax law to today's standards. One such change brings into line the genuine redundancy payment's qualifying age with the age pension age. In real world terms, it means the qualifying age has been increased from 65 to between 66 or 67 depending on the year you were born. So, if you're dismissed on or after 1 July 2019, and are between 65 and 67, you may potentially qualify for more of your redundancy payment to be tax-free depending certain eligibility conditions.

Apart from the age requirement, to receive a part of the payment as a tax-free genuine redundancy payment the following conditions must also be met:

  • payment must be received in consequence of an employee's termination;
  • termination must involve the employee being dismissed from employment;
  • dismissal must be caused by redundancy of the employee's position;
  • redundancy payment must be made genuinely because of redundancy;
  • if dismissal was not arm's length, the payment must not exceed the amount that could reasonably be expected to be made on an arm's length basis; and
  • at the time of dismissal, there was no arrangement between employee or employer or employer and another person to employ the employee after the dismissal.

In the context of a genuine redundancy payment, "dismissal" usually involves a termination by an employer without an employee's consent. It also includes constructive dismissal if the employee has little option other than resigning.

However, an employee can be "dismissed" even in circumstances where they have expressed an interest in accepting a redundancy package, provided that the final decision to terminate employment remains solely with the employer.

As each workplace is different, the circumstances of dismissal will also vary wildly. The determination of whether a payment qualifies as genuine redundancy will depend on the facts in each case. This area of law is quite complex and there are many factors that could sway the decision one way or the other, especially in instances of company restructures.

If a payment does not meet the conditions of a genuine redundancy or if you are over the qualifying age, the payment will most likely be taxed as an Employment Termination Payment (ETP) instead. Depending on your age and the amount you have received, you may be taxed concessionally under an ETP. For example, for those 56 years and over, amounts up to $205,000 may be taxed at 15%

If a payment does qualify as a genuine redundancy payment, then the amount that will be tax-free depends largely on your years of service and the year in which the redundancy was paid. For example, if you received a genuine redundancy payment in the 2019-20 income year and you had 10 years of service with your employer, then potentially $63,838 of any payment that you receive will be tax-free. Any amounts in excess of that will be taxed as an ETP.

Want to find out more?

If you've received a payment as a part of a dismissal and you're unsure whether or not it is a genuine redundancy payment or an employment termination payment, we can help you figure it out. Contact us today to ensure you're not paying too much tax.

Email us at Robert Goodman Accountants at reception@rgoodman.com.au.  © Copyright 2020 Thomson Reuters. All rights reserved. Brought to you by Robert Goodman Accountants.